Company’s decision not to honour gift vouchers prompts claims of mis-selling
Millions of pounds of HMV gift cards and vouchers – many received as Christmas presents only weeks ago – have been declared worthless by the collapsed music and movies retailer in what is thought to be the most controversial such move for many years.
HMV directors, who handed the company over to administrators Deloitte on Tuesday afternoon, said they were unable disclose how many vouchers had been sold in the runup to Christmas, or what value had been lost by customers. The sum is thought likely to be many times the £800,000-worth of vouchers that went unhonoured at camera retailer Jessops after it failed last week.
Thames Valley police confirmed that they had been called to an incident at an HMV store in Oxford after a dispute over a gift card between two customers and staff. Holders of gift cards are particularly frustrated as HMV continued selling them and vouchers after warning investors on 13 December that the group expected to face a solvency crisis by the end of January.
A spokesperson for Deloitte said the administrators had no intention of reviewing the decision to stop accepting vouchers. This was in contrast to the same team of administrators approach to vouchers issued by Comet, the electrical retailer which failed in the autumn. Faced with bad publicity over a four-year-old cerebral palsy sufferer who had been unable to buy an iPad with vouchers, they had a change of heart. With potential voucher claims running into many millions of pounds, no such U-turn is expected at HMV.
Recent administrations of similar companies such as Zavvi and Game have seen also seen thousands of vouchers unhonoured. Customers can submit a claim to the administration process, but returns are typically a tiny fraction of the face value, and take months to come through.
HMV, one of Britain’s biggest voucher and gift card retailers, typically takes 60% of its annual sales in the last four months of the year, with the busiest trading weeks being those before Christmas. However, any reserves are now likely to swallowed up by preferred creditors in an administration process. These include taxpayer-backed Royal Bank of Scotland and Lloyds Banking Group, who would have played a leading role in selecting the timing of the administration.
Asked if the sale of thousands of vouchers after HMV’s December solvency warning amounted to a mis-selling scandal, finance director Ian Kenyon said the company was confident of its legal position, having checked with lawyers back in December. “We had a reasonable expectation [in the runup to Christmas] of addressing our issues with the banks,” he said. Whatever the legal position, it remains to be seen whether the company will face a backlash from consumers.
Kenyon said a “substantial amount” of vouchers bought as Christmas gifts had already been redeemed.
HMV vouchers have also been sold by other retailers, including Tesco and WH Smith. The supermarket group said on Tuesday: “We are currently not able to offer refunds to customers. We will continue to assess the situation with HMV and work towards a solution that will help customers affected.” A spokesperson for WH Smith could not be reached for comment but HMV gift cards appeared to still be on sale on the group’s website.
Deloitte issued a statement saying it would continue to operate all 223 stores, with 4,123 staff. “We are working closely with management and staff to stabilise the business in order to continue trading whilst actively seeking a purchaser for the business and assets.”
Expressions of interest have already been received from potential buyers of some or all of the business. Among those thought to be interested is Better Capital, run by turnaround financier Jon Moulton.
The failure of such a high-profile business as HMV has prompted a round of urgent reflection among high street retailers, with politicians growing increasingly concerned at the impact online traders are having on traditional shops.
The business secretary, Vince Cable, said: “What’s happened is that you have had a very rapid growth of e-shopping, people buying online. Britain is one of the most dynamic countries in the world in that area and this has been very much at the expense of some of the more traditional retailers.”
Asked if online retailers enjoyed an unfair advantage because they were able to arrange their tax affairs to pay lower tax than high street rivals, Cable said: “You are right about that.”
He told Channel 5 News: “Certainly the information such as I have seen about Amazon is very disturbing and it does indicate that government has got to be tough and, as far as we can be within our national frontiers in making sure that companies do pay their tax, that is absolutely right. I do accept the point specifically about Amazon.”
HMV’s chief executive, Trevor Moore, gave an impassioned defence of the chain on Tuesday hours before it formally passed out of his control, saying it deserved a place on Britain’s high streets.
“Ian [Kenyon] and I are really passionate about working with the business,” said Moore, who was the boss of Jessops until he joined HMV in September. “I would very much like to be involved … if the opportunity presents itself.
He added: “HMV was recently voted one of the top 10 names people most wanted on their high street … A high street without HMV is not as attractive as it is with one. We know our customers feel the same way.”
Moore repeatedly thanked suppliers for having been supportive, despite the failure in recent weeks of the group’s major creditors – banks, landlords, film houses and record labels – to agree revised terms that would keep HMV afloat.
Kenyon said sales over the Christmas trading period had not suddenly fallen off a cliff. At the last update, like-for-like sales were down just over 10% in the six months to the end of October.
HMV held last ditch discussions with its banks over the weekend but failed to agree on new terms for its loans. It said in a statement that the board had been “unable to reach a position where it [felt it was] able to continue to trade outside of insolvency protection.”
As the reaction to HMV’s demise has shown, the brand, famous for its Nipper the dog trademark, still holds a cachet for many people.