HMV – Abandoning the high street

 
 

As HMV enters into administration both at home and abroad, Nicole Casey looks at how consumers aren’t the only ones suffering at the hands of failing companies.

Irish and British consumers were shocked when, on January 15th, just weeks after the Christmas boom, and still in the midst of the January sales, HMV announced a move into administration in the United Kingdom, and after the National Consumer Agency declared that HMV must accept gift vouchers in Ireland, they were forced into the much worse position of receivership here, backed by Deloitte.

HMV first opened its doors in 1921, with its landmark store on London’s Oxford Street. By 1976, the company had expanded its operations to about 25 stores across the United Kingdom, with Ireland opening its first HMV store in 1986. Jumping from strength to strength, the company at one stage owned the Hammersmith Apollo venue as well at the chain of book shops now defunct in Ireland, Waterstones.

For over 90 years, HMV provided consumers across the world with records, tapes, CDs, DVDs, and electrical items. Before the emergence of online music streaming and digital downloads, it seemed HMV were unstoppable.
However, in recent years, as debt began to escalate, HMV stores began selling everything from books to confectionery. January 2011 saw the closure of 20 HMV stores, with the Waterstones chain being sold off shortly after, and the Hammersmith Apollo was sold for £32m last June.

As 2012 came to a close, HMV admitted it could possibly breach crucial banking agreements at the start of 2013 as a result of falling sales and increasing debt. Deloitte stepping in was almost inevitable.

Administration is a powerful process for gaining control when a company is insolvent and facing threat from creditors. It is hoped that an administrator will achieve a better result for the creditors of a company than by an immediate closure. This could be achieved by running the company, restructuring it, selling off parts, or even selling the company in its entirety.

If administration proves futile, a company may move into liquidation, which consists of the selling off of every available asset in order to pay off creditors. Meanwhile in Ireland, receivership is often seen as the final nail in a company’s coffin, and involves closing down and beginning a process of trying to realise the company’s assets in order to pay secured creditors as quickly as possible. In both situations in HMV’s case, at the bottom of this list of creditors you’ll find one group of people: customers with unredeemed gift cards.

Irish customers heading into HMV on Tuesday morning were shocked to discover that staff were unable to accept their gift vouchers, claiming that the administrators forbade it, until a clearer picture of the company’s finances had emerged.

But consumers were not the only affected party in the fall of HMV, as 4,350 jobs across the UK and Ireland have been put at risk since the company entered administration. While branches in the UK are still trading, all 16 Irish stores have been closed. In Ireland alone HMV employees 300 people, all of whom are now in a state of semi-unemployment as they wait for the future of their jobs to be revealed. Speaking anonymously to the University Observer, a long term employee of HMV commented: “Staff found out the company was going into administration on Monday evening. This was not from the company directly but rather through media outlets and Facebook. I personally found out on Sky News.”

Employees were assured that trading would continue as normal until the issue was resolved, and that their next pay cheque would still arrive as normal. When asked about the reaction of the general public to the news of HMV’s financial problems, the staff member continued: “Staff worked the full day having to deal with abuse and irate customers wanting to cash in their gift cards. I had a man throw one in my face and tell me to fuck off. This all while the staff have no idea of their job security.”

The National Consumer Agency (NCA) accused HMV of misleading consumers with its decision to stop accepting gift vouchers. With HMV in the UK being considered as a separate entity to that of the Irish corporation, the NCA believe that Irish stores had no basis for vouchers refusal. In a public statement, the agency said: “There was no basis for HMV Ireland refusing to honour gift vouchers, as the company is not under the protection of the administration…process, despite what was indicated by the company to Irish consumers.”

But where does that leave consumers? Under Irish law, voucher and gift card holders are considered unsecured creditors, and now find themselves at the bottom of the creditors list. The only hope of consumers receiving value for their vouchers is after both money owed to Revenue and employees is paid.

“We have been told by some sources that we are ‘temporarily laid off’. We have no income… and we don’t know if we are unemployed so that we can claim redundancy. In one case Deloitte told someone if they wanted to claim unemployment so that they could go on social welfare, this would forfeit any redundancy payments as they would be leaving the company. To me that can’t be legal. So, we don’t have jobs, but we’re not unemployed?”

Fine Gael TD Derek Keating has called for greater protection for consumers who purchase gift cards, both from sinking companies in the past, and in the future. He said that he will raise the issue in the Dáil, and ask that if consumers cannot be protected from HMV, that the Director of Consumer Affairs take action. Hopefully while looking out for wronged consumers, the government will also do something to protect the 300 staff members that HMV have left in an inescapable lurch.

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