Monday, 6 August 2012

Why companies fail - the rise and fall of HMV


I first started work on the HMV advertising account in 1982, little knowing that I would go on to handle this piece of business for over 25 years and in that time work with six marketing directors and four managing directors. What I also didn't know is that my path was crossing HMV's at the dawn of a golden period for the record retailer; I say record retailer because that's what it was back in 1982, a retailer of records made of vinyl. 

What was to make HMV a hugely profitable company lay just around the corner, namely CD's and video. The invention of CD's meant we all wanted to replace our record collections with wonderful new shiny, 'indestructible' CD's and we were all happy to fork out £16 or £17 for each one; it also became de rigeur to have a library of videos prominently displayed in the corner of your living room. In fact CD's were to deliver such an incredible profit margin for HMV that the House of Commons set up a Select Committee to investigate these bumper profits and the then CEO, Brian McLaughlin got a serious grilling but ultimately nothing was done to the pricing structure.

The advertising strapline we created which sat alongside the iconic image of 'Nipper' listening to the gramophone was, 'Top Dog for Music' and that's exactly what HMV were with record companies kowtowing to this all powerful retailer, offering up millions of their own money to contribute to HMV's 'cooperative' advertising. What choice did they have? This was the only way they had of getting their products in to the hands of the consumer. This 'coop money' was to become a drug which would always prevent HMV from spending their own marketing money and undertaking any genuine brand advertising.

HMV expanded around the world - the USA, France, Germany, Canada, Japan and in 1986 opened the world's largest record store in Oxford Street. I remember the opening ceremony well, it was being jointly performed by Bob Geldof and Michael Hutchence; there were literally tens of thousands of people in attendance and Oxford Street was closed. (Liaising with the police for all new store openings in the 80's and through most of the 90's was essential, such was the pull of HMV and the music stars they could attract for a new store opening or personal appearance).  We all stood expectantly by the red carpet at the front of the store as Bob Geldoff's limousine pulled up but when he discovered he was the first to arrive he told his driver to circle the block, as he didn't want to be upstaged by Michael Hutchence. Five minutes later Michael Hutchence's limo arrived and when he learnt he was now the first to arrive he told his driver to circle the block as he didn't want to arrive before Bob Geldoff. We stood there not knowing what to do as their cars went round a second and then a third time before we negotiated a peace accord with their management and they pulled up and got out at the same time. This was also to be the store that when Michael Jackson was in town, would be closed down for him to go shopping privately and I remember glimpsing him wandering through the empty aisles of a ghost-like store.

It just kept on getting better and better for HMV as computer games arrived along with DVD's and the stores and profits went from strength to strength. Such was the heady feeling of success that HMV would get together all of their store managers and head office staff for a three day 'conference' every year, which was two and half days of fun and partying and a half day of presentations by the board. Now we're not talking Bournemouth or Bognor here, it was usually somewhere exotic like Turkey or Spain  - I remember a five star hotel in Marbella when Billy Connolly was the surprise cabaret act and everything was free for everyone, from watersports to the watering hole of the beach bar. This engendered amazing loyalty from the music fanatical store managers and a feeling that they really were 'Top Dog' against the bitter rivalry of Richard Branson and Virgin Megastores (remember them) - his record label and the Megastores were really Branson's only businesses at that time. The rivalry is probably a book in itself with Richard Branson turning up with suitcases of cash to try and gazump HMV for prime city centre shop locations.

But if they had looked out from that luxury beach hotel in Marbella they might just have  seen a few dark clouds forming on the horizon. But no one was looking as the sun was simply shining too brightly for HMV.

HMV continued to expand throughout the 90's up to 325 stores and bought the book chain Dillons and later Waterstones, a further 195 stores (who we also started to do the advertising for) and in 2002 they floated on the stock market for a £1 billion valuation and a share price of £1.92 (today it's a fraction above £0.3p and they are valued at £15 million).

Not long after HMV's stock market listing, Beechwood, (the agency I founded and ran with my business partner, John Wood) was asked to re-pitch for the business as a new managing director had come in to the company and he along with his colleagues felt other agencies should cast fresh eyes on the business. As I had worked on the account for so long and felt it was in my blood, I really wanted to give it my all, so we pulled out all the stops in this five-way pitch. The day of the presentation came and we stood in the boardroom in front of the new MD and his directors. For some time we had felt the tides of change coming for HMV and here was our perfect opportunity to unambiguously say what we felt. The relevant chart went up and I said, "The three greatest threats to HMV are, online retailers, downloadable music and supermarkets discounting loss leader product". Suddenly I realised the MD had stopped the meeting and was visibly angry. "I have never heard such rubbish", he said, "I accept that supermarkets are a thorn in our side but not for the serious music, games or film buyer and as for the other two, I don't ever see them being a real threat, downloadable music is just a fad and people will always want the atmosphere and experience of a music store rather than online shopping". It's important to remember that the dotcom bubble had just burst and many people were mistaking this stockmarket meltdown for an internet meltdown. As we sat reflecting in the pub afterwards we felt decidedly winded by his onslaught but a few weeks later we were to discover, somewhat to our surprise, we had held on to the business. Virtually none of what we recommended ever saw the light of day but sometimes during difficult times clients simply want the comfort blanket of what's familiar.

Regrettably for HMV our three predictions came true to an extent we could never have envisaged and by 2006, a new MD Simon Fox was brought in to try and sort out the ailing company.

Throughout the late 90's and right up until today HMV's single biggest mistake has been a lack of investment in their online offering and unfortunately it's a mistake Simon Fox has continued to make. He chose to try and diversify in to electronics (a business that was already failing on the high street) and entertainment through venues such as the HMV Apollo, which are now being sold off to pay down debt. I read on Friday that he is leaving the company and I was surprised that the press let him off relatively lightly but in truth the damage was done in that late 90's period, well before he arrived, when we could clearly see what was developing with the internet (we started one of the first digital agencies in London which we later sold to a US group), yet HMV's efforts were at best a token gesture. This lack of online investment and risk aversion may well stem from a disastrous and expensive foray in to conventional mail order in the early 90's when HMV Direct was set up and later folded.

I got to know two young entrepreneurs from Jersey, Richard Goulding and Simon Perree who started the highly successful online games, music and video retailer, Play.com in 1998,  and I remember them saying to me, "We were just waiting for HMV to turn their big guns on us but we just kept on going and getting bigger and bigger, and thinking they must be going to get their act together soon and come after us but they never did". I think this comment says it all.

Who was better placed to exploit the internet than HMV? The power of the brand, their heritage in music, their unrivalled access to content from film, game and music companies. Who would now have been better placed to take advantage of social media?

Hubris, arrogance, a feeling of invincibility. Companies fail for many reasons and there was probably a bit of all three involved with HMV but as I read today about Kodak selling off its valuable patents to stave off bankruptcy, I see many parallels with HMV.  A company which was overtaken by the march of technology faster than they could ever imagine and which by the time they started reinventing themselves and diversifying in to other areas, it was too late.  

Good luck to Trevor Moore, the new HMV CEO. I dearly hope the company survives - after twenty five years it's still in my blood.









110 comments:

  1. I seem to remember sitting in the Beechwood board room presenting to a room of HMV execs when Napster first came along showing them how easy it was to find any album pretty much for immediate download and being a bit dismissed for it being "too nerdy" and "it'll never catch on"

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    1. Sadly I seem to remember you are right Charles!

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    2. Hit the nail on the head. Remember HMV Digital using Microsoft "Plays 4 Sure"? Nope, neither does anyone else. That said, Virgin also made this mistake. A stronger online offering in the later 1990's and HMV could have been the Amazon of today.

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    3. I remember being sat in a meeting when I was told that these "fly by night internet companies like Amazon will never last!" by McLaughlin and Pryde...

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    4. Great post about economy!
      It will help in my business research thanks!
      Tiago Rossi
      Capital de Giro

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  2. CDs, not CD's, there's no possession.

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    1. 1. Pointing out grammatical errors in such an excellent blog marks you out as a pedant and a twat. 2. Your point is debatable,apostrophe being used to replace the missing letters. 3. See point 1

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    2. 1. It's a bit odd though - for the author to have worked for HMV for so long, and not know how to spell 'CDs'.
      2. No it isn't.

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    3. It's not quite so cut and dried as you might believe - many record companies like an apostrophe and if I remember rightly Tower Records liked an apostrophe from a style pojnt of view. The NY Times style guide likes an apostrophe. Strangely enough HMV didn't like an apostrophe but I do. Tbis is quite an interesting blog on should you or shouldn't you use the apostrophe on CD's or CDs. http://grammar.quickanddirtytips.com/apostrophe-plural-grammar-rules.aspx

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    4. Just to reply to the first anonymous: were #2 the case, it'd be C'D's. So your #2 is no excuse for anything.

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    5. The apostrophe to pluralise abbreviations (like CD's) is correct English.

      http://public.wsu.edu/~brians/errors/acronyms.html

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    6. To reply to the first anonymous - if this chap was pitching for my marketing account and didn't know how to use an apostrophe, he'd be out the door so fast his feet wouldn't touch the ground.

      Grammar isn't rocket science, and if people can't get it right, I think that speaks volumes as to their attitude towards things.

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    7. Also at anon #1, what missing letters?

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    8. @Ruskin Gammon - that isn't an authoritative source really is it?

      An apostrophe can only be used correctly to denote possession or contraction. With regard to 1st Anonymous' comments, it is not correct to use an apostrophe with an initialism. The apostrophe does not denote a contraction (or missing letters) as acronyms and other initialisms don't require this convention. Nor does it denote possession. The 's' simply implies plural.

      Lots of businesses make this mistake (most notably greengrocers, or as they might have it greengrocers's) but it doesn't mean that it is correct. I agree on the general point that I wouldn't employ a marketer who can't follow the basic rules of written English, but alas that would exclude the vast majority of them.

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  3. You know that play.com ceased trading as an online store last week, too? Think their marketplace will continue though.

    This is tragic news though.

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    1. Different kettle of fish though. They were killed the changes to the Jersey tax loopholes.

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    2. I just went to play.com and it sees remarkably active and still selling stuff, including stuff from a vendor called "play.com" as well as other vendors.

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  4. Greed leaf to HMV's demise, not just the Internet. It wanted to keep enjoying the profits it was used to, despite a changing customer and society. Look at it's in store pricing.

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  5. Edit, sorry this was misleadingly tweeted as though it had been written today. I would be interested to hear your thoughts on Play though, too.

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    1. Hi Tim, Richard Goulding and Simon Perree got offered a huge amount of money for the business at its height but sadly declined and held on to it too long and didn't see the impact that the behemoth Amazon would have on their business and the increase in downloading. I understand in the end it was a bit of a fire sale. However, I do remember they both took a lot of money out of the business when it was at it was booming and Richard built himself one of the biggest houses on Jersey. I always found themselves incredibly nice guys who couldn't believe their luck.

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    2. To what extent though, did Play.com do so well because of a tax loophole in Jersey that allowed them to keep prices lower?

      I'm originally from Jersey and the closure of these loopholes - and other tax avoidance schemes - has been a looming cloud on the horizon of the island for years now.

      It's already led to a rise in employment there and if the finance industry gets hit too it will be catastrophic for locals.

      I might be way off the mark here, but it seems that Richard and Simon did well to get the 25million that they did.

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  6. Replies
    1. Muphry's Law! It's led, actually ...

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    2. It's Murphy's actually. ..

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    3. http://en.wikipedia.org/wiki/Muphry%27s_law

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    4. It's Skitt's Law actually...

      http://rationalwiki.org/wiki/Skitt%27s_Law

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  7. Philip,
    Reading that has just explained why my suggestions that the business should embrace digital media with the New Business Director in '95 fell on deaf ears. The company was living the high life and management couldn't see any end to the rainbow.
    Adam

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  8. It's incorrect to have apostrophes in CDs, 80s and 90s.

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    1. But also: correct.

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    2. Signspotter your statement is incorrect. To make an abbreviation plural, the apostrophe is needed.

      If in doubt, go to www.google.com and check it out.

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    3. This is the correct way to abbreviate in YY format: '80s. Remember that this is an abbreviation of 1980s. If you're going to be sad and pedantic make sure that you're correct

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  9. http://grammar.quickanddirtytips.com/apostrophe-plural-grammar-rules.aspx

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    1. The author's wrong. It's illogical and redundant. It's also not supported by more authoritative sources.

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  10. I am local to the HMV shop in Kingston and if I want music/DVD to give as a present I will go into the shop and purchase. Anybody going into this shop especially at Christmas will know that the queue to pay runs lengthways around the shop. They have a very good system so it goes pretty smoothly. All tills are open and there are plenty of staff apologising for the delay. I do not wish to see this shop close as where else will I go. I know supermarkets sell the top charted lists but where would we go for our requirements other than the internet??? Sometimes we are driven to buy online as location of suitable shops is not within a reasonable reach. Very sad. :-(

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    1. If you live in Kingston you should be buying your music from Banquet. Love that place

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    2. Yep Banquet on Eden St will be there. Can be pricey though. HMV is always a staple of my last minute present buying (as Borders once was).

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  11. It's staggering that half the comments so far are about grammar. I love the internet.

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    1. Agreed! Too many wanna-be opinion-makers couldn't get through the excellent blog, so decided to turn on the grammar instead. If they took time to read the blog, digest what is being said and form a valued opinion, then they might stand a chance at graduating from high school.

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    2. Agreed... this is why English as a language is so beautiful. A living changing, diversifying language that so many aren't. It will of course diversify so much that in a generation or two some English languages won't be compatible or so widely understood. I'd love to be around to see that happen...

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  12. No-one's pointed out the fact that the music industry, downloads or not, just isn't as big anymore. People simply don't buy music as much as they used to.

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    1. Is it that people are buying less music, or just paying less? Albums have virtually halved in price in the past decade once you take account of inflation, and the reason surely is price pressure: charging £16 for an album is sufficient to drive large numbers of people to piracy.

      Labels and shops were able to charge premium prices because you couldn't get music easily any other way. Now you can. They also had an avalance of cash when CDs came in, which was never repeated.

      So the days of millionaire pop artists are perhaps gone forever, bar a handful of superstars.

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    2. Think you've been reading too many of the RIAA quotes that they send to the media, rather than the ones they and the music companies show to investors - they're selling more tracks and making more than even, though album sales aren't quite so rosy at the popular end because people no longer buy 2 good tracks and 8 fillers for the price of 4 singles.

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    3. No new bands make it big these days - it's all X Factor but nobody buys albums of X Factor acts - the last big new UK band was the Artic Monkeys, that was nearly 10 years ago.

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    4. They do though - look at what is on your ipod or whatever. I am not a music buff but there are hundreds and hundreds of full length albums on there plus a load of "singles" there is no way I would have had half of that in physical CDs - and they are all absolutely legitimate copies. The internet lets you buy when you want and the pricing lets you buy stuff you certainly wouldn't risk buying or even think of buying in a bricks and mortar shop. Music (and films) are the perfect product for the internet - deliver instantly for nothing, no stock to hold other than a big file server, and better for the customer than being in a real shop - you can even try before you buy: even the obscurest records are there so you dont have to trek to an obscure back street for them. Unless you want something actually made of vinyl or are in effect a collector buying cultural material instead of listening to it why would you go to a music shop?

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    5. It's the illegal downloads that have killed the music industry. People still want music, they just want it for free.

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    6. "No new bands make it big these days" Um, Mumford & Sons had one of the biggest selling albums of last year in the US. I'm pretty sure they've outsold the Arctic Monkeys. Florence & the Machine are also a "new band" to have "made it big"

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    7. The last time I looked the music industry was still turning over £8bn a year - the problem is there's too much of it and 99% is derivative and uninspired. When a market is flooded with product, the value of its individual parts drop.

      The constant opportunism of the music industry especially has come back to bite it in a big way, aside from a happy few, recorded music means less to people these days, they don’t define their identities by the music that speaks to them, music is fashion, its as disposable as a cheap t-shirt from Primark.

      This is a paradigm that the industry wilfully created (e.g. Mr Blobby, Zig & Zag, The X Factor, Maureen from friggin driving school) and HMV were complicit in it. Read The KLF’s The Manual – it’s all there and the industry took it as a business model.

      ...and it’s only going to get worse for them – the faithful will start to die off and they will be left with the disposable generations to come who could care less about owning anything tangible.

      I don't weep for the gangsters who have made fortunes from exploiting artists and fans alike for decades. I do weep for the circa 4500 staff thrown into uncertainty at a terrible time and I fear for the future of Fopp Manchester, my favourite shop in the history of everything.

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  13. Agreed - especially when the same comment comes up twice you would think people would learn to read before repeating irrelevant comments already posted above it (Signspotter).

    Great blog though - just a shame what's happened. I have fond memories of spending hours sifting through records and CDs in store as a teen.

    Hopefully something can be done with the brand, as there must be value in that online if they get it right - Its very sad but the days of high street shopping for physical music are over.

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  14. Last thing I bought in HMV was Harry Potter Bluray boxset a few weeks before Christmas. The shop was almost empty as was the big Blockbusters I had just been in an hour earlier. Sad to see but inevitable. I'm in IT and your HMV story reminds me of a few IT companies I knew in the 90s. No expense spared when it came to travel and company parties, the good times would never end!! Luckily the IT company I was with was taking action and moving into other areas in IT like security. However we are now seeing it again in the tablet and phone wars were there are going to be some big casualties. Believe me, companies like Dell have to take action, now!!

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  15. The market keeps evolving and companies need to be able to adapt to changes in taxation, new competitors, technology and the taste of the public. I've been working in various roles in IT for more than 20 years and have been at companies whose start burned brightly but did not look over their shoulder. I hope HMV continue as I like to discover music and books through physical browsing as well as online but the stores will need both an online and offline presence that support each other's delivery approaches.

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  16. It is weird that HMV was such a dinosaur in its established operations yet it's investment arm invested in online music sales powerhouse 7digital at the same time (2009) - Jekyll and Hyde?

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  17. It seems that purchases are becoming less and less tactile, and the age of online purchasing is at the forefront.
    However, I still believe, there will be that requirement for the 'try before you buy', or to 'get a hands on look'.
    How many times have you looked at something on-line, and when seen in real life, you have thought, "blimey, thats tiny"?
    Will books be the next medium to fail, and all become on-line?

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  18. Fantastic article; I remember going to a post-uni job interview there for a grad scheme in 2003 and I mentioned that I wanted to get into digital music as that's where I saw the industry going... Once I saw some of the frowns I realised I didn't get the job....

    It could have been great; I even have ideas to rebuild the name (though also lack the hundreds of £millions it's probably going to cost). They needed to listen to their marketplace and keep to their core proposition. Customer habits and demands change; failure to latch on will ultimately mean a failure in the business (or at least reduction in share). Look at Apple vs Microsoft in 2003 vs the same brands today...

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  19. I was minorities and classical buyer at their Leeds (UK) store in the late 90s. I wrote to the then CEO Brian McLaughlin and suggested that we should set up a website to promote products and the stores... He replied with a "thanks, but no thanks" letter... As they say, the rest is history... Amazon, iTunes & Supermarkets arrived and HMV were too late :(

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  20. Like the record companies, HMV ripped the consumer off for years with insanely over priced CDs and other products - charging £40 for a single blu-ray...

    The business has been rotting from within for the last decade at least, and it wont be missed.

    WH Smith should be next - is there any reason to buy anything from that shop?

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  21. Bring back knowledgeable staff, working, well maintained listening posts, a wide selection of music that I can physically hold (and thumb through the inlays!) and a service to ship anything I can't find direct to my house with free delivery would be one way to bring people back in.

    Lobby to have fair use incorporated into our archaic copyright laws and I'd beat a path to your door. I don't download music at all because I like to have a physical product but when I can't legally listen to that same product in my car, on my iPod and around my house on my multi-room music system then I'd rather go without.

    HMV can't compete at the same level with the Amazons of this world but it's a shame that my son will never know the joys of spending a lazy Saturday wandering up and down the wonderfully OCD aisles of categorized, alphabetised jewel cases at his local music store just to see if anything takes his fancy whilst something other than the UK Top 40 blares out over the in-store music system...

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  22. You know what, I think those former CEOs of HMV and others are so arrogant that if asked now what they would have done differently I would bet they would say, "not a thing!"

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  23. Sad though I am to see another 'record' shop leave the high street, for many artists the future lies in bypassing traditional labels/outlets and doing it themselves via 'fan funding'.

    Check out what Ginger Wildheart has achieved using www.pledgemusic.com; a triple album of 30 songs from which pledgers chose their 12 favourites to make up a commercial album released as '100%' (unfortunately my local - 5 miles away - branch of HMV didn't stock it and couldn't tell me if they would). The original 30 track project reached over 555% of its funding target. His second such project - Hey!Hello! and Mutation I+II - again 3 albums - has also reached over 500% of the goal set. The success of these campaigns won him the Classic Rock Event of the Year award and allowed him to take his band to support Slash & Co on their european tour. It has given him the confidence to reform the Wildhearts for a 20th anniversary UK tour in 2013, at the same time bringing newer bands/music to our attention. And that's what many of us want, the chance to see our favourite bands live. We have a lot to thank www.pledgemusic.com for, long may they thrive.

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    1. Yes, but would he be in a position to do all this without having been signed to a record label with the Wildhearts in the first place? Just a thought.

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    2. The cream always rises, to use a cliche, and personally (despite being a huge Ginger/Wildhearts fan almost from day one) I think that Ginger puts out enough quality music that people would pay attention and buy it regardless of the business model it was put out under; it might just take a little longer to 'break through'.

      On the back of HIS success through the PledgeMusic model, I notice that smaller bands and artists (who I became aware of through their links with Ginger) like the Eureka Machines and The Goddamn Whores are exceeding their pledge targets with greater success than label-pushed ex-'fashion' bands like The Rasmus. It seems that finally 'the public gets what the public wants', or a near approximation. ;)

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    3. Agree with 'Anonymous', there has to be a relatively high profile already for this to work.
      As much as www.pledgemusic.com is fine and worthy, I'd be worried for how long?...There's only so many artists you can afford to patronise surely?

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  24. Well i'm sorry HMV, you won't like it but the likes of Amazon, Play.com, ShopTo.net sell their CD's, DVD's and Games far more cheaper than you!!! So no wonder you may be going out of business!!! .... Having said that, still don't want it to close seeing as HMV are the only Entertainment store left in my High Street!!!

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  25. This is the best account of the demise of HMV I have read, very insightful.

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  26. Sad, but so clear this was coming. I worked with Zavvi a few years ago (from the flames of Virgin Megastores) and you could almost replace the name "HMV" with "Zavvi" in your blog and it would apply to them...

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  27. I worked there in the late 90s early 00s and your article is absolutely spot-on.

    It was obvious even then that Supermarkets were taking the chart market and online stores the range market, but management were blinkered in the extreme. As far as they were concerned, the ONLY competition was Our Price/Virgin Megastores/Zavvi and there would ALWAYS be a healthy market for a high street record shop.

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  28. Amusing that the beginning of the end was noted in 2002, the year Apple introduced the Windows version of its iPod (2nd gen, July 2002). I bought it that November and then I increasingly began to use iTunes for music purchases...

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    1. How much of the iTunes downloads do you actually 'own'?

      I would suggest you own none, but it is your money, maybe you should check that out. It is the reason I don't download from iTunes.

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  29. Fantastic article, sad to see that despite being forewarned, they chose to ignore the way the world was going, on advise of experts.

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  30. Nice to not hear its all the consumer's fault for wanting cheap goods. I would venture an opinion that if the facts were to come out, this scenario would be typical of more than a few businesses that haven't survived the recession. As the saying goes, there's no quicker route to bankruptcy than having an increasing share of a shrinking market.

    Great blog post. Very insightful. It's good to get an insider's view.

    Ali

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  31. I do think its sad for older people who arent able to use the net or afford a computer to surf, that they wont be able to access music anymore....nowhere for them to go.

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  32. Yeah, play.com was the future... oh except they have gone down the tubes now (how long will their "marketplace-only" offering last?).
    One element that isn't mentioned and that hastened HMV's demise is the role of the Channel Islands offering zero VAT for the likes of Amazon and Play. It's the removal of this loophole that has sent Play.com into tailspin. HMV, making physical sales in the UK, had no choice but to charge VAT. And the government for too long did nothing to level the playing field (tolerating widespread VAT avoidance - why?).
    Still, HMV would probably have been struck down anyway, it just would have taken a few years longer.

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    1. Another clueless Murphyite. HMV was a 20th century business model in a 21st century market; even AS YOU ADMIT RIGHT THERE AT THE END, regardless of the existence of LVCR, HMV would have gone to the wall in the end.

      And now thanks to people like you, both HMV and play.com no longer exist and no one has anything. So much for that playing field. Good intentions, eh?

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    2. Actually, one of the biggest clues as to what's really happening with Play.com can be found by paying a quick visit to:

      http://www.rakuten.co.uk/

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    3. Not really sure what your point is about 'people like you' - if Play was 10% cheaper instead of 20% cheaper then HMV would have lasted longer and would have fallen only to their own mistakes, not the gov'ts.

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  33. Any company has continually to reassess what it is doing. I learned that years ago from the lessons of Wapping etc - when seven year apprenticeships in printing were wiped out almost overnight with the coming of computers and word processing.
    There is always something coming up behind you to overtake

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  34. Nice piece. Philip when did you leave HMV?

    I recall numerous conversations with Nick Feaviour about online retailers mostly play247.com and was told competition was healthy. HMV was restricted by EMI JV being highly leveraged and under pressure by the banks and bondholders. As such HMV was very late into the online retailing market this was damaging.

    The split from EMI and flotation de-leveraged from the banks but the direction of HMV was out of sync with many of the new start ups in the technology boom.

    I'm sad they have gone

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  35. HMV's problem was their arrogance and ignorance. They (and a lot of other retailers) refused to see the signs that the market was changing and going digital. It pays to be more fluid and to give customers more than just a sub-standard product selection at over-inflated prices. HMV got big and it did that because it was the best on the market. Sadly, independent stores could never keep up with the pace of HMV and so they fell away. HMV is now in the same situation being overtaken by people that understand the market better - is it any suprise that Amazon last week announced that with the purchase of a hard copy CD you would give the mp3 downloads too for free? HMV has never been able to think about their customers. All they were ever interested in was making money, not trying to support music industry - hence why there was never a comprehensive selection of artists in the stores - only the big names most of the time. Even if you did happen to find (the only copy) of the CD you wanted it was overpriced. 2 months ago I was looking for a CD by a relatively successful rock band; found it and it was £17! How grossly did HMV underestimate their market?
    Diversifying its business into electronics only cemented that they had run out of steam and were trying desperately to cling onto a failing business. In a similar way to Carphone Warehouse - but their products compliment each other.
    When all is said and done, if HMV closes it will be a sad day for music lovers - but not because we lost HMV but because no one is going to step into its hole in the market and we will probably end up losing bricks & mortar music retailers. Music will be harder to find as we get lost in the digital ocean, which has many benefits, but trying to find someone with knowledge and a passion for music works better than coding to calculate preference and similarity.

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    Replies
    1. >All they were ever interested in was making money, not
      >trying to support music industry

      They're a company. All companies are interested in is making money. I think you missed the memo.

      Delete
    2. There's a difference between making quick & easy money and making money by taking care of your customers. The latter is the John Lewis approach and I can't see them in a similar position to HMV, can you?
      You need to be able to inspire people to want to shop with you, and HMV's lack of appreciation of their target market and their often rubbished customer service are two contributing factors.

      Delete
  36. it's good to hear it from the inside, but

    it's not the first or the last business to die - through lack of adaption

    success, is not as Advertising would like to think of as Freudian - no it's positively Darwinian

    when Facebook dies, it will be for the exact same reason

    & that will happen

    right then I'm off to rough trade records,

    I never did go to HMV anyway....

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  37. it's good to hear it from the inside, but

    it's not the first or the last business to die - through lack of adaption

    success, is not as Advertising would like to think of as Freudian - no it's positively Darwinian

    when Facebook dies, it will be for the exact same reason

    & that will happen

    right then I'm off to rough trade records,

    I never did go to HMV anyway....

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  38. I think it is a very sad day, to give a gift of a CD or an Album as I remember was so exiting, not to be able to do this anymore is tragic, not everyone wants to download, I want to own, see the cover, read the words etc...just as I like owning books I will always want to own a CD...

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  39. excellent article - the parallels with the major labels attitude towards the net at the time is striking (i was with 2 majors from 86-98)

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  40. I worked for the company for 9 years, the last 3 at head office, under the mighty force of David Pryde and Simon Douglas. The days when they were opening new small stores left right and centre, instead of adapting to the digital age. Sad day today. I loved working there. Great article btw :0)

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  41. I've been writing about HMV's failure to learn lessons that Waterstones took on board - curate everything, guide the customer, bring back the personal, local and quirky - and was pointed to this post of yours from August. It's sad to realise that such a consistently blinkered approach was there so far back as the 1990s.

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  42. I used to buy lots of stuff from HMV, both in-store and online. However my last experience was returning a CD ordered online. They couldn't confirm whether they had received it back due to their chaotic warehousing and since I didn't have proof of postage they never gave me a refund or credit. Never darkened their door in the 5 years since and such gangster companies won't be missed.

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  43. I was given a CD for Christmas. I don't know what to do with it. I have nothing that plays them. To me it's just a bit of plastic.

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  44. I was lucky enough to be a HMV Store Manager in the 80's and indeed was at that Marbella conference. I'm 55 so brought up on vinyl and then of course CDs, but I haven't bought a physical CD in years, as I'm more than happy to buy via download. I'm sitting here looking at 3 bookcases holding about 3,500 CDs that never get played now that I have them in my iTunes library, and wishing that downloading was available years earlier than it was.
    An excellent piece. Well done.

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  45. Interesting blog Philip this has just done the rounds at my current agency TMW. Very sad to hear the news about HMV. I recall myself and Karen speculating that you would make a shed load of money from your new exploits. Always had your finger on the pulse!!

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  46. A terrific piece...you could substitute the name HMV in this blog for endless other companies in recent years who similarly have been or indeed are totally myopic to changes in the market and consumer trends.It's like the film business..there are so many hurdles to over come before green lighting and endless opportunities for considered thought but it never ceases to amaze me how many turkeys are made and how much money is wasted.

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  47. A succinct and wise summary - thanks for posting

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  48. Both companies, Virgin and HMV shot themselves well and truly in the bollocks around 97 98.
    In Virgin's case it was saddling themselves with 229 unwanted Our Price stores when they bought the chain back from WH Smiths. When they had the opportunity to get rid of them in 98 they should have, even if the buyers were trying to pull a fast one (which they were). Too much debt and driving growth through expansion, how many retailers have we seen grow spectacularly then the realisation dawns on them that the market is shrinking or didn't exist in the first place. By 2004 both companies stood and stared at the oncoming internet driven storm like frighted rabbits. Even if they did have a real idea for an on-line strategy neither had the capital to really do anything significant enough to make a difference. The only reason HMV lasted longer was because Branson had the good sense to get rid. Zavvi's then suicidal policy of being supplied by EUK was nothing to do with strategy it was because none of the suppliers wanted to sell them anything. Its tragic really, if I had the money I would buy Fopp off HMV and start again.

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  49. Thank you Philip for the real truth behind the demise of HMV (written some five months ago in fact). For someone who purchased their first 45rpm in 1960 from HMV today's news was sad but inevitable. Too many Companies have failed to see the future when for the past twenty years or so it was obvious what was happening to the distribution channels for popular music (and just about every other commodity). Vinyl has survived because people who have large collections(like me) invested in the kit to play it back. Also the fact that I can still buy vinyl now (and a lot of contemporary artistes have recognized this as well) means this option remains firmly open - but it's a niche just like hi-fidelity and in a way everything has gone full circle in this area. CD was never perfect sound forever but after thirty years of hardware/software evolution it is quite incredible how "close" it is to vinyl in some respects. Comparing vinyl and CD to MP3 is futile but my daughter has no physical music media in her house at all.And when a great artiste such as David Bowie can release a single online and it is No 1 after a few hours then this sums up where popular music is in 2013. HMV's prices for CD's were OTT for new releases and their sales always seemed recycled CD's (that you would not have bought first time around anyway)ad nauseam. The attitude of the Directors you had to deal with says it all. Change is inevitable and the High Street has been dying for years now. There is no sentiment from punters unless serious music listening is in their remit which it never was in the first place. If Trevor Moore can salvage something out of this he has my best wishes but somehow I doubt it - it is now a digital world whether we like it or not.

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  50. An excellent article, which I stumbled across via a recent entry in David Hepworth's blog... and I'm glad I did. Thank you.

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  51. Philip,

    Thank you for this fantastic article with a great deal of first hand 'colour' that enriches the story. Having spent some time myself providing advice to retailers in the UK and beyond I too know what it is like to get a company "in my blood".

    A question I would like to pose to you is this: if HMV truly was better placed then any other business to exploit the internet through "The power of the brand, their heritage in music, their unrivalled access to content from film, game and music companies" then why didn't someone with the appropriate hands on technical knowledge / experience / vision capitalise on this by approaching HMV and convincing them at the crucial time? (By "hands on" experience I mean beyond a market analyst / observer / commentator / consultant but rather someone with 'real' industry experience. By the "crucial time" I believe that we are talking about the end of the 90s start of the 00s.)

    Some of my views on this question are below and I welcome your thoughts on them.

    I can appreciate that the lack of knowledge within HMV may have led the management to stick with the security of what they knew and understood and believed could continue to deliver. However, at the time there were certainly individuals that were launching online retail businesses and convincing many third parties in the process: securing funding from investors, lending from banks, agreeing partnerships, recruiting employees etc. not only in the US (Amazon founded 1995) but also in the UK (Ocado founded 2001, Play.com 1998, ASOS 2000, Wiggle 1999, Firebox 1998, etc). In addition, many other bricks & mortar retailers in the UK began their online offerings to customers in the early 00s. Indeed, Tesco had the first recorded online home shopper in 1984 and operated a "robust" home shopping service from as early as 1996. So there certainly were individuals around with the relevant knowledge / experience / vision that HMV could have recruited during the crucial period and that may have also agreed that no-one was better positioned than HMV to exploit the internet and therefor why not join them rather than start up their own thing only to see it be destroyed competitively by HMV at a later stage.

    It seems more likely that rather than no-one knocking on the doors of HMV with these views, that management were instead waiting for the theory to become tried and tested before taking the leap themselves. It was quite common for us to hear from our clients that online retail was not yet a proven business model. Amazon took 6 years, until 2001, before it reported its first quarter of profits. ASOS took 4 years until 2004. And Ocado took more than a decade. I appreciate that these are all pure-play online businesses and in the cases of Amazon and Ocado in particular there was significant capital outlay required for their business models. However, for many multi-channel retailers the online channel is loss making even today (although these details aren't typically made publicly available).

    In waiting for the business model to be proven, HMV provided a window of opportunity in the UK market which was fully exploited by its competitors. It appears as though in business there is quite often the need to take the leap into the unknown in order to ensure one's survival.

    I welcome your thoughts on the above.

    Hugo

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  52. just a quick mention about the fetid sonic quality of mp3 files and how there will come a point when people wake up to that fact and start rebuilding their collections with flac or wav downloads. beatport do wav but are ridiculously expensive whilst bandcamp do flac and are ridiculously cheap. can not comment on the itunes store and their aac format.

    adieu hmv i shall miss trying to not walk in time to the beats.

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  53. I'd have greeted this news with far greater sadness if HMV were still predominantly a music retailer. However, the last decade has seen a relentless downsizing of this role in order to accommodate more DVDs and games - along with various other odds 'n' sods - doubtless in pursuit of heftier markups and a broader target market.

    As a result, the smaller provincial branches have been offering less and less in the way of non-chart or back-catalogue albums (i.e. those that can't be found in a typical supermarket). Even the giant flagship city-centre stores stock fewer titles than they did 20 years ago, as if the vast amount of music that existed back then had somehow diminished. Yet there are probably twice as many albums in existence now; potential customers therefore have an ever-decreasing chance of finding anything that hasn't been in the top 50 within the last year or two.

    There was a time when I would regularly stroll out of my local HMV having swapped a hundred-odd quid for a bagful of CDs but those days are long gone; in the last five years, I'd be far more likely to leave empty-handed and have to go elsewhere. And by elsewhere, I don't necessarily mean an an online retailer: it would just as often be the independent record shop a few hundred yards down the road. (Incidentally, this has yet to go into administration.)

    Naturally, I understand the rationale behind focusing on the more lucrative markets (although Music Zone, Woolworths and Virgin/Zavvi all tried that strategy and look where they ended up) and I'm not suggesting that there's no merit in the mantra "diversify or die". However, there is also much to be said for not losing sight of one's primary raison d'etre - and thus neglecting one's core business.

    There may be life in the old dog yet - but "top dog for music"? I think not.

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  54. Great blog, very insightful.

    You correctly point out that CDs were their cash cow but I think the irony is that this is what started their downfall. When CDs became mainstream they allowed people to choose which tracks they wanted to listen to, skip the ones they didn't and repeat their favourites, rather than listening to an album 'as instructed' but the record or cassette. I think this method of listening is key to the popularity of iTunes and digital downloads today.

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  55. Great article.
    I too worked in the record retailing industry from '82 onwards, for Our Price. I moved on to the creation/engineering side of the industry and remember my epiphany moment well. I bought a Nokia 9110 smart phone in 1999. Once I had worked out all the things it could do (including internet browsing @ 9.6k), it occurred to me that this was the future and the traditional retail channels were, erm, f*****.
    It's taken longer than I though it would, but then I suppose that is the error of early adopters, viz dot com bubble et al.

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  56. Yellowhammer, Allen Brady Marsh.

    Cue time-travel music and wobbly screen FX.

    How many times have you sat in meetings with clients telling them what's going to happen and all you get back is a blank look and WTF is he on about?

    Fantastic read, hope you're having fun in Brazil.

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  57. Great article: very informative read. Particularly like the insight into co-operative marketing budgets affecting other marketing money.

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  58. I have to say this is a very insightful blog on HMV. My views have been different having been a mystery shopper for years and seeing the different attitudes of stores through my work and analysing them as a consumer too.

    HMV's biggest problem was it consistently stuck two fingers up at its customers. I once had two DVD boxsets bought for me, both were duplicated items so I took them back with receipt unopened and was told that their refund policy of "not refunding or exchanging multiple items" meant I could only exchange one item, however if both had been bought on separate receipts I could do both separately. At no time did HMV ever make customer aware of this when buying items and I'm certain I'm not the only one lumbered with items due to this policy.

    Other incidents included buying used items that had been played instore and then sealed back back up and sold as new (VHS videos not even rewound at Brent Cross before being sealed and stuck back on the shelf) and then being turned down refunds or exchanges on damaged items.

    If HMV had adopted this policy by being the cheapest on the high street then you would afford to take a punt, but they were by far the most expensive gouging customer at every opportunity.

    I'd seen the same DVDs shelfwarm for years having new increased price labels stuck over them. £15.99 > £16.99 > £19.99 > £25. Forgetting the idiotic approach of if something won't sell to keep increasing the price won't aid matters, but to increase prices of the same stock citing high supplier prices was very rarely true as it was generally the same stock. This pricing was often made more confusing by several different cover designs of the same film all at different prices and then further priced up differently in a random sale. You never knew if the price you were paying was a valid one.

    When you factor all this in together it generated no customer loyalty or faith in the brand and was by far the most expensive retailer, and their arrogance that people would keep shopping with them when all their rivals with the same strategy hit the wall is mind boggling.

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  59. Fantastic article and I have a similar experience.

    I'd avoided working in music retail since I worked as a Saturday kid doing my A Levels, simply on the premise that if you work in a library, you stop reading.

    I'd been approached unexpectedly by an agency head hunting me and I felt that approaching 40, it might be time to give it a go.

    I'd refused the chance three times in three months, but the company I worked for was at a standstill and so I went down to London for a first interview with the agency and they were delighted at how I could combine a corporate culture with intense knowledge of music and film.

    The pitch to me was that I'd manage one of the biggest stores and be on fast track for Regional Management.

    I thought about my pitch and knew I could do the corporate speak and compliance etc, so thought I'd show that first and then felt that giving my ideas on where the industry would be in ten years time would show my forethought and also make my mind up if I really wanted to go there.

    My presentation was along similar lines to yours, remember this is five years later as I was marched down to Wardour Street for that second interview.

    I went into great depth about the days of making big money out of back catalogue and box sets would decline, the future would be digital. DVD would be a cash cow for five years or so and then faster internet speeds would devastate that market, the single would be a promo tool only not a chance for people to buy a release in three parts.

    The Games market was taking off and if HMV were to be successful, it needed to find a way of encouraging teenagers to stay in the shops, not be followed around by security guards (Zavvi adopted this later unrelated to me) etc.

    I'd also said that HMV needed to forget Mail Order and go for the internet now, ally an internet presence that was No 1 to stores where you could listen to the music, I'd also suggested order online and collect in store.

    I also underlined the potential threat of file sharing as cd writers had shown that there was no protection for their market. All it was waiting for was faster connections and these had started to arrive.

    I can't remember who the guy was. but he laughed at me, asking why I wanted to come to HMV if it's future was so shaky and suggesting that I'd been watching too many movies about the future.

    I left after about 90 minutes with him and his note taking HR woman and remember thinking that I would never ever go there, it didn't want music lovers, it wanted compliance managers who could easily sell beans and would do what they were told.

    Sadly seems I was right, but I have no pleasure in that, because where HMV is now didn't need to happen.

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  60. Having worked for HMV from 1982 to 1988, I remember the good times and the very conference Phil mentioned above, I am now in my 11th year with Amazon.co.uk and I have never been so bored in my working life as I am now, yes, I will miss HMV

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  61. I worked for HMV as a store manager from 89 - 92. You are absolutely correct to say it was a golden era but we didn't realise at the time. When I started some albums sold better on vinyl or cassette (Kylie Minogue) - within a year everything sold better on CD. There were regular CD re-issues that kept the tills ringing - two Beach Boys albums on CD every month and the CD release of the Grease soundtrack were two great examples.
    HMV were never leaders in technology. In 89 the 150 Oxford Street store was the only one with a computerised point of sale. And it was a really antiquated DOS system. There was a very slow roll-out of an in-house POS which started at the Richmond store.
    The mail order dept was about 3 people hidden away behind the classical dept on the lower ground floor at 150 Oxford St. The concern was that mail order sales would cut into sales at branches so they were completely neglected. That feeling seems to have continued into the online time.
    I remember Steve Knott coming into the company as Ops Director. A complete break from the tradition of people like Brian McCloughlin who had worked his way up from part-time staff member in Portsmouth to MD level.

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  62. I was at that Marbella conference with Billy Connolly, winning a store of the year award - in 1984 if memory serves - and lasted another two years, ending up at (the old) Oxford St store with another arrogant manager, as well as Brian Mclaughlin: the original tin ears CEO, who always told anyone (and everyone) that he worked his way up from Saturday lad blah blah blah...never listened to any other point of view, so his baby has died: adapt or die, as the saying goes...RIP HMV, but music will always be a loved product and a marketable one if you know your customer base!
    Justin Simpson

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  63. I remember that annual 'conference' in Marbella with Billy Connolly in 1984 (I think): as you say, it was all about fun, especially as a store-of-the-year manager - ie when things were going well - which they did for another couple of years for me, mainly thanks to some great, committed fellow staff who slaved away for the love of music for minimal wages, but lotsa freebies and gigs; but when the Libyan bombings, IRA at Wimpy's and Chernobyl all happened in 1986, it was doom and gloom on Oxford St and my star waned, mainly thanks to the arrogant store manager and to Tin Ears CEO Brian McLaughlin, who didn't truck any contrary outlook (see previous writers, above)...so I went to Australia and opened new HMV stores, with an unbiased MD there.
    I think that the blindness of the management to change is basically the problem: adapt or die is usually the dictum here, and even though it's the end for music retail globally, we still love music as a product, so if the strategy is appropriate, it will still sell!

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