Opinion
17 Jan 2013 02:51pm

The day the music died

This has been a week for nostalgic regret, and of music critics contributing to a major business news story. While music and business writers alike lined up to recall their earliest music buying habits and half-heartedly mourn the loss of the last great specialist music multiple, let’s not kid ourselves.

I have always been a huge consumer of music. Like many obsessives I get my fix however and wherever I can. I can’t walk past a charity shop without flicking through the boxes of vinyl outside (you never know what you might find among the Black Lace, Russ Conway and Mrs Mills). Way back in early 2000s, when the internet wasn’t very fast, music sites weren’t that good and Piccadilly Circus (where I was working) was home to three massive music stores – HMV, Virgin and Tower Records – that meant lunchtimes spent trawling through the racks. But until the other two closed, I rarely visited HMV. It was brash, tasteless and not very well organised. For all the nostalgia expressed this week for Nipper and despite the great heritage of the HMV brand, much of the discussion has been about the structural impact on the industry. There have been few outright expressions of regret at the loss of this once average chain of stores that had become more and confused in recent years.

That HMV managed to end up with 38% of the market for physical music sales indicates there was still considerable demand for CDs. It was often hard work buying music there. It gained that market share simply by hanging around longest, being the last shop standing. A succession of CEOs failed to correctly read what consumers wanted and failed to understand that they were hanging on.

For most people music buying (as with most purchases) is driven by the twin factors of price and availability. Make it more convenient or more easily available and you might be able to charge more for it; make it significantly cheaper and people might be prepared to make an effort to find it. Most online retailers have been good at offering the killer combination of cheaper goods that are more convenient. Pay £3 or £5, wait a few days and your CDs will be with you; or pay £8 and download it now. Either way, you can shop wherever you are. If HMV’s physical stores were bad, its online offering was terrible.

The music business is a fast-moving and evolving market. Just ask the old sheet music retailers (and yes, there remains a niche business there). The loss of the last major multiple will drive more mainstream consumers online, accelerating a trend that was already underway. That’s bad news for the industry because it will mean fewer album sales (where the margins are). Independent record stores will do well (especially if they can also create a decent online offering) and will continue to sell £12 CDs and £20 vinyl albums to idiots like me, who buy music as a passion, enjoy the experience of being in a record shop and for whom the price/availability relationship is meaningless. Some supermarkets will continue to flog the top 10, albeit without any meaningful engagement with music consumers. Music sold as cans of beans just doesn’t have the same appeal.

But there are important lessons from HMV that extend beyond its own circumstance and beyond the music business and onto the high street in general. This has been a terrible period for retail, with the collective failures of Comet, HMV, Jessops and Blockbuster threatening to see a total of 16,000 jobs lost in a sector that is meant to be one of the UK’s strongest. And it is hard to see how this fits with government claims that the jobs lost to public sector cuts will be taken up by private sector expansion.

Indeed the KPMG/Ipsos Retail Think Tank (RTT) claims the last quarter of 2012 was pretty much flat, with low levels of demand in October and November and heavy pressure on margins due to early discounting in December. The RTT’s Retail Health Index again dropped a point, the eighth consecutive quarter it has dropped.

While the recession and low demand caused by the recession has played its part, we are also witnessing a painful period of adjustment on our high streets. The major grocers are doing OK – and will continue to add jobs – but the lessons even here are clear. Retailers have to excel across multiple channels. They have to offer a great online experience (Morrison’s poor performance has been linked to its lack of an online offering) as well as the most inviting and exciting stores in convenient locations.

It is over a year since Mary Portas delivered her report into the UK’s failing high streets. It suggested almost 30 recommendations for getting things back on track. To date, very few (if any) of these have been implemented. The government should act now before it is too late.

Portas recognised that retail is changing. Visiting shops (on the high street or in shopping centres) remains a major leisure activity for many of us. To compete, the high street has to offer something new and exciting. It has to be fun. As Portas wrote: “New expectations have been created in terms of value, service, entertainment and experience against which the average high street has, in many cases, failed to deliver. The only hope our high streets have of surviving is to recognise what has happened and to provide something new.”

Speaking on the Today programme this morning, Sebastian James, CEO of Dixons, ascribed the success of Curry’s/PC World, which witnessed 8% sales growth in the last quarter, to people having fun when they visited the stores. It’s that simple.

It is also easy to forget that UK retailers needn’t be confined to the UK. Mothercare this morning announced a decent set of figures for the last quarter, but they were largely driven by 22% growth in its overseas business. A strong UK high street presence (certainly in signature locations) is as much about driving direct sales as it is about reinforcing the brand. Retail is now increasingly about offering friendly, knowledgeable service and advice, allowing consumers to try before they buy online (where you also better offer a competitive price and a good service experience).

Mothercare succeeds overseas because it is an established British retail brand. So, the high street has more than ever become a crucial part of the marketing mix, rather than a source of volume sales. This has been the case for ages, but it is more marked now in a multi-channel environment. It makes it more obvious than ever why the loss of HMV was inevitable.


 

Richard Cree   Richard Cree is editor of economia


 

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