Tuesday, January 18, 2011

HMV: risky business

Grim news about HMV this evening, as Robert Peston reveals insurers are starting to refuse to cover sales from suppliers to the chain:

Here is an extract from an e-mail sent by the "head of credit and collections" at the UK arm of a major UK manufacturer and distributor of CDs and DVDs:

"I need to advise you that our credit insurers have significantly reduced our insured credit limit on all HMV entities. Based on the current HMV balances, the limit is not sufficient to support any sales on an insured basis moving forward.

"I have this morning met with the Chief Executive and Risk Director at the insurance company to understand the reasons for such a quick and drastic reduction. Due to HMV's listing on the stock exchange, they are unable to divulge the reasons for their decision. They met with Simon Fox last week and whilst they have said that HMV has provided everything asked for, they are clearly worried following the public announcement that bank covenants may not be met. A further review will take place in 4 weeks time."
Simon Fox told Peston he was "unaware" of this situation; it means that entertainment companies which supply HMV are doing so at their own risk.

Robert Peston reckons the entertainment companies will prop up HMV for the time being, but given that record companies aren't entirely well-placed for funds, it's not clear how long they can keep that going.


Jim W said...

So when the insurance man decides the risk of seizure is too great then supply will cease and the whole firm will enter closing-down mode. Then the music industry will lose the only prominent high-street enterprise where you can still pay £14 for a back-catalogue Travis album.

Neat. Play it safe in the short-term and lose a substantial outlet for your wares.

This reminded me of an old Popbitch story:

Yesterday, news of Woolworths imminent departure
from the high street leaked out. Another British
institution bites the dust, we all thought, how
sad. Except it wasn't quite like that at
Universal music. A lorry had been sent out
that morning with 200,000 copies of Take That's
new album to fill the shelves of all the
Woolworths in the South East. Cue frantic phone
calls to get the lorry to turn around, before
the CDs got to the bankrupt chain and possibly
lost forever. Finally, the driver was located
and the Take That CDs were saved.

Tony said...

I didn't know such insurance existed until it was explained to me in relation to how Woolies had stopped getting cover. Oh...

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