HMV – A dead dog?

Posted by admin | January 7, 2011 0


Consider this prime example of Grade A toe curling Corporate Guffitis;

“I am a huge admirer of the HMV and Waterstone’s brands, which are renowned for their specialist positioning, passionate employees and unrivalled range authority, and it will be a privilege to lead the Group. We all know that these are highly competitive markets, but I firmly believe that the stellar attributes which are in the DNA of the brands and operating culture will enable the Group’s businesses to successfully differentiate themselves and to compete effectively through a variety of complementary retail channels.”

So said Simon Fox when appointed MD of HMV in 2007. At the time I took exception with his upbeat Guffitis pointing out flaws in their customer offerings at HMV and Waterstone’s and suggesting that HMV Group were cruising for a bruising.

Well sometimes I’m wrong (you read it here first!) but in this case it was a question of timing as HMV were saved for a while not by their own efforts but by their competitors going down as Woolworth’s, Zavvi (formerly Virgin Megastore) and Borders went bust in quick succession and Britain’s most hopeless retailer, W H Smith, stopped competing.

Faced with a clear run they could widen their margins in the face of reduced High Street competition. So £3 DVD’s became £5 DVD’s and their price differential on their website disappeared.

Now they have hit the wall with customers simply not buying from them and going to better priced outlets such as instead. HMV delivered more dismal sales figures after its Christmas was ruined by what they claimed was the weather but the malaise is deeper as their customer offer remains poor. The group, owner of book store Waterstone’s, reported a 13.6% slump in like-for-like sales in UK and Ireland in the five weeks to January 1 and said profits for the year to April would be near the bottom of forecasts. As well as the disruption caused by snow and ice before Christmas, HMV said its core entertainment markets remained weak and underlined the urgency with which it needed to carry out its turnaround strategy.

HMV, which has been fought increasing competition from supermarkets and the internet, said it would exit about 60 British shops over the next year and take further steps to ensure it meets a test of its lending rules in April. Chief executive Simon Fox said the anticipated improvement in sales failed to materialise due to the weather and challenging markets. “Whilst HMV has had a challenging year to date, it remains a profitable and cash-generative business and a powerful entertainment brand,” he said. “The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business.”

HMV admitted it is facing a battle to meet a forthcoming test on its bank covenants. It pledged aggressive action on costs and said it would close 60 stores across its UK businesses over the next 12 months and seek a further £10 million a year of cost savings. It has 285 HMV stores and 311 Waterstone’s bookstores in the UK and Ireland. However, the company’s shares fell 20 per cent today after the sales figures giving it a market cap of just under £100 million.

David Jeary, a retail analyst at Investec Securities, said the company failed to improve UK sales despite easier comparatives with a year ago. “While adverse weather undoubtedly was unhelpful to the business in the UK, the core HMV division remains under considerable stress as a format and this must raise questions over its long-term future,” he said. His Master’s Voice was originally launched as a record label which then opened an Oxford Street store. The name was abbreviated to HMV and the store went on to become a nationwide chain.

As well as the issues with pricing, consider the customer feedback on one site;

“My experience of HMV in November was poor. An HMV gift voucher cannot be redeemed online – only in a store. To use the voucher an order for a CD pre-release was placed in an HMV store on the Wednesday preceding the Monday release date. It was not delivered to the store until the following Wednesday.

When chasing it on the Thursday the counter staff had to go hunting for it “upstairs” as they had “not had time” to process their previous day’s deliveries. Another copy was ordered from Amazon online the day before release. It arrived quickly – and cost £3 less than HMV charged. Why bother with HMV?”

My own experience going into my local HMV (for research purposes!) this New Year was instructive. None of the crowds and footfall of yore but loads of “HMV Sale” banners hanging down from the ceiling. But a closer inspection of the DVD’s and CD’s revealed NO price reductions from the pre-Xmas prices and no new stock. Indeed none of the “Sale” Banners or flash cards made any claims of price reduction. Maybe I lack a conceptual brain but a “Sale” without any price reductions is certainly a novel concept – and judging by the empty shop not one which was taking off. Who do they think they are fooling? Certainly not their customers.

Going into Waterstone’s in the same centre revealed a similar tired and dumbed down offering; a parade of cookbooks and celeb biographies – books written by people who don’t write aimed at people who don’t read. And to think how fresh and novel this chain was when Tim Waterstone changed the face of bookselling? A survey has declared, once more, that people are reading less. Indeed, 25% of British people admit that they haven’t read a book for a year – while half shove Ulysses in their pocket to appear more intelligent. Obviously, people still troop to Waterstones and have a look on “the table” (such is its publishing power), but clearly the books they see there do not inspire them to actually buy them.

HMV and Waterstone’s have nowhere to go in their current format and it is increasingly difficult to believe that HMV has any long-term future. They are being whittled away by the likes of Amazon, Play, iTunes and the supermarkets. I think the only future for Simon Fox and his DNA is on the Jeremy Kyle show!

Nipper, the “His Master’s Voice” dog

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