Comment: Entertainment value of HMV sadly diminished

Serial restructuring has been the name of the game, as its lunch has been eaten by the march of internet music downloading and the supermarkets undercutting the music-to-games retailer on price.

But we have moved into darker territory, with HMV now saying weak market conditions have created “material uncertainties” for the business.

Indeed, HMV says it has just under a fortnight of key Christmas trading for it to pull out of the dive and avoid a looming breach of its banking agreements at the end of January.

If those covenants are broken, you wonder whether the company can stave off the fate suffered by many retailers in recent years or give up the trading ghost with a slide into administration. Clinton Cards, Comet, JJB Sports, Woolworths… times are tough on the high street even for those whose business model is not under threat from changed consumer- buying habits.

For sure, HMV will hope for as much of a consumer backlash as possible against online retailer Amazon in the run-up to Christmas after the revelations of that group’s minimal corporation tax payments in the UK.

However, that could be grasping at straws. Rightly or wrongly, the buying habits of most consumers don’t tend to be guided by wider ethical or social issues.

Right product, right price, convenience of purchase tend to rule the day. The Christmas trading period is vital for HMV as it makes 60 per cent of its sales for the whole year at that time.

Having been in a branch near Piccadilly Circus recently around lunchtime, and seeing it was relatively buzzy, it certainly didn’t have the feeling of a retailer on its last legs.

But yesterday’s accompanying interim losses and full-year profits warning from the company has not helped its chances of stock market survival or shareholders rescuing much from the boat if it does go under. HMV’s shares closed down nearly 40 per cent last night at just 2.49p.

HMV has, like many retailers, responded to the tough conditions by focusing on price promotions. But history teaches that such a strategy is usually at the expense of profit margins.

In other words, temporary volume relief at the expense of the underlying health of the business. Likewise, the group may gain market share as rivals like Game Group reduce their footprint, but the lustre diminishes as like-for-like music and DVD sales continue to fall.

Debts have also edged up despite selling assets such as the Waterstones bookshop chain last year. In short, challenges exist on every front, both systemic and cyclical.

The group is in a dangerous period, and the talk of “12 critical days” from the management does not sound in the least melodramatic.

Inflation is still the big game in town

Chancellor George Osborne has given a strong hint to Bank of England governor-designate Mark Carney that ditching a pure inflation target for a mixture of inflation and growth would be a tough sell.

Carney, the current Canadian central bank chief, floated the controversial possibility a few days back.

This would make the Bank of England’s remit more like the Federal Reserve in the US, which is responsible for growth as well as inflation. But inflation control is more of a totem here. Carney has had his cards marked.