Fears for 300 jobs as HMV collapses

Thousands of consumers have been left holding worthless HMV gift vouchers after the company, which has 16 stores in the Republic, announced that it was going into administration.

The announcement has put 300 Irish jobs at risk, but chief executive Trevor Moore today said he was "confident" that a solution would be found.

“I'm confident that we will find a solution,” he said, adding, “We remain convinced that we can find a successful business outcome. We know that HMV is a well loved brand, which has a high level of support amongst the public and we want to ensure that it remains on the high street.”

Minister for Communications Pat Rabbitte said the company's decision regarding gift vouchers was "immensely regrettable" at an Advertising Standards Authority for Ireland event on responsibility in advertising in Dublin today.

"It is an immensely regrettable decision that the company has chosen not to honour commitments entered into with consumers, because this unfortunate situation was not a surprise," he said.

"I hope that the administrator will be able to come to some sort of arrangement with consumer associations."

Mr Moore said he and finance director Ian Kenyon had begun working with the administrators Deloitte to evaluate options for HMV, with a focus on safe-guarding jobs.

Already, there have been expressions of interest in the retailer. Endless LLP, a private-equity firm that focuses on companies in distress, said it has contacted Deloitte with a view to buying the company.

While the music, film and games retailer is to continue trading as normal its administrators said HMV would cease accepting vouchers with immediate affect.

Up to 300 jobs are under threat at 16 HMV stores in the Republic while as many as 4,000 jobs are at risk across the UK store network.

HMV shares have been suspended from trading on the London Stock Exchange and Deloitte has been appointed as the administrator of the 92-year-old business.

Before Christmas Mr Moore warned the company was in difficulty and blamed internet retailers and supermarkets, whose scale has enabled them to offer CDs and DVDs at cheaper prices.

The vouchers issue has prompted a leading consumer advocate to call for legislation to protect consumers with gift vouchers belonging to companies in financial difficulties.

“There will be a lot of consumers feeling extremely frustrated this morning,” said Dermott Jewell of the Consumer Association of Ireland (CAI).

“The stores are open and it is business as usual but the will not honour a contract with people who have vouchers. It is a very poor way of doing business and an extraordinary step to take if the administrators really want to encourage people to come through the doors.”

Mr Jewell said that legislation was needed to protect consumers who were sold vouchers and questioned why they were being sold by the store in the run-up to Christmas.

“Clearly staff did not know the extent of the difficulties being faced by their employer in the run up to Christmas but some senior management did and yet they allowed vouchers to be sold to people knowing they would be worthless within weeks. We need to know why this happened. We need answers.”

The National Consumer Agency said the HMV's decision not to honour vouchers was disappointing in light of the fact the company sold vouchers right through Christmas. It said "consumers bought them in the expectation that they could be redeemed".

In a statement the agency pointed out that many vouchers would have been bought as Christmas gifts and it said this would "compound the difficulties and impact of this decision for Irish consumers who bought and received these vouchers".

It said if the administrators wanted the company to survive and be restored to profitable trading "they should consider the impact it will have on the future of their business.

Although there is no legal impediment to the administrators taking this decision, the NCA will be pushing for the administrator to reverse this decision not to redeem or refund these vouchers or at the very least, to give HMV customers in Ireland more clarity about whether this position could change in the future".

It said while the outcome of the administration process remained uncertain people should "hold on to their vouchers to see how the situation unfolds."

People who have gift vouchers have now become what are known as unsecured creditors of HMV and are the very last ones to get paid

Consumers who bought themselves vouchers using a credit card maybe able to get a chargeback which will see the credit card company refund them and then go after HMV for recompense but such a process is not certain and certainly not fast.

What has, however, proved more damaging has been the explosion of music and video downloads which have made companies such as HMV all but irrelevant. Nearly three quarters of all music is now sold in a purely digital format.

Late last week, HMV asked its suppliers, which include music labels, games makers and film companies, for about £300 million in additional financing to pay off its bank debt, and fund an overhaul of the company’s business model.

But the proposal was turned down, raising fresh fears that the company would be forced into administration.

The retailer has been hit by the migration to purchasing music and films online. It sought to combat this trend, diversifying into live venues and consumer electronics, but this was not enough to stem the decline in its core market.

A year ago, suppliers stepped in to support HMV, taking a 5 per cent equity stake in the company to secure its position as the UK’s leading entertainment retailer. The closure of HMV could strike a damaging blow to the UK retail market for video games, CDs and DVDs.

Additional reporting by Reuters/Bloomberg