• Retailer has struggled in the face of growing demand for digital downloads
• Company had a poor Christmas sales period despite 35% sales reduction
  
• Almost 300 stores and 4,350 staff face uncertainty as negotiations unfold
• Administrator announces gift cards will not be accepted in stores
• CEO Trevor Moore - former head of Jessops - insists company will be saved
  

By Rob Davies and Hugo Gye

PUBLISHED: 16:08 EST, 14 January 2013 | UPDATED: 11:31 EST, 15 January 2013

HMV is under fire after it admitted selling gift cards and vouchers until yesterday - even though it was about to announce that the cards are now worthless.

The collapsed music chain has been accused of turning its back on millions of customers after also refusing to accept Christmas gifts for exchange or refund.

Last night it became the latest high street victim of the financial crisis and double-dip recession, and its 4,500 employees are facing the axe if a 'white knight' rescuer cannot be found for the chain.

City firm Deloitte was brought in to take charge after crisis talks failed to find another solution.

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Sale: Customers will be hoping for bargains from the administration of HMV, whose Oxford Street branch is pictured here today

Bosses insist they are still searching for a solution that could keep the name of the shop alive - and claim they are 'confident' that that it  can be saved from total liquidation.

But customers reacted with anger and dismay as it was revealed that the chain will no longer accept gift cards and vouchers after Deloitte took control of the 238 stores.

HMV was still selling the cards as recently as yesterday, even though senior executives had been considering the possibility of going into administration for several weeks.

Customers slammed the firm for continuing to profit from the valueless cards - journalist Matt Kelly said, 'Scandalous and dishonest for HMV to sell gift vouchers up to last week and are now refusing to honour them. They knew this could happen,' while @IvorGrumble described HMV bosses as 'sly b******s'.

CEO Trevor Moore - who previously ran bankrupt photography store Jessops - admitted that he had been aware of the possibility of cheating customers, but defended the company's actions over the past few weeks.

‘We were aware as directors of this very issue and we have been monitoring both sales and redemption of gift vouchers,' he said.

‘When we made the announcement about not meeting our banking covenants, we still had a chance to address the issue with the banks so it’s not at all any form of mis-selling and we’re very clear what our obligations are.’

Day the music died: Administrators Deloitte warn that shops will now close

Many Twitter users reacted with fury to the announcement that the shops will no longer accept its own gift cards as payment, just weeks after hundreds of them were bought as Christmas presents.

'It's a p*** take that HMV won't accept vouchers,' @Meygziie wrote, while @KevinAshford7 said, 'That's my £20 Christmas gift voucher going in the bin.' @NiceEtoile added: 'How is this legal?'

FROM JESSOPS TO HMV: CEO'S UNFORTUNATE TRACK RECORD

The chief executive of HMV does not have a good track record running troubled businesses - his previous employer, Jessops, shut down over the weekend with the loss of 1,300 jobs.

Trevor Moore, pictured, joined HMV in August last year after three years at the high street photography chain.

Just five months after he left Jessops, the company announced that it was to cease trading - and now the firm he joined has followed it into administration.

BBC journalist Hugh Pym was one of the customers affected by the controversial decision. He took to Twitter to write: 'Oh dear. Administrators say HMV won't accept gift vouchers - inc my teenagers' Christmas pressie.'

The cards are currently worthless, but if HMV finds a buyer it is possible that the new owner will honour them, meaning that it may be worth people's while to hold on to the cards.

Consumer experts criticised the decision not to honour gift cards - a practice which has become normal when a company goes through administration.

'We've got to see some changes in this area,' said Dean Dunham of youandyourrights.co.uk. 'It's almost theft.

'A gift voucher should be as good as a banker's draft. You should be guaranteed that you'll either be able to redeem it or get your money back.

'We've known for some time what happens when these companies go under and nothing's been done to protect consumers.'

He urged people not to buy gift cards at all in future - and said that if HMV customers 'kick up a fuss', there is a chance the administrators could change their mind on the policy.

A spokesman for Which? said: 'With the increasing number of high street retailers going bust, consumers need to be aware of their rights, particularly regarding warranties and gift vouchers.

'If a store goes into administration it may refuse to accept gift vouchers, though this situation may change. If they do refuse and you need to make a claim, write to the administrators with proof of your vouchers.'

She also reminded customers that for claims over £100 paid for with a credit card, they can obtain a refund from their credit card company.

Martin Lewis, founder of MoneySavingExpert.com, claimed on Twitter that HMV was still sending promotional emails urging customers to pre-order forthcoming DVDs, and warned that pre-ordering from a company in administration was a very bad idea.

Disappointment: Journalist Hugh Pym was among the customers who had bought HMV gift cards

Change: Shoppers have spurned physical copies of music, film and books in favour of downloads

The writing had been on the wall since the run-up to Christmas, when dire sales figures forced the firm to admit it might breach the terms of its bank loans.

HMV’s banks – state-backed Royal Bank of Scotland and Lloyds – said they were unwilling to go on lending it money.

RBS said in a statement: 'The banking group led by RBS and Lloyds Banking Group have provided significant support to HMV over the past two years, as it has sought to reshape and restructure its business in the face of extremely difficult trading conditions.

'Unfortunately, despite the best efforts of management, lenders and suppliers, it has not proven possible to avoid a formal insolvency process.'

The move to go into administration follows the closure of camera chain Jessops - whose former chief executive Trevor Moore is now the boss of HMV - with the loss of 1,300 jobs at the weekend.

It is still possible that a ‘white knight’ buyer could ride to the company’s rescue at the last minute, buying part or all of its 230-strong network of stores. If not it will mean the end of a name that has graced the high street since 1921.

There was no sign of a saviour for HMV today, after US-based investment firm Apollo Management walked away from takeover talks.

There is a chance that the chain might be bailed out by the music industry itself, which is keen to avoid placing too much power in the hands of web giants such as Amazon and Apple.

Music and film companies are believed to have provided HMV with £40million to keep it viable in the run-up to Christmas.

And Andy Heath, chairman of UK Music, raised hopes the industry could step in with a vigorous defence of high street record shops on BBC Radio 4 this morning.

'There is still significant and very large demand for people wanting to buy music in the high street,' he told the Today programme.

'I think there is a place for a chain but the chain needs to be focussed in a way HMV was unable to be focussed. Going into administration gives HMV an opportunity for a substantial and decent rebirth.'

Web users paid tribute to the legendary chain as they shared memories of shopping at HMV.

'It's a bad thing for the music business because HMV was more or less the gateway drug to the idea of going into a record shop as a regular thing,' said Andrew Harrison, editor of Q magazine.

'It's on the high street, it's convenient, it's next to the other places that you're going and it showed people the value of random browsing where you can just walk along the racks and look and think and just be inspired by something.'

However, others took a more cynical tone. Rapper Professor Green tweeted: 'HMV bankrupt. We may as well just give up on any medium that involves hard copy and get on with it. #sadtimes'

Labour business spokesman Chuka Umunna said: ‘For the sake of HMV’s employees, we hope a way can be found to keep the business going – the demise of this institution would be a body blow to British retail.’

A spokesman for David Cameron described the company's troubles as 'sad news for HMV and its employees'.

Asked whether the Prime Minister would take action to defend the high street from online competition, the spokesman said: 'We have already taken a number of measures around supporting the high street. It is very important that those measures are implemented and seen through.

'We need job creation across all sectors and all aspects of the private sector.'

Flagship: HMV's store on Oxford St pictured in 1939, offering 'home entertainment and electric housekeeping'

Iconic: Nipper the dog, left, and the HMV delivery van, right, are among the famous symbols of the store

Administrators could opt to keep stores open during the process in order to raise funds by shifting as much stock as possible.

Perhaps the biggest challenge to HMV's dominance of the entertainment market has come from Amazon, the American firm which is now the biggest music and film retailer in the UK.

Amazon.com was founded in 1995 at the start of the dotcom boom, and quickly diversified from selling books to offering CDs, DVDs, electronics and household goods.

As well as the convenience of shopping online, Amazon's success has been down to heavy discounting - it often sells new releases at less than half their recommended price.

Despite HMV's efforts to promote its own online offerings, Amazon became the UK's largest entertainment retailer around Christmas 2011.

It has also been under attack from supermarkets such as Tesco and Sainsbury, which are able to offer discount DVDs and CDs thanks to their size.

Original: The Oxford Street store in 1922, a year after it was officially opened by composer Edward Elgar

The beginning of this year has seen HMV offer massive discounts in the hope of filling its stores and boosting revenues.

But despite the efforts, dismal Christmas sales were the final straw for the firm’s banks. HMV is understood to have asked them for a £300million lifeline, but was turned down on the evidence of its recent performance.

The decision by RBS and Lloyds to pull the plug on HMV is likely to cause a backlash, given that they were both bailed out by British taxpayers during the financial crisis.

The appeal for help from the two lenders came just days after the company asked suppliers to give it £300million to pay off its debt and revamp its business model.

That request was also turned down.

Bright lights: The store was lit up with adverts for classical recordings during the 1920s

If HMV's stores do close down, they will push up the sky-high vacancy rate on British high streets. More than one in nine stores is currently standing empty, according to the British Retail Consortium, as consumer confidence continues to flounder in the wake of the struggling economic recovery.

Neil Saunders, managing director of retail consultancy Conlumino, said the collapse of HMV was inevitable.

'While many failures of recent times have been, at least in part, driven by the economy, HMV's demise is a structural failure,' he said.

'In the digital era where 73.4 per cent of music and film are downloaded or bought online, HMV's business model has simply become increasingly irrelevant and unsustainable.'

However, he added that it was unlikely the 92-year-old HMV brand would disappear completely, saying that even if the company went out of business there would be other firms keen to acquire the legacy that goes with the HMV name.

'I think it's a good brand with a good emotional connection and I think someone will want it,' Mr Saunders said. 'And someone will be interested in acquiring a rump of stores because there are some that trade profitably within the group.

'A lot of the grocers have their own download services or mail order services so there could be interest from an existing player who just wants to use that name.

Are you an HMV employee affected by the news?
Please get in touch by calling 0203 615 3594 or emailing hugo.gye@dailymail.co.uk

 VIDEO  A handful of shoppers try to grab closure deals at HMV