The closure of the local branch of Zavvi, the failed music and film retailer, this year left some Loughborough shoppers bereft.
The town had just lost a Woolworths after that chain went bust and Zavvi’s demise further narrowed the choice of CD and DVD sellers. One resident even set up a Facebook group entitled “Loughborough Should Get A HMV”.
That wish is about to be granted. HMV, the UK’s last big high street music and film specialist, is opening a temporary shop in the town to fill the gap left by its erstwhile rivals over the Christmas trading period.
As well as pleasing Loughborough youth, the move shows how survivors in some of the more battered parts of the British economy are profiting from the absence of weaker competitors who have gone bust during the recession.
During the worst of the credit crunch, insolvencies fed a general anxiety about the stability of the financial system. Now that the panic has faded, capitalism’s ability to fill a vacuum as well as create one is coming to the fore in several sectors.
PwC pointed this out last week. It said the 10 biggest UK insolvencies in the year to August 31 involved companies with combined turnover of £12bn. Much of this business was now up for grabs or had already been picked up by rivals, the professional services firm added.
The recycling of catastrophe into catharsis has been a trend in financial services, where rival investment banks have feasted on the work that Lehman Brothers used to perform in the City.
According to PwC, however, the biggest opportunity is in retail, where the 10 biggest corporate insolvencies involved businesses with sales of almost £6bn.
HMV wants to exploit its “last man standing” status. Over the next few weeks it is opening 10-15 temporary stores, overwhelmingly in areas that used to have either a Zavvi or a Woolworths – or both – but no HMV.
Explaining the rationale for the move, Simon Fox, HMV chief executive, says: “There are going to be a large number of towns and high streets that won’t have an entertainment presence this Christmas.”
The temporary sites are due to be closed in January, while those that have an exceptional Christmas could become permanent. But scooping up business from a fallen rival is not as simple as it might seem.
Many of the CD and DVD sales at Woolworths and Zavvi were impulse purchases.
Mr Fox says some of that turnover has been lost because the permanent closure of stores removed the spending stimulus. HMV must also compete with supermarkets and internet retailers for the market share orphaned by the two chains’ demise.
In some sectors, the collapse of an established player has a more subtle effect on the competition. For instance, the collapse of XL Leisure, the number three tour operator in the UK, last September did not lead to a bookings bonanza at Thomas Cook, one of its bigger rivals.
Manny Fontenla-Novoa, Thomas Cook chief executive, says his group had little interest in directly targeting XL’s share of the market, arguing that it was skewed towards cheaper holidays and flight-only bookings that did not fit Thomas Cook’s strategy.
Yet the disappearance of XL took extra capacity out of an industry that had already been slimmed by a bout of consolidation. This meant that fewer holidays were trying to find buyers. “As we entered the recession, that helped,” says Mr Fontenla-Novoa.
Of course, not all insolvencies result in less competition within an industry. Some insolvent companies emerge reinvigorated under new ownership, or even under old ownership.
Pippa Wicks, a managing director at AlixPartners, the corporate restructuring specialist, says companies are increasingly using insolvency processes to shed onerous obligations, such as leases, that are holding them back.
“They are using these processes to take out structural costs,” she says, citing as an example a “company voluntary arrangement” restructuring carried out by JJB Sports earlier this year.
Far from enjoying a windfall, rival companies in these cases can find that their own share of the market comes under fresh pressure.
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