HMV – A dead dog?

Consider this prime example of Grade A toe curling Corporate Guffitis;

“I am a huge admirer of the HMV and Waterstone’s brands, which are renowned for their specialist positioning, passionate employees and unrivalled range authority, and it will be a privilege to lead the Group. We all know that these are highly competitive markets, but I firmly believe that the stellar attributes which are in the DNA of the brands and operating culture will enable the Group’s businesses to successfully differentiate themselves and to compete effectively through a variety of complementary retail channels.”

So said Simon Fox when appointed MD of HMV in 2007. At the time I took exception with his upbeat Guffitis pointing out flaws in their customer offerings at HMV and Waterstone’s and suggesting that HMV Group were cruising for a bruising.

http://daithaic.blogspot.com/2007/08/hmv-deserve-to-do-badly.html

Well sometimes I’m wrong (you read it here first!) but in this case it was a question of timing as HMV were saved for a while not by their own efforts but by their competitors going down as Woolworth’s, Zavvi (formerly Virgin Megastore) and Borders went bust in quick succession and Britain’s most hopeless retailer, W H Smith, stopped competing.

http://daithaic.blogspot.com/2008/12/wonder-which-was-woolies.html

Faced with a clear run they could widen their margins in the face of reduced High Street competition. So £3 DVD’s became £5 DVD’s and their price differential on their website disappeared.



Now they have hit the wall with customers simply not buying from them and going to better priced outlets such as Play.com instead. HMV delivered more dismal sales figures after its Christmas was ruined by what they claimed was the weather but the malaise is deeper as their customer offer remains poor. The group, owner of book store Waterstone's, reported a 13.6% slump in like-for-like sales in UK and Ireland in the five weeks to January 1 and said profits for the year to April would be near the bottom of forecasts. As well as the disruption caused by snow and ice before Christmas, HMV said its core entertainment markets remained weak and underlined the urgency with which it needed to carry out its turnaround strategy.

HMV, which has been fought increasing competition from supermarkets and the internet, said it would exit about 60 British shops over the next year and take further steps to ensure it meets a test of its lending rules in April. Chief executive Simon Fox said the anticipated improvement in sales failed to materialise due to the weather and challenging markets. "Whilst HMV has had a challenging year to date, it remains a profitable and cash-generative business and a powerful entertainment brand," he said. "The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business."



HMV admitted it is facing a battle to meet a forthcoming test on its bank covenants. It pledged aggressive action on costs and said it would close 60 stores across its UK businesses over the next 12 months and seek a further £10 million a year of cost savings. It has 285 HMV stores and 311 Waterstone's bookstores in the UK and Ireland. However, the company's shares fell 20 per cent today after the sales figures giving it a market cap of just under £100 million.

David Jeary, a retail analyst at Investec Securities, said the company failed to improve UK sales despite easier comparatives with a year ago. "While adverse weather undoubtedly was unhelpful to the business in the UK, the core HMV division remains under considerable stress as a format and this must raise questions over its long-term future," he said. His Master's Voice was originally launched as a record label which then opened an Oxford Street store. The name was abbreviated to HMV and the store went on to become a nationwide chain.

As well as the issues with pricing, consider the customer feedback on one site;

“My experience of HMV in November was poor. An HMV gift voucher cannot be redeemed online - only in a store. To use the voucher an order for a CD pre-release was placed in an HMV store on the Wednesday preceding the Monday release date. It was not delivered to the store until the following Wednesday.

When chasing it on the Thursday the counter staff had to go hunting for it "upstairs" as they had "not had time" to process their previous day's deliveries. Another copy was ordered from Amazon online the day before release. It arrived quickly - and cost £3 less than HMV charged. Why bother with HMV?”

My own experience going into my local HMV (for research purposes!) this New Year was instructive. None of the crowds and footfall of yore but loads of “HMV Sale” banners hanging down from the ceiling. But a closer inspection of the DVD’s and CD’s revealed NO price reductions from the pre-Xmas prices and no new stock. Indeed none of the “Sale” Banners or flash cards made any claims of price reduction. Maybe I lack a conceptual brain but a “Sale” without any price reductions is certainly a novel concept – and judging by the empty shop not one which was taking off. Who do they think they are fooling? Certainly not their customers.



Going into Waterstone’s in the same centre revealed a similar tired and dumbed down offering; a parade of cookbooks and celeb biographies – books written by people who don’t write aimed at people who don’t read. And to think how fresh and novel this chain was when Tim Waterstone changed the face of bookselling? A survey has declared, once more, that people are reading less. Indeed, 25% of British people admit that they haven't read a book for a year - while half shove Ulysses in their pocket to appear more intelligent. Obviously, people still troop to Waterstones and have a look on "the table" (such is its publishing power), but clearly the books they see there do not inspire them to actually buy them.

HMV and Waterstone’s have nowhere to go in their current format and it is increasingly difficult to believe that HMV has any long-term future. They are being whittled away by the likes of Amazon, Play, iTunes and the supermarkets. I think the only future for Simon Fox and his DNA is on the Jeremy Kyle show!


Nipper, the "His Master's Voice" dog

Falling Comets

There is Blood on British High streets as the declining consumer retail spend is cannibalised by deep across the board discounting by all the major retailers. Marks and Spencer is cutting prices in its clothing and homeware departments by 20% for one day only on Thursday, its first one-day sale for four years. "The customer is not conditioned to expect M&S to do these things very often," retail analyst Fraser Ramzan, of Nomura, said. Some M&S stores will stay open until midnight for the discount day. BHS reacted to this unprecedented deep discounting by Marks and Sparks by launching a 3 day 30% discount event the very next day and Debenhams launched a 2 day 25% discount event whilst the same day Mark One, the fashion retailer, announced it had appointed administrators, no doubt the latest of many such retail failures.

Yesterday Sainsbury advertised 1 litre of Bailey’s Irish Cream Liqueur at £10, down from £17.99, today Tesco hit back with one litre at £8.00. I don’t like Tesco (http://daithaic.blogspot.com/2007/11/tesco-supermarket-which-arte.html ) but nobody can accuse them of being slow in responding to competition. M & S launched two dine in for £10.00 for a main course, side dish, desert and a bottle of wine for two, Tesco have launched a similar offer for £9.00 with wine and £5.00 without. Meanwhile Tesco have responded to the discounter challenge from Aldi, Lidl and Netto by branding themselves as “Britain’s Biggest Discounter” and launching copy cat ranges. Truly, in 2008 Credit Crunch Land retailing is strictly for the brave!



Debenhams, Marks & Spencer and Sir Philip Green's Arcadia clothes empire have all been slashing prices this week in an attempt to lure shoppers. The John Lewis decline extended the near 10% fall suffered in the previous week. Waitrose, the supermarket owned by John Lewis, joined the gloom. Its weekly sales fell 4.6%, a performance that suggests even large food retailers may have a tough Christmas. Retailers hope recent interest rate cuts will filter through to shoppers in time to rescue Christmas. The Bank of England is expected to cut rates again next month perhaps to 2.5%. Marks & Spencer saw like-for-like sales fall 6.1% in the 13 weeks to 27 September, while Arcadia Group, the owner of such retailers as Topshop, Dorothy Perkins and Burtons, experienced a 2.8% drop from 2007.

Sales on the UK's High Streets fell by a lower-than-expected 0.1% in October, figures from the Office for National Statistics have shown. The decline was much less than the 0.9% drop that analysts had predicted after sales fell by 0.4% in September. Retail sales grew at an annual rate of 1.9% compared with 1.7% in September. Many retailers have opted to hold pre-Christmas sales in a bid to boost spending at what should be their busiest time of year. Food sales rose 1% in October, but non-food sales fell 1.1%. Sales of household goods were down 1.5% and clothing sales fell 3.4%. "The drop in non-food sales clearly suggests that discretionary spending is taking a hit," said Vicky Redwood at Capital Economics.

The retail sector is continuing to suffer at the hands of the housing market slowdown with the Comet electrical goods chain warning yesterday that it is heading for a loss because of disappointing sales of refrigerators and washing machines. The company, part of the pan-European Kesa Electricals giant, believes that people are unable to move home and are not splashing out on new household appliances. Comet is also suffering because more people are shopping online. The scale of the setback during the three months of the year to the end of July surprised analysts. Sales at the chain of 251 stores fell by a thumping 9.9 per cent. This is far worse than the rival electrical chain Currys, which has reported sales 7 per cent lower.



However at the weekend the Celtic Sage at Comet’s out of town store in Aylesbury the Celtic Sage gained an insight into why Comet is such a poor customer proposition. The outlet is fine from the “Big White Shed” school of retailing and as you go in helpful young staff are on hand to assist and guide and the layout is clean and open with an air of activity to draw you in. However all the Sage wanted were 5 hoover bags for his Miele vacuum cleaner. These are £6.99 in John Lewis but here in Comet they were a whopping £11.99, an amazing 72% MORE EXPENSIVE than on the high street. I bought the bags under protest but made a mental note not to darken the door of Comet again for like every customer I know when I have been treated like a fool. So don’t bother to sell me a big ticket item, Barrow boy in Comet’s marketing department you have lost this customer’s loyalty. This is a mistake failing retail propositions make in thinking that customers will be price insensitive on accessories. Jessops the camera shop did the same to me by trying to charge twice what Argos would charge for rechargeable batteries; result I’ll never buy a big ticket item like a camera there.


The luxurious £11.99 vacuum bags from Comet!

Comet tries to defend its position and said it had protected margins by refusing to slash prices to draw buyers into its stores. "One day the cycle will tick up – in the meantime the business is refusing to chase unprofitable revenue," said an adviser in September 2008. Well I’m sure this sounded sensible then and he has left to pursue “new opportunities” elsewhere by now! Sales of laptops and televisions were more resilient, although the company admitted "we now anticipate Comet will make a loss in the first half". Kesa's arguments did not satisfy the stock market, which marked its shares down by nearly 10 per cent. Analysts slashed profit forecasts for the current year. Overall, Kesa, which takes in the French electrical chain Darty and other retail outlets operating throughout Belgium, Holland and Slovakia, reported a 4.7 fall in sales for the opening quarter. Darty fared better than Comet with sales down by 3.2 per cent, but conditions in France remain tough and the scale of the slowdown also caused concern in the market. Unconnected with the Celtic Sage’s rip off vacuum bags the CEO has fallen on his sword (sorry; “decided to retire”) and Jean-Noel Labroue will leave after a handover period to Thierry Falque-Pierrotin who is joining the Group on 5 January 2009 as Chief Executive Officer (CEO). I hope he does well but he will do it without my help, once you lose a customer he stays lost, and that is a home truth the Barrow Boys in marketing don’t understand and there is no point in paying large amounts of money to Finsbury PR whilst squandering customer loyalty!


Oxford Street

Another company which is surprised that shoppers are shunning it is The John Lewis Partnership. Weekly sales at John Lewis's flagship London stores lurched downwards once again as shoppers held off on making purchases in the hope prices will keep falling. The Oxford Street store that usually does well whatever the economic weather saw sales off 12.6%. Other stores in highly affluent areas also struggled. The Peter Jones branch at Sloane Square was down 18.6%. Cambridge down 26.7%, Bluewater off 15.7% and Kingston down 17.9% continued the trend. This was part of a wider slump at John Lewis in the week to 15 November when sales across the country fell 14% on average. This is the worst weekly sales performance in at least a year and suggests that consumers are ignoring the lure of sales in the expectation that stores will be forced to slash prices again before Christmas. Barry Matheson, the retailer's head of selling development, said: "There can be no getting away from it that last week was a disappointment. "We are not immune from the reality of the economic crisis that grasps every headline. “Even John Lewis's internet arm is struggling, with sales down 8.8%.”

Well Barry Matheson, let me help you to understand why sales in Oxford Street and elsewhere are falling. Recently I went into the store to buy a pair of gray casual trousers. In the large Menswear department there was only one type for sale, A German “No Name” Brand I had never heard of but actually manufactured in Bulgaria and a rather frumpy looking wool / polyester mix amazingly priced at £80.00. I left and down the road at M & S they had over 20 different types in stock and I bought a smart looking wool / cashmere mix for £35.00. Similarly I went into Peter Jones in Sloane Square to look for a casual jacket. The cheapest available was a £220 “designer” jacket that looked, well, like nothing. Strangely under their “Never knowingly undersold” policy a stereo would be more expensive in John Lewis’s Milton Keynes store than in Peter Jones, Sloane Square. For the price comparison policy applies to retailers within 3 miles so there are lots of electrical discounters for audio equipment in Chelsea but not in Buckinghamshire! Look for an Irish “Claddagh Ring” or Indian style jewellery in John Lewis you will be disappointed for its buyers’ are firmly stuck in a twin set and pearls Home Counties mindset. And it is owned by its staff which frequently translates into overstaffed shops where customers are ignored whilst staff cluster with each other or, as in Milton Keynes, have to take a ticket and queue to speak to a staff member, a rather quaint approach to people who want to give you money. Or I could mention the ludicrous pricing and slapdash service in the “Place to Eat” which is always chaotic and is by any standards a premium priced self service. No doubt this is lost on Andy Street, the CEO, as he leaves the John Lewis Palace at 171, Victoria Street in his chauffeur driven Jaguar, how retro!




Happy Xmas, John Lewis?

Earlier this month, the Bank of England cut interest rates to 3% from 4.5% in the hope of putting more money in consumers' pockets and encouraging them to spend. However, some analysts say that any positive effect - if it comes at all - will be too late to boost sales in the run-up to Christmas as rising unemployment has also dented consumer confidence. So expect the “Dog eats Dog” atmosphere to continue on the UK High Street. And in this climate consumers will be unforgiving to retailers who underestimate their intelligence. Be they Comet with its rip off “bits and pieces” and bias towards overpriced warranties and John Lewis which consistently gets its price point wrong and is that bit “too popular with itself.”