Asda / HMV Is It Wise.Com?

Today we read that Asda, the UK arm of Walmart, is ‘considering’ a bid for UK entertainment retail casualty HMV. Administrators Deloitte have already almost halved the number of HMV stores leaving it with some 116 outlets and the deal may be attractive given Walmart’s own position in the same market in the US.

It is an interesting rumour given that their two biggest UK supermarket rivals have clearly pinned their money on going after the growing online media marketplace. It also comes on the back of the news that Argos is reintroducing CDs and DVDs into selective stores. The CD and DVD is clearly becoming transient technology and not one to invest in today unless you see a quick buck in ‘stacking them high and selling them cheap.’

Last year Sainsbury acquired the flagging Anobii ebook service, rebranded it and now are pushing it hard to their customer-base .  It may not give them a comprehensive online media offer but it starts to plug the gap.

Tesco,  now the third largest retailer in the world, have made their online intent clear by hiring Gavin Sathianathan, Facebook’s EMEA head of retail for Europe and Mark Bennett, a former EMI and Warner Music executive who headed up Sainsbury’s digital entertainment unit. In 2011, Tesco bought an 80% stake in the Blinkbox which gave them a competitive position against LoveFilm and Netflix and it also acquired music streamer, We7 and ebook retailer, Mobcast. It now has added Blinkboxbooks and Blinkboxmusic sites and is planning to target market its millions of customers about the services. Tesco are also about to launch a Clubcard TV channel, which will be available to Tesco’s ClubCard loyalty scheme members, free of charge, and will offer a mix of archive films and television shows. An interesting move after Argos had announced it was to close its own TV station. However, with some £64bn turnover and £3.9bn operating profit, Tesco has the money to compete in the media marketplace and is not about to simply roll over.

Both supermarkets have avoided the device wars and have stuck to being online and device agnostic. A wise move.

So what about Asda? Do they need the HMV store footprint in an online marketplace? They could flip the stores into smaller media outlets, but does that really make a difference?

When virtually every laptop, ultrabook, notebook and tablet today does not have a CD drive and even the car manufacturers are starting to fully embrace online,  is buying a store range that never understood this, is it wise.com?

HMV Demise Offers All a Wake-up Call

The UK  High Street casualties continue. In recent weeks more have fallen and now media HMV chain is poised to follow With administrators being appointed tomorrow.

Over the last decade the music chains that once dominated have fallen like domino and it is now hard to find any music on the High Street. The video stores have also largely disappeared along with the game stores.

Is it all down to Amazon, Apple and their online offers? Is it down to the actual music going online and streamed services such as Spotify and YouTube? Is it down the likes of Love Film and Netflix? Is it down to increasing rents and the chain’s obsession with must have prime locations?

Some would suggest that all the above mitigated the demise but in the case of HMV some would suggest that the strategy and marketing was a real issue.

If we were to ask shoppers what HMV stands for and about their look and feel of their stores, what would be the answers?

We would suggest the HMV not only held onto Waterstones too long they failed to recognise the convergence that was happening across media and its migration to full digital products until it was too late. As a result their store often resembled a ‘hotch potch’ of merchandising with consumers being lost wondering if they were in a music, film, game or gadget store. The layout was often clumsy and the brand message lost. Worst of all they failed to sell the digital product and create and effective online presence.

Over the last decade music changed with Napster, iTunes, Amazon, supermarkets and HMV didn't  Spotify and YouTube are now starting to further change the landscape yet HMV appears still pre MTV!

It is often easy to pretend that change will not impact the current landscape, but it will. Every sale lost to the cloud means lost shelf space. It is inevitable that as the market for physical product shrinks so shelf space has to also shrink and publishing inventory adjust. This is a fact of life and like the tide and King Cunute it isn't for turning.

The question is how we adjust the High Street offer to maintain a presence and maybe accept that the vertical chains that once dominated the media space are an inevitable casualty.    

Its The Same Old Song

When sales fall six years running you have to be brave to keep faith, or have a trick up your sleeve. When the drop happens during a period of significant change many would question if the demise will be terminal for some.

The British Recorded Music Industry (BPI) report states that the combined digital and physical album sales fell 7% last year, from 128.9 million to 119.9 million. The fall is the sixth year in a row and change is dramatic as physical CDs go through what some believe is their death throws. The fact is that CD sales are declining much faster than digital sales are growing.

HMV is shows clear signs of fatigue in its latest results and is planning to close stores and impose further costs. EMI is in turmoil and appears to have the ability to press its own self destruct button. A price drop below 99p downloads may not be enough to breath life into and accelerate download sales to the level that would buck the decline in market size. Even with Simon Cowell’s X drive and music machine the result leads one to envisage that casualties are inevitable.

On a positive note BPI claim sales of digital albums this year have increased by a staggering 30% and also that the combined singles market recorded an record high of 161.8m. However the underlying trend is of sales decline and a shrinking market.

Alarmingly, sales of digital single tracks are already digital and some 98% of the overall figure. This means the physical single is already dead and growth is now done to digital alone. However, just under 25% of digital albums sales are now coming from online services and the percentage has to grow significantly to avoid disaster. So as the market goes digital and is shrinking it appears it must either sort out how to get albums back on the buying agenda or move back to a smaller singles driven market.

BPI has to continue to blame illegal downloading for the drop in sales and continuing to blame customers for the industry’s own failures isn’t exactly a positive move. It is clear that the industry needs to look to streaming services and advertising revenues and keep one step ahead of the market and not just expect the iTunes model to save it.

The Weakest Book Chain Link?

The demise of the current book chain channel is probably far more predictable than the demise of the independent bookstore. These retail giants now find their economic model being threatened and undermined and we have to ask if one chain is even one chain too many?

Interestingly the two who have both moved to the media centre ground Borders in the US and HMV /Waterstones UK are experiencing the most problems.

Borders now themselves in a world full of giant new entrants, who are redefining ‘big’ and making Borders and also Barnes and Noble look small. They now have internet competitors who have superior logistics and pricing and operate with less fixed overheads. Finally, they also find themselves threatened by supermarkets and low cost outlets who simply select better tighter ranges and do it cheaper. Some would say that chains must change if they are to avoid the fate of the old styled bookclub and others suggest that their model is beyond fixing.

Forget the poor Christmas trading period, miss mash of a digital strategy, web site crash these are just symptoms of a company that has lost its course in an ever changing market. Borders can refinance till the cows come home, but unless there is radical change it is in danger of just being another casualty of change.

As US publishers prepare to meet with Borders over the retailer's cash crisis, they carry the threat of them potentially putting the bookseller on stop. They also do so without their top attorney, Thomas Carney and SVP CIO Scott Laverty who both stepped down this week and it is also rumoured that these aren’t the only top casualties as boardroom knives get sharpened.

It would appear that it is in every publisher and distributor interests that Borders survives but if this becomes a slow death then some will not want to be left exposed. Credit insurance may protects some, but it doesn’t instil confidence and a retailer without sufficient positive cash flow to pay their way, either faces serious cut backs, or more often is a retailer on death row.

In the UK the HMV Group face; shares falling by some 24%, Christmas sales down 10%, weak profits and challenges over the servicing of a bank loan. On top of this gloom, this year it plans 60 store closures and also cut costs by a further £10 Million. They claim that the demand for CDs, DVDs and games was weaker than expected and that Waterstone's bookstores has performed and delivered unchanged results during the Christmas period.

It is fairly obvious that DVD, music and games are moving online and that others such as supermarkets are selling increasing numbers on a narrow range of titles. The days of high street video and music have gone, so chains who sought comfort in consolidating media space are now suffering.

However we now need to ask ‘who needs who?’ Is it better today to have a wounded Borders than a dead one, or a lop-sided HMV than a Waterstones damaged by friendly fire?

Can the US market take out the number two bookstore and some 676 stores and not feel the fallout? What would happen in the UK if Waterstones was forced to shrink and Waterstones become a media store in order to protect the HMV Group? Any reduction in book shelfspace in either market will be significant and the fallout may not benefit others in the High Street but further strengthen Amazon’s appeal to consumers and power over publishers.

All chains are only as strong as their weakest link.

Finally, we are entering a era where there will be even more books competing for eyeballs, dollars and shrinking shelfspace. Sale or return works if one has a balance of hits, also rans and misses but if that balance becomes unstable then publishers’ models will increasingly become challenged.