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News Analysis: What lessons can the High Street learn from HMV's administration?

It’s no secret that the high street is in deep trouble, and it’s clear from news of the closure of Jessops and the administration of HMV earlier today (Tuesday 15 January) that the troubles are still real and present.

Retail brands have been folding seemingly ten-a-penny in the last year, with JJB Sports, Comet, Game, Past Times and Barratts just a few names to enter the abyss recently, resulting in the loss of thousands of jobs in the process and another headache for the chancellor.

“Things haven’t moved on in the last year. High Street vacancies have been worryingly consistent the state of consumer demand continues to be weak,”

Richard Dodd, head of media for the British Retail Consortium, told The Drum when asked as to whether any improvement had been seen over the last year. “We saw no real-terms growth, in fact we saw a real-terms fall for December’s sales. Most of the same problems are still there. It is the case that there has been a very welcome increase in attention in the level of attention being paid to High Streets and a recognition that they are important. Some efforts have been made to address some of those problems but there’s clearly lots more that needs to be done.”

Many of the retailers who find themselves in trouble have one common issue, and that is a lack of focus or success when it comes to their e-commerce platforms. Online sales have been key to retailers this Christmas more than ever. John Lewis announced a 44.3 per cent increase in sales through its click or collect service over the Christmas period, while its overall online sales totalled £684.8 million. In contrast Mark & Spencer announced a refocus upon its multi-channel sales going forward after experiencing disappointing sales during the Christmas period, with general merchandise sales falling by 1.8 per cent on last year.

It’s no surprise either that mobile sales have also grown in importance to retailers. Shop Direct, which owns Littlewoods saw 37 per cent of all online customer interactions made through a mobile device, while 80 per cent of its total sales were completed online – an increase of 74 per cent on 2011.

Today’s news was a long time in coming and although HMV had introduced an online platform, it’s clear that it wasn’t strong enough to counter the success of Amazon and Play.com.

"I have never actually used the HMV website and it has never even been in my consideration set for buying music or products online. This fundamentally highlights the challenge that HMV in my opinion never met," says Duncan Parry, COO of global digital agency Steak. "Pure play early movers, like Play.com, and of course Amazon, through a combination of low pricing, quick delivery, wide product ranges and sophisticated personalised marketing, came to dominate this vertical online, and especially in Amazon’s case, became the default for physical music purchases like Google is for search. Couple that with the sophisticated way Apple created a market around a product with iTunes and the iPod, with global revenues to back R&D, it feels with hindsight that HMV was always going to be squeezed out online, whilst high street volumes fell.”

Dan Wagner, CEO and chairman of mPowa and Powa Technologies, responsible for implementing online and mobile retail platforms for some high street brands, also believes that HMV was too late to the online party to survive.

“Although HMV has introduced various promotions to drive sales, the shift in the way consumers are buying goods has had far-reaching implications. Internet shopping is now more popular in the UK than any other country in the world, with UK spending an average of £1,083 a year on shopping online,” stated Wagner. “While this is good news for British ecommerce businesses, those that didn’t have a digitally focused strategy from the outset are now playing catch-up and the consequences are clear to see.

“Although HMV responded to its changing customer demands by moving towards a technology focused strategy with the sale of headphones and tablets, it appears by today’s announcement that this strategy has not been able to compensate for the fall in CD and DVD revenue. Competition from iTunes and Amazon seems to have contributed to the fall in sales for HMV.”

Dan concluded: “Many more retailers could succumb to a similar fate because of the cumulative effect of poor sales throughout the year. Retailers have to stay ahead of the game and have an effective online and offline strategy in place if they are to survive in this new technology-focused era.”

Kai Henniges, CEO at video on demand service Viewster, added that the failure of HMV underlines that content owners must realise that consumer demand for the consumption of music, films and TV is evolving.

“Consumers are turning their backs on traditional channels such as the local video rental shop or record store in favour of ‘on demand’ services that let them access whatever films, TV shows and music instantly on a wide range of devices.

“As revenue created from physical sales of CDs and DVDs subsides, rights holders should look at how else they can monetise new and existing content. Aside from making more content available via pay-per-stream or subscription-based services, content owners should make content available through free services that are monetised with advertising. In addition to generating substantial new revenue streams for content owner, ad-supported free services can lure consumers away from illegal sites.”

Tim Orrell, managing director of Golley Retail, believes that further high street casualties will emerge in the coming weeks, and that lessons must now be learned by those left who are capable of doing so.

“Retailers have to remember that their primary role is to solve our problems and unfortunately they all seem to have forgotten this and are focusing only on price. If HMV survives, which it probably will in some form backed by a terrified music industry wanting to ward off an iTunes monopoly, it needs to forget the price wars and go for gifting inspiration, rare and hard to find items and a totally new format that makes impulse purchases easier. We’d advise them to create a haven for the best new, up and coming artists to give us all something to discover. Let’s face it the format hasn’t changed since the 60’s and needs a makeover .”

Clearly today’s news will only weaken the confidence consumers have in high street retail, and with the chancellor George Osbourne set to increase business rates by 2.6 per cent despite lobbying from retail associations against such measures, the pain is likely to only continue for the foreseeable future, especially for those not trading successfully online. However retailers must also look to heighten both their online and their offline presence in to draw in more custom, and also connect the two experiences in order to drive sales.

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