HMV: internet, technology, insolvency and real estate specialists have their say

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Four retail specialists give Retail Times their views on why the high street music retailer, HMV, has become the latest in a succession of retailers to fall into trouble following a difficult trading period and the challenge from online stores, putting over 4,000 jobs at risk

Dan Wagner, CEO and chairman of mPowa and Powa Technologies, which is responsible for implementing online and mobile retail platforms for some of the leading high street names, said: “Although HMV has introduced various promotions to drive sales, the shift in the way consumers are buying goods has had far-reaching implications. Internet shopping is now more popular in the UK than any other country in the world, with UK spending an average of £1,083 a year on shopping online. While this is good news for British ecommerce businesses, those that didn’t have a digitally focused strategy from the outset are now playing catch-up and the consequences are clear to see.

“Although HMV responded to its changing customer demands by moving towards a technology focused strategy with the sale of headphones and tablets, it appears by today’s announcement that this strategy has not been able to compensate for the fall in CD and DVD revenue. Competition from iTunes and Amazon seems to have contributed to the fall in sales for HMV.

“Many more retailers could succumb to a similar fate because of the cumulative effect of poor sales throughout the year. Retailers have to stay ahead of the game and have an effective online and offline strategy in place if they are to survive in this new technology-focused era.”

Martin Smethurst, managing director, Retail UK&I at retail technology supplier, Wincor Nixdorf, said: “It’s disappointing to hear of yet another high street institution on the brink of extinction, yet this serves as a chilling reminder of the difficulties facing the high street today.

“Retailers have not only had to battle against a tough economic backdrop, but also against a dramatic shift in the way customers shop. The positive trading announcements from John Lewis and Waitrose this month have shown us that it is not impossible for the high street to thrive.

“However, HMV has failed to adapt to meet the demands of the modern shopper and has allowed online businesses to poach their once impenetrable market share. Regardless of all the hype being created around online, let’s not forget that 85% of shopping is still conducted via the high street.

“The truth is, if retailers like HMV were offering customers the services they require, they would still be a successful business. Nowadays retailers must provide a truly omni-channel shopping experience, which means providing choice to their customers. They must offer multiple shopping channels, cater to various methods of payments, and even become flexible around how a customer wishes to receive their items. These are just a few factors among a long list: but starting here will help high street stores create a more seamless retail experience to attract and retain customers once more.”

Charles Maunder, partner and head of the banking, restructuring and insolvency team at law firm Michelmores, said HMV’s demise is yet further evidence of the systemic problems faced by the retail industry.  

“This is in part another success for e-street to chalk up against the high street. Ultimately, for sales of DVDs and CDs it could not compete for pricing with the pure on-line retailers; supermarkets were also able to undercut them.

“It is further evidence, if any was needed following Jessops’ demise, of the difficulties faced in particular by high street retailers trying to compete against the purely online traders.

“HMV’s other critical problem, which makes it distinct from Jessops, was for its business model to keep pace with changing technology and trends in public consumption of music. It missed its chance to join the digital downloading revolution and has not caught up. It highlights the challenges faced by retailers with substantially fixed overheads trying to adapt fast enough in a rapidly changing market.”

“HMV is a victim of a systemic problem for large parts of the retail industry: sales are decreasing against a minimum viable costs platform and lenders’ patience can only run so far. We should expect more of these throughout 2013.”

Darina Kerr, real estate partner, Dundas & Wilson (and former HMV shop assistant during her student days), looks at what went wrong: “Statistics are bleak. Shops are closing at increasing rates. According to a survey by PwC and the Local Data Company, in July and August 2012, 32 stores closed a day – and in one particularly gloomy five day period in 2012, more stores closed than in all of 2011.

“And although 60% of the UK population visited HMV last year, that wasn’t enough to save it. Footfall doesn’t mean cash flow. A shop on every high street is as out of date as a Dire Straits LP at a time when 30% of music and entertainment is bought on-line, and music itself is a declining market. And, while HMV had reduced store numbers from 285 in 2011 to 247 shops in 2012, that was still 247 stores more than its rivals Amazon and iTunes – rivals who don’t have to pay millions in rent, maintenance costs and business rates every year.

“The fact that customers are shopping less with their feet and more with their fingers has hastened the demise of a long list of retailers – in recent months JJB, Comet and Jessops have followed Habitat, Zavvi, and Woolworths. Mobile shopping was hailed as the Christmas success story but its downside is the resulting pressure on bricks and mortar stores.

“As a nation we have moved from the high street to the istreet. According to the British Retail Consortium, while UK retail sales over Christmas were up 0.3% from December 2011, online sales were up a staggering 17.8%. And, with the number of tablets found under Christmas trees this year, next year is likely to see this trend grow even more, particularly for those shops and products we may not traditionally have associated with the internet.

“Teenagers don’t rush to record shops on a Saturday afternoon to buy the latest singles. They download them from iTunes or watch them on YouTube. ‘Gangnam Style’ by Korean rapper Psy wasn’t watched 1bn times on YouTube, it was played in the background as kids use YouTube as a virtual jukebox while surfing the net. The way we consume music has changed, and films and games are following. Even HMV’s 2012 Annual Report acknowledges that they expected the audio market to fall in value by 20% in 2013.

“HMV tried to change but unfortunately it was a case of too little, too late. Initially wary of the digital market 8 or 9 years ago, it recently introduced more technology like audio docks, tablets, ebooks and headphones, but with intense competition from John Lewis and Dixons, a last-ditch shift into technology wasn’t enough to save it. Sadly, HMV, in the end became another fallen Comet.

“How do you get people to buy what they can get for free? Heavy discounting both before and after Christmas wasn’t enough to persuade a new generation of shoppers, many of whom think that most of what HMV sell can be downloaded for free. And while in the past HMV was famous for its specialist staff and a brand appeal that sold it as a ‘cool older brother’, in recent years there has been a perception that its stores now look more like pile-em high, sell-em cheap warehouses with the ‘cool old brother’ morphing into Del Boy Trotter.

“Speaking as a former HMV shop assistant, it’s saddening to think of all the staff affected. If HMV cannot be saved then almost 12,000 people will have lost their jobs in the retail sector in just six weeks from HMV, Jessops and Comet. And it’s not just full time staff who will be affected. HMV was a big employer of students and young people who worked part time. This will ramp up the pressure at a time when youth unemployment is already high.”