Why HMV is expanding stores in today’s digital world

There was once a time when HMV could easily rely on sales of CDs, DVDs and vinyl. But with online shopping now dominating, the question remains whether this is enough to keep the retailer afloat. Retail Gazette talks to the entertainment chain to find out the reasons for its recent expansion plans.

HMV expansion Doug Putman music entertainment DVDs CDs vinyl
HMV plans to open 10 more stores this year.

When HMV opened its first store on London’s Oxford Street in 1921, it kick-started the retailer’s journey to selling music and film to the masses and becoming an iconic entertainment brand – both in the UK and abroad.

However, the struggle to stay afloat on the UK’s high street became evident back in January 2013, when a period of decline saw the retailer collapse into administration – placing 4350 employees at risk of redundancy.

The following April, restructuring firm Hilco came to its rescue with a £110 million deal despite HMV having £176 million in debt – including £20 million in tax owed to the HMRC.

Just five years later, HMV filed for a second administration. When it collapsed a few days after Christmas 2018, Hilco blamed the “tsunami” of retail competition that HMV faced.

Enter Doug Putman, chief executive of Canadian chain Sunrise Records, who rescued HMV from administration in early 2019.

Putman recently warned that the UK government must fix business rates or risk further store closures. He also plans to open 10 more HMV stores this year as it takes on its biggest rival: Amazon.

The plans include a search for a new London flagship site, following the closure of HMV’s heritage Oxford Street store back in 2018 – the location it traded from since its inception in 1921.

However, bricks-and-mortar retailers have been facing ongoing challenges in the wake of the Covid-19 pandemic as online shopping continues to dominate the retail sector.

Putman said HMV, which has 107 stores, was keen to return to putting on events. To start with, Ed Sheeran was booked in to mark the retailer’s new sponsorship of the redeveloped Empire venue in Coventry with a free concert for 700 people next month.

Putman added that HMV wanted to offer something different from its competitor Amazon and to “add value”.

HMV
Doug Putman purchased HMV in early 2019.

HMV must compete not just with Amazon – or even Spotify and other online entertainment streaming platforms – but also indie music retailers. This explains its determination to sell vinyls.

Although vinyl sales have risen by 11.5 per cent last year compared with the previous year, the format remains a niche part of the overall music market.

A HMV spokesperson told Retail Gazette that the company’s priority remains to open between eight to 10 stores this year.

“Further expansion is great but we want to do so sensibly and know that it’s contingent on business rates and market conditions allowing us to do so,” the spokesperson said.

“HMV sells much more than CDs and DVDs, and while we have a loyal audience for these formats, we’re seeing a continued increase in vinyl sales, as evidenced by queues outside more than 100 stores this weekend for our Exclusives Day centenary editions.”

Despite HMV insisting on pushing ahead with CD and DVD sales, Big 4 grocer Sainsbury’s noticed a decline in CD and DVD sales as it said streaming services continued to affect the popularity of the products. It said sales of those items were being phased out, although it would continue to sell vinyl records in some stores.

However, other major supermarkets show no sign of following Sainsbury’s lead, with larger branches of Tesco, Asda and Morrisons still stocking a range of CDs and DVDs.

The HMV spokesperson told Retail Gazette the entertainment retailer was “seeing greater demand for pop culture products, with music, film and TV fans looking for merchandise outside of the physical CD or DVD”.

HMV
HMV continues to sell physical CDs and DVDs despite the decline.

HMV also said it supported the music economy by bringing business to distributors, record labels and more. It also continues to champion music as social tactic in the age of streaming.

The HMV spokesperson added that HMV’s online business was “performing extremely well” but today’s consumers want a seamless online and offline experience.

“Nothing can replace speaking to someone face-to-face who is as passionate about what you’re buying as you are, and our stores offer a real sense of community for music, film and TV fans,” they said.

HMV, which is celebrating its 100th anniversary this month, said online sales had more than doubled over the past year, with sales tripling in some weeks.

“In April this year, HMV saw a 150 per cent increase in footfall compared to previous occasions when lockdown restrictions were lifted, and there is a real sense that people don’t want to lose their local high streets,” the spokesperson said.

“There are still huge challenges for the high street, not least when it comes to business rates, but physical retail is not going to simply disappear.”

Private equity specialist Neil Debenham said that whether or not the expansion plans mean the retailer goes back into administration depends entirely on how willing HMV is to diversify and adapt.

“The reality is that any business – of any size and in any sector – needs to be agile and respond to changing market conditions,” he argued.

“When it comes to digital platforms and the increasing trend towards purchasing online, this is particularly important.

“Rather than becoming complacent with an existing product or service, businesses need to listen to their customers and look the state of the current market, if they are to understand how to keep pace with changing demands.”

Debenham added that HMV should focus on taking its business online given that the UK’s biggest supermarkets have stopped selling CDs and DVDs.

“Spotify is one of the most successful music services out there and has claimed 36 per cent of the global streaming market,” he said.

“This comes down to the fact that consumers want quick, easy and accessible content, and businesses in the space need to adapt their online offerings to match that previously provided in a physical space.

“HMV seems to have learnt very little from its previous dabbles with administration”

“Frustratingly, HMV seems to have learnt very little from its previous dabbles with administration.

“In both 2013 and 2018, it was like watching a sequel of the video rental chain – Blockbuster failing to identify Netflix as a threat and diversify, despite HMV having the potential to utilise their heritage and leveraging their brand recognition to create an online platform that competes with iTunes and Spotify.

“Backing a 100-year high street status quo, which was very clearly on the decline even before the pandemic, seems like a very bold, and possibly foolish, business move to me.

“The fact that HMV are not looking to sign any long-term deals also suggests they are not even certain about the future of the high street themselves, so the move looks like madness to me.

“While I’m sure there is a sub category of consumers who are attracted to the in-store experiences HMV plans to offer, the question is whether this group is big enough to sustain enough long-term interest to keep the company afloat.”

Store closures, job losses, job creation and expansion plans are all part of the evolution of the high street. That said, some retailers will be able to expand their store estates more effectively than others. One thing the online revolution has made clear is that customers want to feel a close connection with the brands they are aligned with.

Therefore, an independent store sourced with fully local artisan products may well be able to successfully expand their local presence post pandemic. For traditional or chain retailers however, it is a different story. John Lewis, one of the most successful department store chains in the UK, for instance, recently announced the permanent closure of eight more outlets after its first-ever full year loss.

Although HMV can be credited for bringing pop culture to the high street, in latter years fought to weather the arrival of downloads and streaming. The question remains whether vinyl sales are enough to keep it going.

When stores started to reopened in mid-April following the winter lockdown, footfall was up by 150 per cent in comparison to when they reopened post-lockdown in June last year.

Putman recently said that “when everything is shrinking, it’s a good time to grow”, but this depends on which way they are looking to grow.

The success of HMV’s expansion strategy will depend on employment and training of staff who can provide the interaction and advice that is not part of the online shopping experience.

Music in all its forms is part of everyday life and a product that is not expected to fall out of favour. The key to success is selling it in the form that people want to buy it, be it vinyl, downloadable or something new.

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1 COMMENT

  1. I agree with Neil Debenham, opening 9 new stores in today’s complete uncertain climate for physical retail stores is “madness”, especially for a chain of stores selling physical media (DVDs/CDs) because it’s on thin ice as since the younger generation simply is not interested. HMV has no choice but to appeal to the 40s and overs and that will remain it’s audience unless it modernises itself somehow and even then I don’t know how.

    I haven’t been in an HMV store for years. Why should I go back? What is enticing me to go back? I can get everything I want from a simple download. And books to me, look much better on my shelf than a DVD or a CD clogging up shelf space. It’s better on my external hard drive where I watch/listen to everything with a click of a button.

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