Business Matters: HMV Woes Signal Even Bigger Retail Changes Ahead
Business Matters: HMV Woes Signal Even Bigger Retail Changes Ahead

Ask Not For Whom The Bell Tolls…: HMV
-- If you took a long holiday weekend you may have missed the news that retail chain HMV posted a large annual loss and is in the midst of restructuring the company into a "broad-based entertainment business" with a greater emphasis on consumer electronics, live music and digital downloads.

Although it won't completely phase out music CDs, the retailer plans to reduce the format's footprint. It does intend to push the CD format during the holiday season, however.

HMV's revenues dropped 7% in its fiscal year ended April 30, and pre-tax profit dropped to £2.6 million (about $4.2 million) from £67.3 million ($108 million). The company's net loss of £123 million ($199 million) was driven by taxes and one-time write-downs from the sales of its Canadian stores and Waterstone's chain of book stores.

Over the last few years, the U.K. music market seemed stronger than that of the U.S. Closings of retailers such as Virgin Megastore and Tower Records, to name just a few, had radically transformed the U.S. music retail landscape. CD unit sales have routinely had drops in the 15% to 20% range in recent years.

But perhaps the U.K. was just better than the U.S. at prolonging the inevitable. CD sales started to crack last year as unit sales of all physical formats slipped 19.2%, according to the IFPI Music Industry in Numbers 2011 report. Even though digital sales had a strong increase and subscriptions grew to 7% of digital revenue, the drop in CD sales helped drag down total recorded music revenues 11%.

HMV had already been quite a broad-based entertainment business. It acquired a live music division when it acquired MAMA Group in January 2010 (the two companies had entered into a joint venture the prior year). It owns 50% of digital download service 7digital. And it owned the book chain Waterstone's.

But some of those pieces are now gone. In late June, the retailer agreed to sell its 121-store Canadian division to a restructuring specialist for the sum of £2.0 million ($3.2 million). A month earlier it sold the Waterstone's book store chain for £53 million ($86 million).

The remaining pieces will become the core of the company's future. CEO Simon Fox said last week the live music and digital download divisions are the backbone of a "clear focus and strategy to further diversify the group into the growth areas of live, ticketing and digital. The pieces are there. HMV's giant task is to make them work in a way that creates more value than the companies are worth on their own.

Technology items will play a greater role at the store - a trend seen at U.S. retail for a number of years. The company will spend nearly $10 million to beef up its technology products in 150 stores by September. The move to consumer electronics items mirrors how music fans today spend their money and what products superstar musicians have on the market. "Celebrities used to visit our stores to promote their CDs, but now they're promoting their ranges of headphones," said Fox.
(Reuters, F inancial Times)

Circulars, A Rare Snail Mail Triumph

-- The future is digital - except that consumers clearly prefer print advertisements and circulars. According to a new Nielsen study, newspaper advertising circulars and direct mail get the best conversion rates and are the most desired source for product and sale information. Only emails from retailers were anywhere near these two marketing vehicles.

In fact, paper bested digital in ever category - except emails from retailers is just as effective as direct mail. But some digital tools still provide strong versions and are desired by consumers. And because of social media campaigns' low costs, they can provide a good return on investment.

So Nielsen recommends a two-pronged approach to take advantage of consumers' preference for both print and digital. "The research showed that while printed material gets shoppers in the store, digital tactics reinforce and reward loyal shoppers. Printed campaigns help shoppers find deals about their favorite products and locate widespread sales and high-tech touch points such as tablets, social sites and in-store kiosks are used to more so for research purposes."
( NielsenWire)

Pandora Stocks Give Back

-- Shares of Pandora Media gave back some of last week's gains by dropping 5.1% Tuesday. The stock had been on the rise ever since comments by DISH Network's CEO sparked speculation the company could be an acquisition target. As I pointed out last week, Pandora is currently quite an expensive acquisition target - its market value is over $3 billion even without taking into account the premium a potential buyer would have to consider. Even so, Pandora shares are still up 23.8% in the last five trading days.

Vivendi's Bond Sale
-- Vivendi, parent company of Universal Music Group, has raised $2.5 million in its first bond sale since 2010. Data compiled by Bloomberg shows the company raised 1 billion Euros ($1.4 billion) of four-year bonds and 750 million Euros of 10-year securities.
( Bloomberg)