Hopeful Management Vision at HMV

Simon Fox, Chief Executive of HMV Group, spoke to the Retail Week Conference last week.  He painted a picture of a business that was renegotiating its banking covenants – a process that will take weeks, perhaps months to complete, and he acknowledged the challenges of leading 13,000 employees when talk of “premature death” is in the air.

His confidence was welcomed, and shares in HMV rose by over 30%.  However, Fox’s vision of a business that will still have hundreds of shops in five years time is difficult to square with what everyone understands about the CD/DVD/games sector, and the strategy that will ensure sustained success for those stores, allied to a growing live venue portfolio, was not spelled out.

The Sunday Times has reheated what we already know in its Business section, suggesting that Waterstone’s might be sold, and that Tim Waterstone might be interested.  Further revelations regarding bears and the Pope were unforthcoming.

There are few jobs more challenging than rallying confidence in a business that is in trouble.  HMV remains profitable, and it owns four great trading brands, two large, two small.  But it is in a sector that is shedding customers, and will continue to shed more customers, as consumers acquire more content digitally (legally or otherwise), and as the plethora of different leisure-technology options multiplies.

Two years ago, Borders was the most vulnerable of the UK bookselling chains.  Our sales were falling, our credit insurance had been withdrawn, and the company was for sale.  Structurally, we were in a much worse place than HMV is today; strategically, we sought to diversify our product mix through adding more toys, stationery, gifts and confectionery, as customers switched more of their book purchases to supermarkets and online sellers.  By broadening our mix, we sought to mitigate our fixed running costs by selling more goods to our loyal customer base.  In the event, we ran out of time, and we ran out of money.

HMV has more breathing space – it’s a much bigger company, it’s profitable, and a plc to boot.  HMV is a great brand – but it is a record shop brand.  Is it too freighted with old associations? – you wouldn’t rush to reinvent Virgin Megastore or Our Price today, any more than you would Derry & Toms or Maples.

In 1982, the moribund Hepworths chain was relaunched as Next, one of the most dynamic retailers of the 1980s, and a high street stalwart now.  Other transformations followed, with the Chelsea Girl/Concept Man business turning into River Island in 1988.  (And now, River Island is reintroducing Chelsea Girl as a sub-brand.  The wheel turns.)

Could Woolworths have reinvented itself as Poundland?  Might C&A have become Primark?  Perhaps, with enough vision, time, capital and luck.  But “venerable” has limited value in today’s high street – John Lewis and M&S retain the public’s affection because of the quality of the job they do today, and the care with which they keep their offers moving forward.  (And M&S nearly lost it before Stuart Rose.)  Meanwhile, brands from Burberry to WH Smith have little in common with their offer 20 years ago.

HMV can’t just do what they’re doing now, a bit better and in fewer stores; there has to be more to their survival than live venues.  I genuinely wish them the very best of luck in their reinvention – and look forward to understanding the path they propose to take.