It has been an all-too-familiar start to the year for the UK high street, with the entertainment chains HMV and Blockbuster the latest to fall into administration.
The retailers’ downfall has sparked anger and nostalgia from some quarters, yet the simple economics and shift in consumers tell a different story: UK shoppers spent more than £1 billion on downloading films, music and games in 2012, according to the Entertainment Retailers Association. Unfortunately, the stalwart retailers were not among those to benefit.
There are many factors driving the transition currently sweeping across the sector but, behind the closures, are there any fundamental lessons the media industry can learn from?
Cormac Loughran, the chief marketing officer at Aegis Media, has a very personal take on the situation, having spent fives years as a marketer at HMV in the 90s. For him, the current spate of retail businesses tipping into administration highlights that it has never been more crucial for marketers and their agencies to get to grips with the ever-decreasing gap between the point of engagement and the point of transaction.
"Common to any of the current batch of failing retail businesses is a tangible lack of success in grappling with multichannel," he says. "The explosion in smartphone and tablet ownership exacerbated this situation for many of these, as Amazon, Apple and Netflix were more agile and more effective in harnessing the opportunity."
Daren Rubins, the chief executive at Omnicom’s PHD, says all businesses can learn from HMV’s demise, not just media companies. In addition to the very sobering lessons surrounding legacy and analogue businesses failing to reinvent themselves in a digital world, he also draws a much stronger and more profound message.
"It is about how a business reads the market, how it listens to its customers and how it responds," he explains. "No-one would have blamed HMV for not inventing online retailing or music downloads, particularly when sales of CDs on the high street were so profitable. But a strong brand name only affords you precious months to develop your own offering that loyal customers can migrate to, and this is where HMV was too slow, too reluctant and too exposed."
For Starcom MediaVest Group’s chief executive, Stewart Easterbrook, the collapse of HMV serves as a good reminder that people don’t buy what you do but, rather, they buy why you do it. He believes that, over many years, HMV had let itself become a retailer of discs and electrical items, rather than a music expert and experience, leaving itself wide open when other more effective retail models emerged.
"Supermarkets and online retailers can sell CDs and the like cheaper and more conveniently. Neither offers a particularly immersive or engaging experience, but this is no longer the area where HMV had chosen to compete," he says. "As a music purchaser, I would have found HMV a far more attractive brand if they had presented themselves as people who did what they did because they loved music. Great brands achieve this sense of common bond."
Simon Davis, the chief executive of Walker Media, agrees the first glaring lesson is underlining the wisdom in the "adapt or die" mantra. He notes that, despite efforts to become relevant to today’s consumers with the launch of MyHMV and diversification into live music and cinemas, the retailer never successfully transformed itself and made some big mistakes along the way – not least attempts to ban tattoos and in buying Zavvi stores.
"New- versus old-world media comparisons are obvious," Davis says. "But a more interesting parallel is in observing the loud complaints of HMV’s suppliers – the content producers – that, if HMV were to close completely, the market could lose over £300 million, or 9 per cent of the market, as browsers and impulse buyers are lost."
He adds that the same suppliers that rewarded Amazon with discounts and chased volume by cutting deals with Apple for downloads through iTunes are the ones suffering squeezed margins and loss-making entertainment units.
"The parallel lies in the decision by media owners to reward agency traders with discounts for commoditised volume," he concludes. "It has fuelled the growth of Group M, which, as Channel 4 has recently discovered, makes them almost unmanageable to the point of perhaps stifling competition. Now it’s Group M that makes all the money and the media owners who are suffering."