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HMV and LOVEFiLM: a 21st century tale of two retailers

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It’s a 21st century tale of two entertainment retailers. On the one hand, LOVEFiLM today announced it had signed up “hundreds of thousands” of new customers in the last quarter of 2011, taking its total subscribers to the two million milestone.

And on the other, HMV Group today revealed an 18% fall in sales over the Christmas period. In a trading statement it said total sales were down by 18% in the nine weeks to December 31, and down by 9.7% on a like-for-like basis, stripping out the effect of store openings and closures. HMV Live, the venues arm, showed total sales growth of 8.6% over the nine weeks, but HMV Retail’s sales were down by 18.4%.

The two are in similar entertainment sectors – both affected by the growth in popularity of downloading entertainment from the internet – but both today bringing out very different progress reports.

For LOVEFiLM’s part, the Amazon-owned online company said its was the kind of customer growth rate that it had not seen since 2009. Its chief executive Simon Calver puts that down to three elements.

“Customers tell us they love LOVEFiLM because of the value, choice and innovation we offer in subscription film and TV entertainment,” he said. “We offer customers an unparalleled range of titles, including exclusively available blockbusters, with over 70,000 DVDs, Blu-rays, films, TV shows, video games and streaming alternatives conveniently available for customers to watch in the location of their choice.

“Our two million members can look forward to us adding even more world-class content, in a variety of formats, to be delivered across an ever expanding range of digital platforms.”

Meanwhile, HMV today warned that it may not last much longer – though chief executive Simon Fox did say the board was “confident” in its future prospects. In today’s trading statement HMV said: “The economic environment and trading circumstances create material uncertainties which may cast doubt on the group’s ability to continue as a going concern in the future.” HMV’s share price fell by 0.5p to 2.95p during the day. In the last year its shares have lost more than 89% of their value.

A review of the future of HMV Live is underway and could lead to its sale. Meanwhile the one bright spot for HMV Retail was the growth shown those stores selling its technology range of portable digital products. There, sales of technology rose by 51% on a like-for-like basis in the five weeks to December 31.

Its chief executive Simon Fox said: “We are seeing a combination of a slowing of the decline in music and film, and acceleration in the growth of technology. Undoubtedly trading conditions and the consumer environment remain challenging, but we remain confident in HMV’s future prospects.”

The updates came on a day that multichannel retailer Blacks Leisure Group, believed to be the UK’s biggest outdoor retailer till now, was sold, via a pre-pack administration, to JD Sports in a deal that keeps its 3,500 staff in jobs and includes all its 302 stores, operating under the Blacks and Millets brands. Joint administrator Richard Fleming, who is also UK head of restructuring at KPMG, said: “Blacks has struggled, in tough economic conditions, to generate enough cash to service its high overhead costs. However, Blacks has a strong brand and accordingly generated a huge amount of buyer interest from some of the best-known entrepreneurs and competitors in the market. Today’s announcement draws a line in the sand and allows the business to put its best foot forward.”

Fleming was also joint administrator to La Senza UK, which today saw 60 of its UK stores sold to Kuwaiti retail franchise operator Alshaya. The deal saves 1m100 jobs, though 84 stores and 18 concessions are being closed with the loss of about 1,300 jobs.

Mohammed Alshaya, executive chairman of the Alshaya Group in Kuwait, said: “This is the first step in a long-term commitment to developing the La Senza UK business, which we believe has great potential.”

Our view: How these businesses have reacted to the disruptive technology that is the internet – and the accompanying ability to shop online – has spelt out their futures.

Both operate in categories where the growth of internet downloads could have threatened their futures. But while HMV has fought against the trend towards downloading, coming relatively late to selling MP3s online and still relying on the ability of its shops to sell DVDs, CDs, and now technology gadgets to that diminishing group of people who want to go to a shop to buy them, LOVEFiLM, which began life as a DVD rental company operating via the post, has embraced the download.

By moving beyond rentals to embrace multichannel downloads, it has made it possible for customers to download film and TV that they want to watch, across whichever internet-enabled platform they want, for the kind of price they are willing to pay. That’s just as well, since the company must now compete with new US arrival Netflix, set to launch imminently in the UK.

Ultimately in a retail industry that is changing under the pressure of multichannel and online shopping, it is those who adapt most successfully that will survive. Those that do not, risk losing it all.

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