What now for HMV after takeover?

Music HMV retailer has been rescued from administration against the odds – but that doesn’t mean that everything is rosy in the music industry.

For millions of youngsters it was the highlight of the week. Getting the bus into town, searching through the vast array of empty record sleeves at the local music shop.

And if one caught your eye, you would take it to the counter, where a shop assistant would let you try it out in a soundproof booth.

For millennials, this probably sounds as much of an anachronism as rationing. And that is the challenge the new owners of HMV must quickly get to grips with as it seeks to salvage the much-loved, but fading brand.

The demise of HMV would have seemed unthinkable 30 years ago, when along with rivals Virgin, Our Price, and Woolworths, it seemed to have a vice-like grip on the UK music market.

Morning Glory – customers queuing up outside HMV Telford to buy Oasis's latest album in 1997

But while HMV has outlasted its arch-rivals, the prize for this has been a monopoly in a rapidly dwindling market. Canadian retailer Sunrise Records announced its purchase of HMV yesterday, but immediately said 27 shops would close with the loss of 450 jobs.

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Christian Stadler, professor of strategic management at Warwick University, says the best the new owners can hope for is a period of managed decline.

He says the sale is good news for the staff who will keep their jobs, and for customers who still like to purchase their music the traditional way, but warns it would be naive to expect any significant renaissance in its fortunes.

Prof Christian Stadler

"Physical music products are still a sizeable market, but it would be foolish to think there is scope for considerable growth," he says.

"HMV's new owners need to focus on carving out some sort of niche to ensure a future for the company. In Austria and Germany folk music fans still prefer physical products, but there does not seem to be an equivalent in the UK."

Famous for its 'Nipper the Dog' logo, featuring a dog listening intently to a gramophone recording, HMV was quick to realise the potential of the celebrity endorsement.

Composer Sir Edward Elgar opened the first HMV shop in London's Oxford Street in 1921, and the young American violinist Yehudi Menuhin also made public appearances. Over the years the likes of Cliff Richard, Kate Bush, Paul McCartney, David Bowie and Michael Jackson have met fans at the stores, and more recently there have been appearances by Amy Winehouse, Lady Gaga, Justin Bieber and One Direction.

Despite its long history, HMV was a relatively late arrival in the West Midlands. The chain started expanding around London in 1966, and over a six-year period in the 1970s it doubled in size to become the UK's leading music retailer.

This was a decade which saw the independent record shops which had flourished in the 1960s – think Wildings in Shrewsbury, Stantons in Dudley, Yates Bros in Cannock and Voltic in Wolverhampton – being usurped by the national giants.

HMV in Wolverhampton

Along with Our Price ­– launched in 1971 as Tape Revolution – and Virgin Megastore, founded by Richard Branson in 1976, HMV began to establish a national foothold in the recorded music market. While the emerging chains were still some way behind Woolworths as Britain's biggest record retailer, HMV continued to expand, opening its 100th store in 1997, and breaking the 200-store barrier just seven years later.

But it was the rise of the MP3 player which did for HMV, and its rivals. When Danny Reddington announced the closure of his Reddington Rare Records shop in Birmingham in 2004, he observed that it was impossible to compete with online retailers of electronic downloads, which had none or the overheads or production costs of the traditional record industry.

“It is very sad, but you can’t stand in the way of progress," he said.

"Kids today, when they hear about a new single, they can download it off the computer for 99p.”

A stark warning came at the start of 2008 when Woolworths – still at that time Britain's biggest physical music retailer – announced it would no longer be stocking CD singles. A year later, it was out of business. Zavvi, the last remnant of the Virgin-Our Price empire, also succumbed that year to become an online-only retailer.

Sunrise faces an uphill struggle

HMV plodded on until 2013, when it followed its old rivals into administration. It was bought by venture capital group Hilco, which specialises in turning around failing companies, and began to show signs of recovery. During the first 11 months under Hilco's ownership, the chain posted a profit of £17 million, and in 2014 it overtook Amazon as the UK's leading seller of physical recorded music in the UK.

By October 2015 the company was sufficiently emboldened to reopen its Telford branch, almost three years after it had closed. There was even talk of a vinyl revival, as younger music fans began returning to traditional music formats. But it was not enough to turn the tide.

Patrick O’Brien, UK Retail Research Director at GlobalData, warns that Sunrise faces an uphill struggle to turn HMV around where Hilco has failed.

“That someone has taken on so many stores is a welcome surprise, but it is difficult to see how the market for physical music and DVDs can sustain a 100-store chain in the long term," he says.

Mr O'Brien forecasts demand for recorded music and video will fall from £1 billion last year to just £645 million by 2023.

"Sunrise Records will have to do more than merely increase market share of the music and video market, which is itself difficult given the rapid growth of Amazon Prime," he says.

Mr O'Brien says it will almost certainly need to renegotiate with suppliers and landlords, while broadening its market.

Therefore we can expect Sunrise to look to aggressively cut costs and the decision to close 27 stores comes as no surprise. Renegotiating rents on the remaining stores to is also likely to be a priority.

Prof Stadler agrees, saying there is little chance of HMV taking on the new kids on the block. The best course of action, he says, is to stick to what it knows best, but to do it on a smaller scale.

"HMV is not going to be able to compete with Amazon online, or streaming services like Spotify or Netflix for music and films," he says.

"Existing firms have to focus on managed decline. It's not ideal, but the value of that approach should not be underestimated.

"It has allowed HMV to continue to trade for six years since it first entered administration, and provide jobs for more than 2,000 workers.

"Despite the latest job cuts, nearly 1,500 staff have jobs they would not if the firm had been allowed to collapse."

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