The UK’s largest remaining high street music equipment retailer closes all but one store, refocusses on mail order sales via new German owner.

DV247 broke the news of 40 redundancies on Facebook with a photo of a £10k gold-plated Minimoog

DV247 tactlessly broke the news of mass redundancies on Facebook with a photo of a £10k gold-plated Moog

“Bigger and better” is the euphemistic new slogan of UK music tech retail chain Digital Village, whose parent company White Rabbit Records went into administration on Friday before announcing that profitable parts of the business had been sold to new owners.

The company’s positive spin on the story will come as little comfort to the dozens of Digital Village employees who were made redundant this weekend; seven of the company’s eight physical stores were closed with immediate effect while the remainder of the company – comprising the online retail arm and the branch of the store in Romford, Essex – was sold to German online retailer Music Store. Former majority shareholder John Da Costa will join Music Store’s Michael Sauer as a director of the new business, DV247 Limited.

The business was sold in a pre-pack insolvency deal, whereby the sale of the company and its assets is agreed before the business enters administration and the deal then goes through immediately without consulting creditors or seeking bids from other potential buyers.

As such, the Romford outlet will remain open and be expanded to operate as a ‘retail superstore’, but the company’s focus will shift to online retail via the DV247 site, with products being shipped from Germany via Music Store’s existing distribution infrastructure.

The demise of the music retailer

Unfortunately, the news of Digital Village’s collapse isn’t entirely surprising. Recent years have seen numerous UK music equipment retailers go bust, including large national chains. Previous market leaders Sound Control and Turnkey went into administration in 2008.

With eleven stores around England, the guitar-focussed PMT (owned by S&T Audio, who also bought the rights to the Turnkey and Sound Control names following the collapse of Sound Control Holdings) is now the biggest national bricks-and-mortar presence in UK music equipment retail. The remaining larger retailers – including the likes of KMR Audio, GAKAnderton’s, Dolphin Music (also owned by S&T) and Production Room – operate either at a single location or exclusively online. Of course, it’s also impossible to ignore the might of German-based retailer Thomann, who enjoy a huge mail order market share in the UK.

Comparisons with the recent fate of high street music retailers are inevitable and justified. HMV was recently rescued by Hilco, having gone into administration in January, but the story of high street music retail should serve as a stark warning to specialist music gear retailers. The demise of businesses including HMV, Virgin Megastores/Zavvi and Music Zone can at least partly be attributed to the increasing competition from online retailers and a failure to offer sufficiently high levels of customer service to justify marginally higher prices.

The parallels with music equipment retail are clear, and the signs look equally as ominous for music equipment retail in the UK. Just as with music retail – or similar cases like book retail, with the closure of Waterstones stores and the bankruptcy of Borders – high street music equipment retailers have been fighting a losing battle to compete with the prices offered by online retailers.

Many consumers used shops like Digital Village as a glorified showroom, a place to go and try out products before returning home and ordering them from a cheaper online store. Digital Village’s policy of aggressive discounting in an attempt to match online retailers also undoubtedly played a part; with much higher overheads and staff costs than online rivals, it would have been impossible for the company to match online prices, but they tried nevertheless.

Consequences of the pre-pack deal

The deal has serious implications on many levels. Staff at all but the Romford store will be made redundant. Customers will no longer be able to buy in person or try products without travelling to Romford (although it’s worth bearing in mind that with just eight locations around the south of England, Digital Village’s stores were hardly offering nationwide coverage).

Distributors in the UK are likely to be cut out of the DV247 supply chain entirely, with Music Store buying products through German distributors. However, one of the biggest consequences is that White Rabbit’s debts will effectively be wiped out, leaving everyone from staff to landlords to suppliers out of pocket.

One of the most commonly voiced criticisms of pre-packs is that they bypass any form of consultancy with creditors, effectively allowing failing businesses a perfectly legal loophole via which they can write off their debts (including taxes) and re-emerge under a slightly different name.

In a post on his personal blog, Mark Thompson, managing director of London retailer Funky Junk, rails against what he perceives to be borderline fraudulent behaviour on the part of White Rabbit Records.

Thompson describes the pre-pack as “carefully planned, cynically premeditated business sleight of hand” which will leave numerous unsecured creditors out of pocket. (It’s worth noting that, as a supplier to Digital Village, Thompson himself will almost certainly be directly affected.)

Thompson continues: “By most reasonable definitions, [pre-pack deals verge] on fraud. The DV directors had been planning this for some time. The new (German) owner had been in place and a new website built for weeks if not months. The directors knew full well that there was no chance of suppliers being paid for orders shipped in the days before administration.

Carefully planned, cynically premeditated business sleight of hand...

“They must have known that staff wouldn’t be paid (and no doubt hid the knowledge behind friendly smiles as they passed longstanding employees in the office, the shops or the car park) and must have known perfectly well that the VAT they were collecting on behalf of the government (and paid by their customers and suppliers alike) would never be handed over to the relevant authorities.”

John Da Costa responds: “Suffice to say, there are a number of downright lies in this vitriolic rant from a partly anonymous competitor which are nothing short of libellous. The very LAST thing I wanted to do was put the company I started 34 years ago, through administration and become the FORMER owner of DV247 and risk alienating our valued customers and suppliers.”

The future

The new Music Store-led incarnation of DV247’s mail order service will undoubtedly expand the range of choice on offer to consumers. Digital Village previously claimed to carry 8,000 product lines, totalling £4m of stock. As of Friday those figures have increased to 70,000 product lines and £25m of stock. But does that extra choice make up for the absence of physical stores?

There was a time when most musicians in the UK could find a local music shop within reasonable distance. We’re certainly not about to rewrite history and suggest that these local shops were always perfect; the service was rarely flawless, the prices weren’t always the cheapest, but they offered a service which online retail can’t quite match at this point.

The simple truth is that most physical music shops closed down because we didn’t use them enough to keep them profitable. But will we come to regret that when the only options are huge international mail order companies?

The consequences of this wave of bankruptcies and business closures are likely to be felt for many years to come, and only a major shift in consumer habits can force the return of bricks-and-mortar music retailers. Which would you prefer: the lowest possible prices, or customer service and physical stores? The choice has already been made for Digital Village customers.

13th May, 2013

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