People pass an HMV shop in London, Friday, Dec. 28, 2018.  CD music and entertainment retailer HMV has filed a notice of intention to appoint administrators amid soft December sales at the firm. (AP Photo/Frank Augstein)
© AP

HMV’s decision to file for administration was partly the result of an unwillingness to take risks and too much focus on one demographic group, says the executive who turned round bookstore chain Waterstones.

The entertainment retailer appointed KPMG as administrator late on Friday after what it described as “extremely weak” Christmas trading.

James Daunt, who has run Waterstones since 2011, acknowledged that the dominant problem for HMV was the “particularly challenging” market it operates in, which has seen the rapid growth of subscription-based streaming for movies and music.

But he added that HMV had been “relatively unimaginative” with its stores. “They added things like technology and T-shirts but it is all aimed at the same relatively narrow [teenage to young-adult] demographic,” he told the Financial Times. By contrast, he said Waterstones “had looked very scientifically at how to get in a big range of ages, from kids to pensioners”.

Children’s book sections are on average twice the size they were in 2011, while the addition of cafés to larger stores has increased their appeal to older customers, he said.

HMV and Waterstones were under common ownership from 1998 until 2011. In an attempt to shore up its own balance sheet, HMV sold the books chain for £53m to Russian billionaire Alexander Mamut, who put Mr Daunt in charge. HMV itself went into administration two years later, but private equity group Hilco bought more than 140 of its stores for about £50m.

Both companies subsequently pursued strategies that included giving more autonomy to local staff and increasing customer engagement through events. Both were the last major bricks-and-mortar chains standing in markets that had been severely disrupted by ecommerce. But Mr Daunt feels the ownership of Waterstones by an individual gave him more freedom. “We were lucky in having an owner who was prepared to take an all-or-nothing bet,” he said. HMV’s owners were relatively cautious by comparison, he added.

Mr Mamut took little money out of Waterstones until he sold a controlling stake to hedge fund Elliott earlier this year, in a deal that it is thought valued the company at about £150m.

The rehabilitation of Waterstones was possible partly because, in the UK at least, the market share of ebooks appears to have peaked at about 26 per cent in 2014 and 2015, according to Nielsen. But streaming services in particular have continued to make rapid inroads into HMV’s market. Data from the Entertainment Retailers Association show that streaming is now the dominant delivery method for music in the UK, while digital sales of video are more than twice physical sales.

As a result, despite investment and cost-cutting, HMV finds itself in administration for the second time in six years. If no rescuer can be found, it may join the likes of Woolworths, Toys R Us and JJB Sports — retailers that went through a financial restructuring but still ended up being liquidated with the loss of thousands of jobs.

KPMG said the 128 HMV stores will continue trading while they assess options for the business, including a sale as a going concern. Paul McGowan, the Hilco executive who chairs HMV, said on Friday the chain is “still fighting”.

But Mr Daunt feared the pool of likely buyers would be smaller than in 2013. “If Hilco could not make it work I struggle to see who can. There would need to be a clear commitment from the entertainment industry to support it with some kind of partnership.”

Hilco had not responded to a request for comment by time of publication.

Get alerts on HMV Group PLC when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section