HMV must forge ahead with turnaround strategy

HMV Group has posted yet another set of falling sales, fuelling calls for it to rethink its transformation strategy. The group, however, must accelerate the rate of change, says Rosie Baker, Marketing Week reporter.

The retailer has focussed less of its business on selling CDs and books directly and so the natural fall out from a business that is changing its operational model in this way is fewer sales.

HMV recognised early on that its status as an entertainment retailer wasn’t enough to carry the business forward. It has subsequently looked to diversify into complementary sectors such as live gig venues, festivals, event ticketing, independent cinema, digital music downloads, mobile gaming and most recently fashion.

This latest set of figure and the news that 60 stores will close in the coming year, though disappointing, are far from being the final nail in the group’s coffin. HMV’s transformation will take a number of years to come to fruition.

By closing stores to generate cash for the business, HMV is demonstrating that the high street is not at the core of its future business.

Its low share price has drawn Russian oligarch Alexander Mamut to raise his stake in the group to 5%, fuelling speculation over his intentions.

Restructuring a business and transforming from a high street retail chain, into a business that operates in numerous horizontal sectors as HMV is doing can’t happen overnight, and I think HMV is well placed for the long game.

HMV launched its debut weekend festival High Voltage in 2010, and while the event incurred losses in the first year, the perceived wisdom is that any festival organiser should expect to operate at a loss for a number of years before turning a profit.

Bestival, the now firmly established festival set up by DJ Rob da Bank in 2004 ran at a loss for the first five years, and broke even in its sixth (2010).

It also invested in the infrastructure of its live business and gave its brand name to 13 live music venues through a joint venture with Mama Group. This will not see its fortunes reversed overnight, but it does secure HMV’s long-term presence in these areas.

The issue with HMV is that while its transformation is much debated in the press and the industry, consumer perceptions of HMV have remained unchanged.

New ideas take time to bed in, and in this respect, HMV is changing faster than its core customers.

What it needs to do, alongside changing its business model, is change the perceptions of consumers by doing more to market its broader notions.

Most shoppers have seen HMV in the same way for decades, as a music and film retailer, and its advertising cements that. Its Christmas advertising campaign “Get Merry” pushed a promotional message focussing on expected big sellers in music and film.

While it pushes the retail aspect of the business, it did nothing to shout about where the business is going and bring its communications in line with its strategy.

If HMV reaches the same fate as Woolworths and disappears from the high street, its loss will be greater felt. Shoppers will soon realise that there is no one else on the high street, or in out of town retail parks that offers what HMV does in its stores.

Despite the abundance of online competitors, there is still an appetite for an entertainment retailer on the high street and so the group is right to forge on with its transformation strategy as Simon Fox, the group CEO says: “The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business.”