HMV summary of posts on Interacter

A post on the Interacter blog last week, proved incredibly timely in criticising HMVs Blue Cross marketing campaign.

Three days later, HMV went into administration.

The article itself is excellent, but the comments (of which I have contributed several) provide some interesting reflection points of the wider implications of HMVs failure. Go to the original blog to see all the comments.

Here are my posts together in one place. 

Post 1

If you were designing a new music retailer business how close would this be to what HMV is like today? … answer: NOTHING LIKE HMV!!! And herein lies the problem. The core issue it isn’t simply struggling with clicks and mortar integration, the problem is more fundamental than that. HMV has wholeheartedly missed fundamental market shifts in retail design, experience shopping, online/offline business models and dynamic pricing – and a last ditch sales promotion will not fix this.

Some examples of what I personally experience:

– No or limited ability to actually listen to the music in the shop (unforgivable) – heck I could walk into Apple next door and listen to music on Youtube, but not in a music store!
– Out of date design – largely unchanged in 20 years (even more)
– No search functionality – how can I quickly find whether an album is in stock?
– No download/custom burn functionality in store
– Poor quality furniture/displays – zero interaction of furniture
– Broken electronics displays for headphones and speakers … some work, some don’t. No one is ever there to help, offer advice or actually ‘sell’.
– Zero online/offline integration – heck after 25 years of me spending great amounts of money in there you have NO IDEA who I am. Small retailers that I buy from online nail this with my first purchase from them. Even small new local shops incentivise my business and capture my contact details to send me offers!
– Generic layouts with no limited input from staff (I agree that the employees could be a huge asset, but this is never going to happen when they are stuck behind tills rather than out there helping customers). This is a very simple change that could be made. I have some great experiences with staff and used to enjoy talking about new releases and limited editions that they had secured from local record reps, but not in recent years. Why does your badge not tell me what you like – or know about? I’d introduce badges so I can find the dance guy, the sci-fi bloke, the rock chick – who can help me???
– Unpleasant shopping experience. My kids dislike the shop – they find it cramped often noisy and hard to navigate – this says more about the future viability than I could. To them it is simply not relevant. Anything that they want is downloadable from a number of sources (including free listens/views on Youtube) – they can listen to clips, see videos and download to a device of their choice if they want to keep it. In many cases, they don’t – so streaming from Youtube is enough. If they want a video – the default is online, not HMV.

I am not sure HMV can be saved. That is because the business model that HMV has today is dying. It is arguably dead as no new business could ever get funding for a business that was even close to HMV in concept. If I went to a bank with the HMV business model they would think I was mad. It didn’t have to be this way – HMV could have evolved. It didn’t. HMV could have downsized, reinvented itself and became THE social space on the high street. It didn’t. And on that point … did no one in HMV notice that Starbucks? or Costa or Nero … or any of the successful independent stores?

The Blue Cross sale has one purpose – increase short term cash flow to pay creditors threatening to cut supply. It isn’t necessarily the wrong thing to do, but it is not a plan that will help it survive. It is likely to simply extend the inevitable, but only by weeks.

I agree with several comments so far that the timeframe of 10 months looks optimistic. If HMVs Christmas results didn’t make the grade, then it will not be allowed three more quarters to continue – given that Christmas is its busiest period. Early January will see vouchers being redeemed and children’s pennies buying new games for their Xboxes, but this will not continue at this rate until Easter. February and March are going to be a brutal for lots of businesses and I don’t see HMV escaping this.

The financial structure of HMV (high debt, low margins and falling profits) may mean that the only viable strategy is the one that they have (keep as much cash as you can coming in). I have posted my solution to the problem previously on this site, so go look for this if you want to see my thoughts on the solution, but this may not be feasible anymore.

Can HMV be saved? The theoretical answer is yes. But the logic that supports that is that until it is formally dead/bankrupt, it is alive and if alive it can be saved. But then until yesterday the same logic applied to Jessops.

What would I do if this was my problem?

1) Figure out how long the business can survive. Close at least 50% of the stores to extend this period to buy time to remodel, redesign and relaunch.
2) Change the exec team and the marketing team and replace with someone who actually cares and understand retail experiences and can see what is possible. Invite design agencies to collaborate on a results reward basis (and pay well).
3) Rapidly relaunch a smaller number of concept stores to demonstrate viability to investors and customers. Rapidly iterate/improve/innovate by rewarding and empowering local managers – then roll out as quickly as possible.

Chance of this happening? Pretty much nil judging by what has happened over the last ten years

Good luck HMV. I wish you well. If anyone has any unused gift cards though, I’d quickly redeem them.

Post 2

We agree that the staff are a HUGE potential asset. I’d love to see more innovation in how they are utilised in the stores. They are a massive potential differentiator over other sellers. I’d love to see managers given small marketing budgets to innovate and attract customers and freedom to respond to local tastes and events. Neither of these cost a great deal of money. In fact a strategic shift to better engage customers, and be ‘the music and video experts’, could cost very very little. The big strategic mistake HMV is making is going into a low cost price war when it is carrying huge debt – but I assume this is for cashflow reasons so excusable as long as alternatives are being developed. All of the other companies listed tried this approach too. Price reductions reduce margins and sets the expectation with customers of always expecting a big discount. If this can be sustained, then fine – but lets not forget supermarkets sell CDs and DVDs too and they have deep pockets to win price battles. Low cost pricing is ONLY viable as a strategy if your costs are lower then your competitors (not your prices). Whilst HMV clearly negotiates well – I’d expect cost of good to not be significantly different to what Tesco or Amazon pay.

As for the cost of expenditure on refits and new designs. As it stands HMV is on borrowed time in terms of its concept and viability as a high street store. My argument was reinvent or face irrelevance. Having one or two next generation stores (assuming that they were successful and generated increased profit and customer sat would give investors the confidence to support a longer term strategy of investment and future development.

As for change coming … I’m still waiting. Most of the changes I listed in the earlier post as missing have been available for many, many years and I’ve yet to see them in any HMV stores. I wish HMV well, but the graveyard of high street names is only going to grow in 2013.

Post 3

Matthew – you are right but they are still competition and cannot be ignored. You may not like the practices of either, but the strategy needs to account for these. Every CD/DVD Tesco/Amazon sells is one that HMV does not. Tesco focuses on the best sellers – but that is where the volume is – which is all Tesco cares about – always 80:20. The tax issue (which I agree is wrong) is irrelevant in terms of survival strategy for HMV. It should lobby about this), but to customers it mostly doesn’t matter. Just for interest (as HMV has a sale on), so I thought I would check 10 random online prices (5 best sellers from 2012 and 5 random albums including Jarre, Michael Jackson, Jack Johnson and a couple of compilations.

Results: HMV matches 1 album from Amazon on price. 3 are separated by penny (Amazon does the .99 pricing whereas HMV rounds up) … but 4 are more expensive by at least at £2, with the largest differential being £5.01. 2 are priced within £1. On 9/10 HMV is more expensive.

Total difference: £14.30 – absolutely not scientific, but interesting nonetheless.

I don’t care about the colours – I care about the strategy. This is the issue for me. HMV has to be a destination store – with tight online/offline integration.

Post 4.

Showrooming is simply a sales failure. Forget the online aspect, it is a failure to engage and sell.

Allow me to explain …

So the problem is this.

1) Customers are interested in a product.
2) They visit a local retailer to see/touch/try on the product
3) They go home and order this online from another retailer

And the problem is the online retailer?

NO, NO, NO.

The problem is the shop. They had a customer wanting and willing to potentially make a purchase and they let the customer walk out of the store without converting that sale. This is a fail of salesmanship. Price may have been a key determinant in the customer choice, and this needs to be addressed [solution – offer better value, and avoid losing on price], but did the local shop engage the customer? Did they explain the advantages they offer over the online retailer? Did they differentiate themselves and show why they are the best choice to buy from? In almost all cases the answer is no.

Retail shops need to move from being ‘passive’, whereby a customer walks in looks and around and maybe buys to ‘active’ sellers. This means that shops engage with customers BEFORE, DURING AND AFTER the visit. It is an ongoing engagement.

– BEFORE by sharing offers, announcements, advice, new stock.
– DURING by understanding needs and being an A+ service company
– AFTER by thanking customers, offering come back deals and trying their best to stop the online purchase and convert this to a local one.

In most cases, none of these stages happen in the shop. But the online retailer does this through targeted advertising and display, through emails, Twitter engagement and dynamic website content management.

When retailers think active, every customer matters. Every interaction matters. Service IS everything. Price matters, but successful hotels know that only winning on price is a way to lose customers. The solution to showrooming invoves all aspects of retail – price is there, but also is display, service, and most importantly retail experience.

If you are a retailer – there is one simple way to start understanding this …

Imagine that 80% of your existing customers are never going to walk in your shop again … ever

AND

And of those who do come in 80% will not buy anything.

What would you do?

How would you fix these two issues?

Now do them, because a majority of potential customers are not visiting you and of those that do, most are not spending with you.

I’m not saying this is easy – but the default outcome – what will happen without change -is business failure. The good news is that many small retailers are reinventing themselves and becoming successful small GLOBAL businesses.

I can see a book here somewhere …

Post 5.

This is particularly bad for the 4000 staff, but also for other high street stores, who are going to find trading increasingly difficult as confidence in the high street business model wanes.

Some thoughts:

1) Whilst the ultimate responsibility lies with HMV’s management – and particularly its retail strategists, others including councils and high street property companies play a part too. Councils need to recognise the importance of the high street, to the viability of a whole town or city and stop introducing measures to keep shoppers out (punitive parking management, car unfriendly measures, and carte blanche for mini-supermarkets to kill diversity. Property companies need to better support companies unless they want all their shops to become charity rentals. Retail forums need to represent all retailers – not just those with deep pockets able to participate.

2) Change or die. This maxim is taught to business studies students, but as they progress to senior roles, they increasingly fear change. HMV ‘was’ THE music shop, full of passionate people who cared about music. Have a look at the comments in this Peston article – http://www.bbc.co.uk/news/business-21023602 Comment after comment stating what everyone knew, but HMV seemed immune to believe. As for the tattooshttp://www.guardian.co.uk/business/shortcuts/2012/oct/24/hmv-banning-tattoos-staff-wont-increase-sales – this tells me everything I need to know about HMV and understanding culture. WRONG.

3) You can argue about online trends, competitors advantages, operating conditions all you want. You can decry Amazon’s tax behaviour, criticise Tesco and it is all a waste of time and energy. Instead of this – recognise reality and FIGHT. Stop moaning – start battling and divert your energies to winning customers, one by one. A previous comment highlighted Zappos – excellent idea. Forget the metrics, forget the statistics. You either provide great service and put the customer first or don’t. Guess which one has the best track record of surviving over the long term.

So what bright ideas would I propose to reinvigorate HMV, to make it viable?

Just one … don’t let anyone over 25 be involved in this!!!! Consult, involve, engage young people. Let those under 25 tell you what they want. Understand this and you have a half decent chance of keeping the company alive.

Post 6.

My point was that the core concept of HMV was increasingly failing to be relevant to the largest section of music buying market. For ANY high street store (or increasingly any store) to be viable it has to be a destination that attracts the target market to shop there. With HMV this is much wider than the u25 demographic, but designing a future that doesn’t cater to their needs would be highly ill advised. Example … young people increasingly have tattoos. Do they find tattoos offensive? Does it reduce their willingness to shop and spend money there, or does in demonstrate cultural diversity, encourage discussion and engagement in conversation and thereby support the shop – and thereby sales?

The tattoos decision MAY have been relevant for an over 50s shopper, but was this decision the right one, or misjudged? I do not like Hollister as a store, but I’m not meant to. It is a destination store for my 12 year old daughter not me – she wants to go – I just tag along at a distance and fund the purchases. Would HMV have a future as a series of smaller niche stores, focusing on depth knowledge and being a cool place that over 25s hated? I don’t know – not without the research and data. What I do know is that banality fails every time.

Your last point about retail agility it spot on. Both at a national, AND local level.

Post 7.

It will be interesting to see what happens. None of the media companies will want to see HMV disappear as this gives Amazon and increased power to demand reduced prices and therefore reduce record company profits. The larger media companies may be willing to extend supplies and amend terms, but this does not change the fact that the core HMV business is not attractive to customers – it is this that needs the change. Unless the HMV store/business model is reimagined/updated, my expectation would be the same happening again in a couple of years.

Post 8.

A reality check for the High Street:

1) According to Verdict, the retail research group, the internet will account for about £1 in every £8 spent in the UK this year. (Source:FT). That means 7/8 of spend is NOT spent online (although this varies between goods sold). Given the relatively low cost of setting up an internet shop (many small shops have successful online businesses), there is no excuse. That means you a shop + online business has ALL of the potential market to play for … GLOBALLY. Online businesses have 1/8 of it. If you are not selling, don’t blame the shift to internet.

2) Retail vacancies are at an all time high (Source: LDC). This excludes charity shops, which are often temporarily disguising available properties. This is bad news for everyone (inc. shoppers, councils, property owners). It does though present an opportunity to negotiate and re-negotiate hard on costs and lease lengths. If the deal is wrong, leave it. If a costs are killing a business – deal with these before it is too late.

3) This is not going to get any easier. Whether we move into recession (for the 3rd time in recent years) doesn’t significantly matter, because the underlying economic environment is going to stay challenging for a few years yet [this may be the new normal for some time to come]. Businesses need to start by asking themselves one question – and make sure that they have a good answer:

– Why would prospective customers choose to buy from us?

You can add another ten or one hundred follow up questions, but this is the starting one. What is your value proposition? Why is it better than your competitors? Who says so? How do you know? How do you measure it?

HMV is the first, but will not be the last. Act now to make sure it isn’t you next.

Post 9.

The dominos continue to fall as Blockbuster follow HMV.
http://www.bbc.co.uk/news/business-21047652

A much clearer case of online media killing the business than HMV, but a compelling retail destination … no. As the core business is profitable according to BBC News, there is a good chance of saving many stores, but without a viable business model, long term prospects are far from secure.

Could a checklist be companies at risk be developed?

Some early thoughts …

1) Does Amazon sell your product?
2) Does Tesco sell your product?
3) Can I buy your product digitally and download it?
4) Are your monthly physical visitor numbers decreasing?
5) Is your online business separate to your core business?
6) Is the purchase functional to fulfil a clear task (as opposed to emotionally driven)?

If the majority of answers are ‘yes’ then be afraid and start to think hard about how your future.

Any other ideas?

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