What really did for HMV

There’s a pretty simple explanation for the miserable fate of high street stores like HMV, Jessops and Comet, and it came in today’s inflation figures.

The price of the kinds of goods those shops sell – everything from CDs and DVDs, to photographic  and televisual hardware – have collapsed in recent years: utterly collapsed. According to the Office for National Statistics, the price of so-called “audio-visual goods” have not merely halved since 1996: they’re now less than a fifth of their price.

Source: ONS. Series all rebased so Jan 1996 = 100

During the same period the broad measure of goods prices around the UK economy – the Consumer Price Index – has risen by 44%. Now, audio-visual isn’t the only category of prices to have fallen in that period (and it’s worth pointing out it includes computer equipment and some other stuff) but note that its price performance has been even worse than clothing and footwear, which is often regarded as facing an unprecedented price collapse.

And intriguingly, the fall in prices pre-dates the mainstream adoption of the internet. In other words, those explanations that HMV et al’s woes are entirely due to online competition aren’t entirely right. The truth is that audio visual margins were being squeezed well before the arrival of Amazon and other web competitors. But those online stores’ cheap margins (they don’t have as many staff, don’t have to pay for high street floorspace and expensive associated business rates) have allowed them to thrive even in a world of low audio-visual prices.

It goes without saying that any sector which has seen a collapse in its margins of that scale is unlikely to survive in its original state. The recession and credit crunch may have proved the final blow for these and other struggling high street stores, as banks withdrew their finance, but the reality is that their margins have been under almost unbearable (and exponentially worsening) pressure for years.

By the same token, however, while the graph may not be good news for the stores which sell the relevant goods, it’s clearly better news for consumers. Certain types of goods have fallen dramatically in price since 1996. Which, other things being equal, ought to imply an improvement in Britain’s standard of living.

The problem is that certain other items – notably fuel and utility bills, have risen so sharply that families hardly notice the improvement elsewhere in their lives.