We reported last month on HMV Group plc (LON:HMV) (OTCMKTS:HMVMF) pulling out of Ireland, citing Ireland’s Upward Only Rent Review legislation as a main reason. Well, now it seems that four Irish stores are set to reopen, having renegotiated more favorable leases with landlords in a move that will create 100 jobs by the end of this summer. Despite concerns over the viability of HMV’s business model, the news could give hope to other businesses suffering as a result of UORR clauses.
HMV playing hardball with the landlords
The reborn HMV Group plc (LON:HMV) (OTCMKTS:HMVMF) stores will operate with new rental agreements in place, reflecting today’s prices – as much as 50 percent lower than in their 2006-2008 heyday. In Dublin city center, the Henry Street store will reopen, joined by stores in Dundrum and Liffey Valley on the outskirts of the capital, as well as the Limerick outlet.
As for the new owner, Hilco the restructuring specialist, snapped up the company from administrators for an estimated €59 million and is hoping that these stores will, in time, be joined by others, including the flagship Grafton Street store. However, this currently seems unlikely as the landlord is looking for a cool €1 million annually for the Grafton Street site.
Nevertheless, Hilco CEO, Paul McGowan was able to negotiate with landlords to revise the terms of the other leases, so, if the Grafton Street premises remain unoccupied, there may be scope for revisions there too.
Declan Stone at Colliers International, the firm that carried out the negotiations, confirmed the lower rents for the other stores:
‘We have agreed terms of five locations and are on the deal acquisition trail with two or three more.’
Could HMV’s reappearance be shortlived?
Given the problems facing music retailers, can Hilco realistically expect to be successful where HMV Group plc (LON:HMV) (OTCMKTS:HMVMF) failed? Hilco has had successes in the Irish retail market before, buying fashion retailer, A-Wear, in 2011, before reselling after five months of internal restructuring.
But UORR rental clauses were only one of the problems afflicting HMV. CD and DVD sales are still in the doldrums while downloads and streaming services replace physical sales. Yet, when Valuewalk asked Hilco what plans it had for the new HMV, the organization wouldn’t be drawn on any changes envisaged for the business model, stating:
“We hope to replicate some of the success we have had in the Canadian market with the HMV Group plc (LON:HMV) (OTCMKTS:HMVMF) Canada business which we acquired almost two years ago and which is now trading strongly.”
“The structural differences in the markets and the higher level of competition in the UK will prove additional challenges for the UK business, but we believe it has a successful future ahead of it.”
Stocking them high and selling them cheap isn’t going to work for HMV Group plc (LON:HMV) (OTCMKTS:HMVMF). Neither will relying on the lucrative Xmas market make the firm profitable all year round. It will be fascinating to see what the new owners of HMV can pull out of the hat to turn around the fortunes of the music retailer.
As the Henry Street store reopens to the sound of a live performance by The Strypes, Hilco will be hoping that the new business is a bigger hit than the last.