Business Updates 8th June 2011

Last week I outlined a little about the problems that Southern Cross have been having, in the last few days they have announced that they are going to sell off around 200 of their Care Homes (is there a worse time to be selling property than now?). They also seek something like £100m in additional funds to help meet the £230m annual rent bill (ouch!). I’m sure that there are some very good reasons that led to the thinking to take on these commitments, but it does appear that the company has rather over-stretched.

Rather than see HMV go the way of the Dodo, a £220m refinancing deal has been structured with the help of RBS and Lloyds (both now effectively owned by UK plc). HMV recently put Waterstones up for sale and has a growing debt and if the figures are to be believed, fewer and fewer people are buying music and film in the more “traditional” formats (an actual hard copy). As much as we may not wish to see brands disappear that have been with us and perhaps part of our culture for years, there does come a point in business where it is a case of adapt or die. Sales in the UK alone are down 18%. Shares in HMV have fallen nearly 70% in value over the last year to around £10.50. In September their peak price was £67.75 with an all-time high of £282.00 and an all-time low of £7.75. Stockbrokers are possibly wondering if this is a case of “dead cat bounce” and if the little dog has now had his day, much like the gramophone. All of which prompts the question (again).. do Lloyds and RBS know what they are doing?

By way of an example, consider luxury fashion brand Prada who have announced plans to list on the Hong Kong stock exchange for a fashionably cool £1.6bn. This is all part of the huge demand from China for luxury brands as a rapid way onto the world stage. However, a note of caution – whilst it may be highly tempting to develop large markets, the main purpose of high end luxury brands is to convey a sense of exclusivity. Once luxury brands become widely available, the main purpose of the brand is lost, or certainly much reduced. I, of course know little about fashion, which is probably just as well as the latest advert from Prada makes me feel somewhat nauseous. It is probably the camera work.