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01May, 2018
6 min read

Retailers need to think more like tech firms if they want to survive

Big retail brands have been hitting the headlines over past few weeks with stories of financial woes. House of Fraser, Maplin, and Toys R Us to name just a few. These stories seem less shocking these days – as we have seen many of these sort of headlines before. So I thought would write reflective article about HMV’s decline in the 00’s. With the benefit of hindsight, what can this tell us about what is happening now, and how retailers can prevent this in future?

My example is the decline of one of the biggest names in music and how if it had thought more like a tech business it could have continued to dominate the music industry.

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HMV has been around for almost 100 years, having launched in 1921. For much of its history it has been a formidable force in the music industry.

In 2011 it embarked on a restructuring which included splitting off its flagship Oxford Street shop. In 2013 HMV announced 66 UK store branch closures. Since then things have not really improved. HMV has closed all 102 stores in Canada following a receivership process. It has pulled out Ireland, and there are more store closures purportedly planned, including 2 in Glasgow and the aforementioned Oxford Street location. In 2017 HMV reported losses of £36M. This is a bleak picture. So what caused such a catastrophic and rapid decline of such an iconic brand?

What went wrong for HMV?

Many think that the business fell victim to disruptors in a rapidly changing market.  Whilst others cite an overly ambitious growth strategy prior to (and beyond) the 2008 credit crunch. In my opinion, it was a lack of vision and innovation and an over-confidence in the brand name that led to its decline.

In the 1990s and 2000s HMV was operating in a changing market where the internet was allowing people to get content on-demand via illegal download services such as Napster and Kazaa. Like much of the music industry, HMV saw this as matter for the law and the courts. So the company continued with its traditional growth strategy.

Whilst downloading music in this way is definitely illegal, the scale was massive and it showed a clear consumer interest for on-demand music content. Many established players simply didn’t respond, or worse, they put effort into resisting.

Of course the 2008 credit crunch and subsequent recession played its part too. Debt was more challenging for all businesses and consumers tightened belts.

This change in circumstances opened the door for other businesses to capitalise.

Tech companies enter the fray

In 2001 Apple launched the iPod. Followed by iTunes in 2003. This allowed consumers to purchase tracks online, but in a traditional way. So you could buy a single or album for familiar (or cheaper) pricing. This established a mechanism for downloading musically legally!

Then Daniel Ek, a swedish entrepreneur, launched Spotify in 2006 and took the on-demand music industry a step further. You could get all your music for free, meaning that consumers didn’t need to download illegally any more. Spotify also allowed users to pay a monthly subscription and get access to ad-free, on-demand content.

During the 2000s a new paradigm was established. It was now possible to access music on any device, on demand, and for lower prices. The HMV model of in-store purchasing was disrupted and the business couldn’t react quickly enough. This has left HMV less than one third of its peak size and with continuing losses.

With hindsight this brutal demise seems obvious. HMV’s continued to invest in bricks and mortar and the status quo instead of embracing change. Meanwhile tech firms capitalised on, and responded to, changes in consumer behaviour.

What could have been done?

Imagine a world where HMV launched an online streaming service first. It was actually in a better position to do so than Spotify and Apple. It had existing relationships with music distributors and labels, which could have been leveraged to aggregate an enormous amount of content in a very short period of time.

HMV also had the budget and enviable routes to market that would have be used to stimulate rapid growth for this new venture.

They could have been signing customers up to a HMV online streaming service in-store and migrating transactional revenues to recurring subscriptions revenues. The store closures could have been managed as part of a growth strategy instead of as a reaction to a huge and rapid demise.

So why didn’t this happen?

HMV’s dominance would have made it difficult to change quickly, especially as their existing revenues relied on the status quo. Quick and large change is difficult for market leaders, as risks are high and often it means cannibalising existing revenues.

It may have also been short-sightedness, arrogance or naivety. HMV’s directors were likely be those that grew up buying CDs, and therefore decision makers didn’t have online content on their radar. Or maybe there was an over-confidence in the brand.

So what is the lesson?

Companies should embrace change, inwardly invest and look to be at the forefront of innovation – instead of being left behind.

They should look at how typical customers are behaving and start thinking like a tech business.

For example, consider existing and emerging technologies such AI and big data as an opportunity, instead of a threats.

It is also important to look outwardly at what competitors exist or might exist in future.

They might not be obvious. For example Zaavi was a clear competitor of HMV during the 00’s. However was Apple seen as a threat in 2001? When HMV were selling iPods did they foresee the iTunes threat?

Gather different points of view regularly. Take a look at your directors, senior managers and decision makers. Do you have enough differing points of view to explore every option?

Talk to customers, but not just the ones that are coming to your store. It is important to understand why customers might be shopping somewhere else. Large businesses will also have access to insights from their staff. Engage with them as they are all consumers too!

HMV’s future

HMV still exists on some high streets. in fact they still have 120 or so stores. However, it is nowhere near the behemoth it once was. To move forward it must think more like a disruptive tech business. How can it disrupt online streaming? Alternatively, what strategic partnerships can it strike with these firms? After-all if you can beat them, join them!

The future of big brands

Technology businesses like to disrupt, to challenge and make radical advancements in an endless race to be at the forefront of consumer demand and innovation. It is important companies understand that the present success is just that, the present. Future success comes from this forward thinking innovative approach. This is the approach that retailers should take too.

Big brands must respond to consumer behaviours, inwardly invest  and challenge themselves to be at the forefront of innovation in order to survive. How do we know this? The HMV story is a case in point.

About The Author
I am a proud husband, father and space-nerd. I love business and data so I try to combine the two as much as possible. This passion led me to launch Geopify.