Recession – The Death of Brand Loyalty

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Posted in:Banking and Finance, Corporate and Commercial, Retail|January 21, 2013 | Join the mailing list

Following last week’s board meeting HMV confirmed its intention to appoint Deloitte as administrators for the company. In the following week we have witnessed customer outrage with the administrators’ decision to no longer accept vouchers,
a decision that was reversed earlier today, the company continue to trade whilst Deloitte looked for a buyer and now the news that there are up to 50 interested parties.

HMV along with Blockbuster are the latest in a number of large high street brands to be hit by the recession. With household names such as Woolworths, JJB Sports, Jessops and Comet all closing their retail units it has become clear that in
the current climate retail cannot rely on brand power alone.

With the announcement that inflation has remained at 2.7%, consumers continue to restrict spending and look for ways to save money. In an industry where a business used to be able to rely on a customer’s brand loyalty to ensure repeat trade
it now seems that unless a consumer is offered a competitive edge, they are happy to follow the best price.

HMV had been struggling throughout 2012 with competitors such as Amazon and
Play.com being able to undercut HMV prices due to lower business expenditure, such as not having retail outlets. Whilst consumers still went to browse in the iconic store there was an increasing
trend to then go to the internet to buy items at a lower price. Even following a final sale in an attempt to meet the conditions of its bank loans, HMV was unable to slash its increasing debt.

The business, which employs 4,350 people over 238 stores, has confirmed that the outlook is promising with a number of interested parties and potentially favourable terms from suppliers. It appears that it is the industry and not the consumer
that is keen to save the brand as it keeps a presence for films and music on the high street in an attempt to combat the increasing competition and price slashing brought by the internet. However, unless Deloitte are able to secure actual investment from buyers
such as Hilco (the investor who saved HMV Canada) it seems to be the end of another British institution.

For further information, please contact Stephen Foster, Head of Corporate at stephenf@berg.co.uk
or by telephoning 0161 833 9211.

The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for this article’s accuracy or correctness is assumed by Berg or any of its partners or employees.
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.

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