After 29 years operating as a national music merchant, HMV is following every other chain into the retail graveyard.
On Friday Jan. 27, The Ontario Superior Court of Justice officially approved the application for HMV Canada to enter into receivership, meaning all its remaining 102 stores will be closing permanently. Senior Justice Geoffrey B. Morawetz, who approved the application, has appointed Gordon Brothers Canada ULC and Merchant Retail Solutions ULC to sell off all of HMV's remaining merchandise.
The CBC obtained legal documents that show all remaining Canadian stores must cease operations by April 30. The majority of HMV Canada's head office staff has been laid off, and the company owes its major suppliers, which include music labels and media studios, a reported $56M as of December 31.
The story of HMV's impending demise was first broken on Thursday by The Globe and Mail's retailing reporter Marina Strauss, in a story entitled "HMV could face beginning of the end after years of sliding sales."
The feature notes that "HMV, which owes almost $40M to an affiliated company, tried over the past month to get support from major labels and media studios to keep the chain going at least through 2017, according to documents filed with the court this week.
“Unfortunately, the debtor has been unable to reach an agreement with the major suppliers on mutually beneficial terms that would allow the debtor to address its immediate cash flow needs,” Christopher Emmott, a director of HUK 10 – the affiliated firm – says in an affidavit.
Court filings show that HMV has been losing money (on a before-interest-tax-depreciation-amortization basis) since 2013. Annual sales slipped to $193M at the end of 2016 from $266M in 2012.
Emmott said “as a result of the constant and significant shift in the way media is consumed by customers, especially in North America, the debtor has seen a consistent year-over-year decrease in the sale of physical media.” This is a reference to the recent shift by consumers to streaming music rather than purchasing physical or digital product.
In an official statement issued over the weekend, HMV declared that it "has petitioned for the appointment of Richter LLP as Receivers to the business. As a result it is anticipated that all 102 stores across the country will close in the coming weeks. The main HMV business in the U.K. is not affected by today’s filing and continues to trade normally following another year of strong profitability in 2016."
Nick Williams, President & CEO, HMV Canada, explained the situation this way: “Despite a number of weeks of detailed negotiations with our key suppliers, we have been unable to obtain the assurances that we need in order to continue to operate the business. Therefore, we have had no choice but to take the difficult step of appointing Receivers. This is a hugely disappointing day for the HMV Canada business, our hard-working and dedicated employees, and all our loyal customers. This outcome will have a major detrimental effect on the future of the entertainment retail sector.”
He noted that "the market for CDs & DVDs in Canada has experienced more significant declines in each of the last two years than has been seen in most other major markets. HMV Canada, however, had outperformed the market particularly in the sale of back catalogue titles, which were the clear strength of its retail offering. HMV Canada has also been central to the growth of Blu-Ray movies and Vinyl records in the market."
Williams concluded, “Since 2011, the business has enjoyed a mutually beneficial partnership with each of its major entertainment suppliers. In those six years, the business has defied the declines in the retail market, performing better than the rest of the entertainment sector in Canada and delivering a retail experience that is unique in the country. Such an amazing performance has only been possible thanks to the magnificent efforts of all of our employees and the continued support of the HMV Canada customers.”
The Globe and Mail feature quoted Paul Tuch, director of Canadian operations at Nielsen Co, as observing, “It’s hard for a chain to survive when you’re only catering to certain types of artists.”
Some industry observers estimate HMV’s share of Canadian CD sales to be in the 18-25% range. Nielsen Soundscan figures recently showed total CD sales in Canada in 2016 to be 12.25M units. If a 20% figure for HMV’s share is used, that would show the chain accounting for 2.45M units sold.
That will surely leave a huge hole in the marketplace, a situation of major concern to Canadian record labels and artists. While the number of independent stores selling CDs and, increasingly, vinyl has remained relatively stable in recent years (some cities have registered an increase), many of these stores fail to cater to the older demographic that purchase the majority of CDs.
The removal of HMV from the retail landscape will likely leave many towns and even small cities with no, or very few, physical locations selling music.
On Friday, FYI contacted a number of Canadian independent record label and music distributors for comment. Most declined to respond, but Jim West of Justin Time noted (just ahead of news of the receivership being approved) that, "If indeed it happens, it will be a very sad day and put another nail in the coffin for physical goods here in Canada.
"There is obviously a market for the physical format as is very clear when an artist performs and is able to sell offstage in good quantities. The bottom line is this will have an immense impact on all Canadian labels and distributors. I cannot tell how much product is in the system for our label, but the whole industry will be impacted in a number of ways."
HMV Canada was established in 1988 by the purchase of the Mister Sound chain by EMI Music Canada. In June 2011, HMV sold its 121 Canadian stores for £2 million to Hilco UK, a firm specialising in retail restructuring.
The hmv.ca website now states: "HMV closing all locations. Everything now up to 30% off original ticketed price." Expect deeper discounts as the sell-off continues.