HMV is once again fighting for survival after a fresh collapse in demand for CDs, games and DVDs over the summer set the high street specialist on a perilous course that could mean it breaches the terms of its bank loans early in the new year.
Revealing a first-half loss of £36.1m, its chief executive, Trevor Moore, said tough trading conditions meant there were “material uncertainties facing the business”. He insisted closing stores or putting the retailer in administration was not currently “part of our plan” but said he was seeking to cut running costs. “I joined the group because I believe it has a strong future,” he said. “If I thought we had tried everything I would not have joined.”
HMV, famous for its Nipper the dog mascot, banks all its profit at Christmas. Analysts had previously pencilled in £10m for this year but Moore said dire summer sales meant its performance would now fall short of City estimates. Like-for-like sales slumped 10% in the six months to 27 October after suppliers held back new titles for fear they would be overlooked as the nation focused on a summer of sport. The warning sent HMV’s shares into freefall, closing down nearly 40%, at 2.49p, giving the retailer a stock market value of around £10m.
The retailer, which remains burdened with a £176m debt despite having sold off the Waterstones chain and its live music venues to raise cash, said it was “probable” it would breach its banking covenants when they were tested in January.
A breach would put the banks in the driving seat and could result in their calling in their loans. The company said it would be able to meet a £30m payment due then and had “adequate resources to continue in operational existence for the foreseeable future”, adding it was “currently operating within” the terms of its £220m banking facility.
Wonga’s £24m sponsorship of Newcastle United announced this week has started a spark of protest in the region. The complaints focus on the fact that the payday lender targets hard-up people with expensive loans they often can’t afford.
Wonga is a relatively young business so is keen to raise its profile among people who may be tempted by the chance of borrowing money very easily. The north-east is a prime recruitment area, with Newcastle the 40th most deprived borough in the country.
But local debt experts fear that Wonga’s arrival as Newcastle United’s shirt sponsor could encourage more people into easy credit and, eventually, into a desperate debt cycle and even into the arms of unscrupulous and often violent loan sharks.
Shona Alexander is manager of the Newcastle Citizens Advice Bureau (CAB). “Our workload has increased remarkably in the past 12 months and more and more people get into trouble by taking out payday loans,” she says.
“The lenders seem to target young people which is why it’s worrying that the Wonga deal includes funding for the football club’s academy. They’re exactly the kind of people that payday lenders want to get their grips into.”
Only a few years ago, Spain’s banks were seen in some policy-making circles as a model for the rest of the world. This may be hard to fathom now, considering that Spain is seeking $125 billion to bail out its ailing lenders.
But back in 2008 and early 2009, Spanish regulators were riding high after their country’s banks seemed to have dodged the financial crisis with minimal losses. A big reason for their success, the regulators said, was an accounting technique called dynamic provisioning.
By this, they meant that Spain’s banks had set aside rainy- day loan-loss reserves on their books during boom years. The purpose, they said, was to build up a buffer in good times for use in bad times.
This isn’t the way accounting standards usually work. Normally the rules say companies can record losses, or provisions, only when bad loans are specifically identified. Spanish regulators said they were trying to be countercyclical, so that any declines in lending and the broader economy would be less severe.
What’s now obvious is that Spain’s banks weren’t reporting all of their losses when they should have, dynamically or otherwise. One of the catalysts for last weekend’s bailout request was the decision last month by the Bankia BKIA group, Spain’s third-largest lender, to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss rather than a 40.9 million-euro profit. Looking back, we probably should have known Spain’s banks would end up this way, and that their reported financial results bore no relation to reality.
Strange Random Bank Quote:
“The banks do create money. They have been doing it for a long time, but they didn’t realise it, and they did not admit it. Very few did. You will find it in all sorts of documents, financial textbooks, etc. But in the intervening years, and we must be perfectly frank about these things, there has been a development of thought, until today I doubt very much whether you would get many prominent bankers to attempt to deny that banks create it.” – H W White, Chairman of the Associated Banks of New Zealand, to the New Zealand Monetary Commission, 1955.
- Moody’s cuts Spain credit rating (bbc.co.uk)
- “The Walking Dead” Part 2: Zombie borrowers threaten bailed-out Spanish banks (confoundedinterest.wordpress.com)
- Why the Bailout in Spain Won’t Work (dealbook.nytimes.com)
- Europe Has Done Nothing So Far Except Weaken Itself (businessinsider.com)
- Spain’s Bank Yenta On What Went Wrong (npr.org)
- Spanish Banks Need $46 Billion to Stave Off More Trouble, I.M.F. Says (nytimes.com)
- Spain could need bigger bailout (guardian.co.uk)
- Spain borrowing cost crisis: Rate at euro-era high (kansascity.com)
- Spain borrowing rates soar after Moody’s downgrade (news.yahoo.com)
Todd Hill took a 3,000-year-old offline business and brought it into the digital age. Hill, a 25-year veteran of the pawn industry, made the leap from running a 30-store brick-and-mortar operation in Colorado and Utah to the online world in 2009 when he founded Pawngo.com, the first full-service online pawn shop in the U.S. To date, Pawngo has loaned more than $7 million dollars in 50 states.
With roots that can be traced back to ancient China, pawnbroking — often called the world’s second-oldest profession — had largely been a cottage industry of neighborhood stores serving as lenders-of-last-resort until Hill leapfrogged tradition and brought the business into modern times. By going online, he also neatly sidestepped consumer resistance to the stigma of physically visiting a pawnbroker by making it possible for customers to make their transactions in private outside of potentially embarrassing public scrutiny.
“It definitely feels much more like the everyday things we do online,” Hill told BusinessNewsDaily.
Pawnbrokers offer short-term loans based on the value of personal items such as jewelry that customers pledge as collateral. At the end of the loan term, the customer can retrieve his or her property by paying off the loan principal plus interest. If the loan is not paid off, the pawnbroker assumes ownership of the pawned items and is free to resell the pledged property.
That’s essentially how Pawngo.com operates, but with a different logistical architecture. Instead of bringing their items to a physical location for evaluation, customers answer a few questions online about the items they want to pawn or sell outright. Pawngo will respond with an estimated offer in an email.
Offers are made up to 75 percent of an item’s value. If the customer wishes to accept Pawngo’s offer, he prints out a FedEx label from the Pawngo website and ships the item at Pawngo’s expense.
When the item arrives, Hill said, a team of certified evaluators inspects the item and prepares a final offer. Once the offer is accepted, the funds are immediately transferred into the customer’s bank account and the item is stored in the pawnbroker’s secure fulfillment center under 24-hour video surveillance.
When the loan is settled, Hill said, the item is shipped fully insured back to the customer at Pawngo’s expense.
Strange Random Pawnbroker Quote:
“A financier is a pawnbroker with imagination” – Arthur Wing Pinero
- Need Cash Fast? Don’t Pawn Your Valuables Without Some Helpful Hints! (losangeles.cbslocal.com)
- Online Pawn Shop Pawngo Recognized by Jewelers’ Circular Keystone Magazine as one of the ’10 Things Rocking the Industry’ (prweb.com)
- How Pawngo Put a Modern Spin on an Old-Fashioned Business (entrepreneur.com)
- National Pawnbrokers Association’s Musical Instrument Gift Day Giving Children Instruments, for a Song (prweb.com)
- Pawnbrokers Give Back Over the Holidays (prweb.com)
- ‘Posh’ pawnbrokers opens on King Street in Manchester (menmedia.co.uk)
- Customers Turn To Online Pawn Shop For Quick Cash (dfw.cbslocal.com)
- Good, Bad, Ugly, Funny: This Pawnbroker Has Seen It All! (bootslebaronsworld.wordpress.com)
- Internet Pawn Ramping Up Experienced Staff to Support Increasing Demand for Online Personal Loans (prweb.com)