What to do about a problem like HMV?

So the CD, DVD and entertainment retailer HMV has been saved for the nation (by the debt restructuring specialists Hilco), which as far as I’m concerned is very good news. I really couldn’t see how it couldn’t be possible for a single chain of CD/DVD shops to survive in the high street, and I’m glad that the business consensus has reached the same conclusion – for the time being at least.

However, while this secures HMV’s immediate future, it does nothing about the big question mark hanging over the brand in the longer term. In particular, the fact that it took almost exactly three months from going into administration for the deal to finally be struck suggests that the process was far from straight forward. It even went on past the end-of-March deadline, the point at which the administrators had to cough up another three months’ worth of High Street rent to landlords, which could very easily have been the moment that they pulled the plug altogether rather than send good money after bad. I wonder how close Armageddon came?

But that’s in the past and now the big problem for the new owners is: having bought the chain, what are they going to do with it in order to avoid it continue losing money? Let’s see if we can come up with any suggestions…

Unique selling point

Any business expert will tell you that the first rule in marketing is to identify its unique selling point. And with all due respect to HMV’s detractors, who usually lay into the underdeveloped online side the company (more of which in a minute), the USP for HMV is undoubtedly its physical retail presence in the high street. Without that it’s just another one of dozens of unremarkable, struggling anonymous online web pages. It’s vital that the high street stores continue, and moreover thrive.

That’s not to say that they should stay as they are (or that even all 141 branches Hilco acquired in the deal should remain open.) In recent times money has been pouring out of the chain to service debt repayments, leaving the stores looking older and shabbier by the month; grabbing some of the floor space for an ill-fated dabble in consumer electronics didn’t help either. The one thing that Hilco has said is that the gadgets are going, and thank goodness for that – that desperate ploy was the mark of a previous management in full panic mode with no sense of what the business o market sector was about.

Fortunately for HMV, there’s still a large number of people who just want to walk in a shop and pick up a CD or DVD, pay for it at the checkout and take it home. Not everyone is comfortable with streaming (which too often is ‘renting’ rather than buying) and many want something physical in their hands without having to wait for days for it to show up in the post.

Of course I don’t have HMV’s detailed financial accounts to hand, but my guess would be that up to 80% of their sales come from around 20% of the floorspace in the store: the areas dealing in new releases, current chart toppers and sales/special offer items found near the front of the store. That said, some stores seemingly do their best to hide these areas deep in the shops, presumably in an attempt to make customers come deeper and peruse rather than just grab what they want, pay and leave. But really, if that’s what people want to do then let them have at it – redesign the stores to put these sections right up front and push the rest into the background.

The Long Tail

But don’t, whatever you do, think that you can get away with just curtailing the stores back to stocking just these top sellers. The supermarkets do this already, and in a head-to-head battle they’re going to win and HMV will get slaughtered. What differentiates HMV from the general stores is that they have wider, deeper range of stock rather than just the top 30, and that their staff are more knowledgeable about the items. It’s massively important that HMV doesn’t lose this ‘specialist’ side to it, even if that means carrying more things in stock than the bottom profit margin would ideally like.

However, there is a definite problem in servicing what’s known as ‘the long tail’ – items that may be several years old and only sell a handful of copies a year. The problem is that high street stores invariably never seem to have the specific item that the shopper is after: I can’t tell you the number of times I’ve gone looking for something in HMV that might be only a few months old and not found it. It’s annoying and frustrating, and leaves me resorting to online stores like Amazon – and while I’m there I’ll grab a few others things, maybe some brand new titles, all of which saps sales from HMV.

Amazon can service the long tail because they can erect huge mega-warehouses in low-cost parts of the country; HMV can’t compete with that because there’s no way of storing such a wide range of items at high street floor space prices. So how can they possibly compete?

The online dimension

Okay, we have to talk about it: what went wrong with HMV’s online offering and what can be done to improve it?

On the face of it, there really was nothing much wrong with HMV’s online service (still shuttered, by the way, even three weeks after the takeover). The site worked fine, I had no problems finding things, and items were dispatched very quickly and arrived faster than most other online outlets. I can’t recall a single glitch with any order I placed. Other online retailers could wish for such a positive report.

Yet HMV got a pounding from business experts and critics who said ‘the company is collapsing because it hasn’t understood online retailing?’ As far as I’m concerned, the correct interpretation of this is because the online wing was never integrated with the high street shops at all – it was an almost entirely separate business. Prices and availability online had no bearing on what you might find in stores; gift cards bought from one couldn’t be used on the other. Truly it seemed that other than the name and brand, the only link between the two was that the stores dutifully posted the URL on their walls, and the website had a nice store finder telling you the branch locations and opening hours. Otherwise, ne’er the twain shall meet.

People expect more from a company these days, and that’s the bit of online that HMV didn’t get – that the digital operation should (indeed, must) feedback and fundamentally change the bricks and mortar operation in turn, in an ongoing cycle. Instead, having set up a (rather good) online shop, the old HMV management considered the job done and came to a dead halt. Emphasis on the ‘dead’.

Not only that, but the existence of the online store ironically became a real problem for the high street operation. Do you price a new online item at the same price as the shops, or the same price as online competitors? If you do the first, then you’ll be hideously expensive in online terms and buyers will quickly click over to Amazon. You’ll be dead in the water. But if you do the latter, than you make it painfully obvious to all your customers how high the store prices are by comparison, and that will rot the business to your branches.

In the early days of their online business, HMV chased the prices of others thanks to the handy Channel Island tax loophole (now closed, which is why the similarly affected Play.com is going out of the retail business.) As the debt situation at the parent company loomed ever more deadly, the online prices started to spike and match the physical stores. But while you can explain that High Street prices are higher because of the considerable cost of running the stores (including staff wages and rents), you can’t use that argument to justify the suddenly sky-high online prices as well. It looks either like price gouging, or like a business trying to stave off bankruptcy by going into frantic money-acquisition mode. We all now know which one turned out to the the reality.

The price is right

The one thing that does come out of this discussion is that price matters. In my previous post on HMV that I wrote in the wake of their going into administration at the start of 2013, I noted that I was willing to pay extra for the high street service because I understood the economic realities behind that increased price; but that my loyalty had limits. When the mark-up got to nearly 80% on one item, I’m afraid I took my business to Amazon without a second thought – and would again, even if it meant dancing on HMV’s pauper’s grave. Don’t play me for a sucker, in other words.

So more than anything else, Hilco must find a way of being able to price their goods at a reasonably competitive level to their rivals, both the online ones and the supermarkets who are circling over the entertainment market like vultures waiting for HMV to leave a juicy carcass to feast upon. Note that by ‘reasonably competitive’ I don’t mean that they need to match or beat the others – as I said, I understand the reality of the overheads here. But they do need to keep it within touching distance so that customers will shrug and go, “Well I could get it online for a couple of quid less, but it’s here in my hand so it’s easier just to get it now …”

If Hilco can’t negotiate rates with their suppliers that allow them to get into this touching distance of their competitors then HMV is toast without question, regardless of anything else we propose. But I think suppliers will want to keep the important HMV retail outlet going, and so I am hopeful that this will prove possible to arrange. If not, and the prices continue to be exorbitant (and I’ve found HMV selling items for well over the manufacturer’s Recommended Retail Price (RRP) in the past) then they’ll get ripped to pieces on social media and their credibility shattered. Heck, I’ll even help if they’re going to continue to treat customers with such disdain.

If I may make a suggestion … ?

Okay, so that’s some of the issues and problems at play in the sector which now face Hilco as they attempt to save HMV in the long term. Pricing aside (which is a purely business negotiation issue), are there any suggestions that we can make based on this overview? Excuse me while I go on a flight of speculative fantasy for the rest of this post…

My first impulse would be to strip down the stores and make them cool and stylish, with a front-of-house dominated by the aforementioned 20% of items that drives 80% of the sales displayed front and centre as people walk in, pick up and take to the counter or a wandering salesperson (like they have at Apple Stores) to pay for by card or cash. Shiny and new, cool and bright, roomy and airy – imagine for a moment all that long tail stock hidden away.

As well as the new releases and best sellers and sales items, the company should look to build up a supply of ‘HMV exclusive’ items. It should also make to have sections concentrating on items ‘in the news’: I’ve lost count of the number of times I’ve seen a new entry in a film franchise out at cinemas, or a show come on TV with a new series, thought “Oh, I need to catch up on the previous film/season first” and go to the shop – only to find the relevant DVDs totally out of stock. It’s basic identification of stock demand: while you don’t expect supermarkets to do this for CDs/DVDs, it’s Business 101 for a specialist retailer.

Use the staff in the stores to do some of this thinking for you: give them a section of the retail space for their choice of ‘spotlight items’ and allow them their head to organise the management of it. Maybe make their performance appraisal partly based on their success or otherwise in turnover for their selections to make sure that they’re meeting the needs of the local consumer market.

And yes, allow them to be quirky as well. It wouldn’t help for the stores to have a little individual character here and there rather than all look the same.

But you said not to cut off the long tail!

Yes, I just said that we’re going to be hiding away a lot of the older stock, which seems contrary to my previous assertion that getting rid of the long tail supply would undermine HMV’s position as a specialist retailer. But the key here is ‘hide away’ rather than ‘dispense with’; for one thing, you need that depth of stock to allow the staff to have their choice of items to cycle though and feature in ‘their’ part of the front-of-house. If you only have the new stuff and chart toppers in stock then they won’t be able to achieve that, so there needs to be a proper reserve bank of ‘deeper’ titles on hand.

There has to be a better way for stores to carry this large long tail/backstock than lining it up in row upon row of scruffy shelves, cramped together where you have to practically lie on the dirty floor to read the spines of the ones on the bottom shelves. Browsing in HMV hasn’t been a pleasant experience for some time; while I might spend time on a ‘mission oriented’ seek-and-locate mission for a specific back title, I don’t enjoy trying to browse for alleged pleasure like this.

If the physical shelves are no longer fit for purpose then why not service this market electronically instead? Build a digital presence that suitably mimics (not necessarily precisely copies, but similar enough in consumer experience) the experience of looking through shelves? You can imagine this working very nicely on tablets placed in the front-of house area. They’d be running something akin to cover flow, allowing customers to flick through the virtual shelves which would be organised in the same way that the stores have traditionally organised the layout: rock & pop, opera, indie, easy listening; action, horror, musicals, westerns and so forth. The digital representation has the advantage that an item can be filed in as many areas as needed, rather than the customer having to second-guess which category the store decided to use.

Is this the same as a website? No, not exactly. A website has a number of existing preconceptions and prerequisites, such as the technology needing to be usable on a wide number of different PC platforms. Here we’d be talking about a bespoke experience custom designed for whatever gadget HMV decides on (Apple iPads being the inescapable obvious suggestion) specifically for the purpose of people coming into the store, seeing the banks of tablets and using that electronic device to find the back title that they’re after without scrabbling around anymore. Then they could listen to some tracks of the CD or watch a preview or clips of a DVD as part of the process.

Once an item is selected by the customer then there’s a number of ways that the order could be placed and fulfilled. Firstly – is it in that backroom store on site? If not, is there a local nearby branch that has it in stock that the customer could go to? Or would the customer like to order it, either by placing a traditional online order much as if buying from Amazon or by having it made available for pick-up at the store, either from a central warehouse or by getting it from another store that does have it in stock?

Okay, let’s move on to picking up the item. How does a virtual selection on a general front-of-house tablet station become a paid-for sale and pick-up? I’m rather loath to suggest that the tablets are linked to card PIN readers as I’m not sure how viable or expensive that currently is. I would personally still prefer either the Apple-style wandering salespeople equipped with their own tablets, or else the traditional point-of-sale for cash business, but maybe that’s just me. There’s certainly a case to be made for allowing people to pay at the browsing station for immediate delivery of digital media like music downloads and movies, although to be honest I think this is a tough market given the domination of Apple’s iTunes Store.

What could be done is having the customer enter their mobile phone number into the system; they get a text message when the item it ready for pickup, with an ID number in it. They are able to then approach any sales person or POS to pick up the item by showing them the ID number, and then pay for it. Even if it took a while for the item to be retrieved from the backroom (we’ve all been to Argos!) the customer could head off and wonder around other shops for half an hour before getting their SMS. Yes, they could end up finding the item cheaper elsewhere in the meantime, so allow them a text response channel to cancel the item as well. It might be a lost sale, but at least it will help keep the stock fluid.

The same text message would also be true for any item ordered for store delivery and pick up – whenever the item came in, the costumer would get a text saying it was ready, how long it would be held for, and the ID number used to make sure that they get the order being held for them. Of course, you could also make custom iPhone/Android apps to make this whole side of things more advanced and flashy, but text messages alone would do at a pinch and are available to virtually everyone these days. That said, don’t forget to build in the willingness of the front-of-house staff to do things the old fashioned way for someone who has no mobile with them or simply doesn’t like this approach; no need to lose sales by being overly dogmatic.

One added advantage of this: if you have someone create a (free) HMV ID account that couples their buying history both online and in-store with their mobile number and their credit card details then you have a terrific consolidated database on their buying habits via both channels. You could also have an HMV Members card to offer special deals and exclusives – a RFID touch card could be integrated into the browsing/purchasing process to augment text messages, although I’d be wary of using this as a primary means of carrying out sales especially as HMV’s old Pure points card was such a weak performer.

Online integration

Considering that with this model over half the physical High Street store is now ‘virtual’, it’s natural to think of what this means for the online service overall.

For one thing, there’s no reason why the browsing should be restricted to the fixed tablets provided by the store itself; indeed, at times of peak demand when the place is rammed, giving the people the option to whip out their tablets, connect to the store WiFi, download and use the HMV interface would help keep sales moving.

If you’re going to that length, then really the general online store should stay pretty close in content. It might not have the bespoke ‘browsing’ interface but there’s no reason why people shouldn’t be able to use it look up an item either at the store or from home, see if it’s in stock (or which store it is available from) and to place an order for pick-up before even leaving their homes. They’d still have the option to buy online and have it delivered to them by the postman, just as they would from Amazon, but this leverages HMV’s USP (their physical high street stores, remember) and also ties together the branches and the online presence in a way that’s been distinctly lacking till now.

That brings us to the question of price. I said earlier that HMV needs to do something to bring its product prices to within a reasonable distance of their competitors, and that still stands, but another question remains: what price should be quoted on the website, store price or online price?

To me there’s no question: the price should be the one found in the store. If I’m looking something up, I want to know how much something will cost me if I go and buy it in a local branch. I don’t want to be misled by a totally different online-only price. But that needn’t stop HMV from adding an secondary ‘online special’ price clearly showing a discount for postal delivery that could serve to bring it within fair distance of their online competitors as well. Simply make it very clear what the ‘real’ price is – which should always be the same as the store – and what is being done as a special online offer. The online site is working first and foremost as an extended shop window for your branches, not as a rival chain undermining your stores.

It’s not rocket science

Readers who’ve got this far into this post (and seriously, congratulations for slogging it out and I can only apologise for the hour of your life you’ll never get back) might be sitting back in their seats at this point and saying: “Hmmm. Is that it?”

Yes, I’m afraid that’s it, for now at least. I could throw in a bit about negotiating some link-ups with former rivals such as WH Smiths, Game and Waterstones to put some HMV concessions into their stores on high streets now lacking a stand-alone HMV presence (and thereby adding more ‘pick up points’ across the country for ordered items) but that’s about the size of it. While transformational for HMV, I’d be the first to admit that it’s not hugely revolutionary in terms of the broader retail sector. Other stores have done so much of this already – the decades-old Argos chain has led the way in many of these approaches, and Apple Stores have been referenced multiple times in the post already. So yes, it’s not rocket science and there’s nothing outrageously new. Sorry.

That simply highlights the big underlying point here: if none of this is particularly startling, then why hasn’t HMV been doing it already? Why are they still using a store model essentially the same as that of the 1960s and 1970s? It’s the application of these newer approaches and learning the lessons of other High Street and online stores to create an integrated presence that is the Big Idea, at least as far as the currently chronically compartmentalised HMV goes.

I don’t really expect anyone to listen or take much notice of this article, in truth. But it gets some thoughts off my chest, and if in 12 months time HMV has rebuilt itself in a way that coincidentally uses even one or two of the thoughts and ideas collected here then I’ll be pleased.

If not, then I’ll be worried that HMV might yet not be long for this world after all…

  1. Sebastian Crump

    I made it to the end (over three sessions :)). Agree with you entirely and was thinking ‘Argos’ throughout the second half 🙂

    And to think someone somewhere is probably paying £000s to get advice on this, which as you said is not rocket science. I’m not optimistic I have to say. It’s probably going to be too late for HMV, but I think there is a gap on the market for this.

  2. andrewlewin

    Congratulations! I must read the whole thing myself at some point (you think I’m paying attention when I write these things?!!)

    Yes, once you identify the problem being that big long tail back stock the store has to carry for credibility, it kind of leads you to an ‘Argos’ type solution. Essentially that’s what Amazon is, after all – only, the front desk is fulfilled by post. And the Apple Stores are very much just showrooms with big warehouses at the back too. The problem is you say ‘Argos’ to people and they go ‘urgh’ because that chain was set up in the early 80s and still reeks of being a DHSS waiting area for people signing on, when they too could do so much more with modern technology at front of house.

    If by any remote chance this helps the chain stay viable and trading on the High Street, then I’ll consider that payment enough. By chance I was in HMV Oxford Street today, and it was a strange thing: they’re clearly getting more stock in again after being on austerity rations since the start of the year, and moreover they’re actually matching the prices of their competitors. In fact they’re selling one of the big releases today for £30 which is four quid LESS than Amazon for the same item, which I can’t remember the last time that happened.

    Maybe there is still life in the old dog yet?

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