HMV’s suppliers want it to survive with a High Street presence. Can they defy the forces of creative destruction?

15th January 2013

Most analysts say that changing consumer habits and technology made HMV’s slide into administration inevitable. Indeed, HMV looks like a textbook case of creative destruction.

The Guardian reports the views of analysts most of whom agree, with one suggesting that had HMV moved online 15 years ago, then it could have beaten Amazon out of the starting blocks.

The theory of creative destruction as it applies to capitalism is that new technologies come along and effectively destroy what went before leaving existing firms high and dry and without a market.

It is certainly very bad news for the firms and employees concerned – in HMV’s case this is 4350 jobs now at risk. But, in general, society and the economy prosper as economic efficiency increases.  The main exponent of idea is the early 20th Century Austrian-US economist Joseph Schumpeter. The theory is defined here on Investopedia, though the website also notes the abuse of the idea during the dot.com bubble, when a lot of the ‘destruction’ involved investors and shareholders’ money rather than rival businesses.

However returning to today’s economy, some commentators are unsure if things have got bad enough.

This morning’s article from the BBC’s business correspondent Robert Peston is concerned that creative destruction may be impeded by measures designed to blunt the impact of the recession.

While high profile firms such as Jessops, Comet and HMV have hit the rocks – the rate of bankruptcies and firms going into administration is lower than expected given the UK’s economic performance.

This may be holding back the economy because it leads to overcapacity and prevents the growth of rivals and new entrants.

Peston may have a point. But HMV could prove to be in a slightly different category. As if to prove that the path of capitalism never runs predictably, Peston also says it is clear that the music and film industry would still like to see the presence of a big record chain on the British high street rather than become completely beholden to the online players plus a few smaller stores.

For this reason, they may attempt to help the revival of HMV, if not through actual investment backing, then through the extension of credit terms. That could help administrator Deloitte attract buyers.

Most of this will probably pass mainstream investors by.  Most are avoiding a lot of high street retail stocks in general and only favour retail stocks on a case by case basis. There are still some star stocks that have defied expectations for example Spanish outlet Zara. Some developed market retail stocks may allow investors to to gain access to the growing emerging market consumer sector. But it is very much on a case by case basis.

HMV never really felt like one of those cases. In a narrow business sense, it is easy to see why suppliers of music and films want to keep their distribution options only. What they have to consider however, if whether they are merely postponing the day of reckoning or can they find a creative way of avoiding destruction at least for this brand.

 

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