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New deal saves 100 HMV stores – but what is the future for retailers selling music and entertainment in-store in an age of streaming?

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New deal saves 100 HMV stores – but what is the future for retailers selling music and entertainment in-store in an age of streaming?

There’s a broad welcome from commentators today on the news that HMV has been bought out of administration by Canadian business Sunrise Records. One hundred of its 127 stores have been saved as a result of the deal, led by Sunrise’s chief executive Doug Putman, with 1,487 jobs saved as a result. Four of the stores will continue to trade as Fopp. But the closure of 27 stores will mean 455 redundancies. “Our immediate concern is now to support those employees that have unfortunately been made redundant,” said Will Wright, partner at KPMG and a joint administrator.

 

Putnam, speaking on BBC Radio 4’s Today programme, said high rents meant it hadn’t been possible to save all the stores. “If we couldn’t see a store even break even it didn’t make sense to take it on,” he said. The acquisition looks set to spark a debate on whether there’s a long-term future for bricks and mortar stores in the music and entertainment business where downloads and streaming now play a major part.

 

 

The case for stores

Doug Putman, who bought Sunrise Records in 2014 and previously took over HMV’s Canadian business, has built up an 80-strong chain in the US. Almost two-and-a-half years on from his previous acquisition of HMV stores, he told BBC Radio 4’s Today programme, those stores are doing well and are profitable.

 

“We see HMV continuing on in the UK for a long time,” he said. “We believe it’s a chain that’s going to be around. The customers love it and we get amazing support which is great. I think there is a very long road ahead.”

 

There’ll be a focus on vinyl as part of a strategy of listening to what the customer wants. Asked about the role of stores at a time when it’s ever easier to download music, Putnam said: “There’s no doubt online is a big part of overall retail sales, but people love to come into a store, have an experience, talk with someone who understands music, loves music, loves video and entertainment. If you think online is the only future, I just think that’s not going to be the case. There’s so much you get by coming to a store that you just can’t get online.”

 

The Entertainment Retailers’ Association (ERA) says the deal is “good news for the UK’s entertainment industry and that “HMV staff, suppliers and customers are in great hands with Sunrise” - despite the rise of streaming.

 

“Sunrise recognise that on top of streaming and downloading people continue to buy physical formats, which is still a significant £1.8bn business,” said ERA in a statement. “HMV accounts for approximately a quarter of the physical music market and a third of the video market creating a significant opportunity for Sunrise in the UK.”

 

And the doubts

“It’s difficult to see how the market for physical music and DVDs can sustain a 100-store chain in the long-term,” sys Patrick O’Brien, UK retail research director at GlobalData. GlobalData sees the market declining from £1bn in 2018 to £645m by 2023. “Sunrise Records will have to more than merely increase market share of the music and video market, which is itself difficult given the continued rapid growth of Amazon Prime,” he said. “It will need to get much greater support from suppliers, landlords, and widen its proposition in other categories.”

 

At the time of HMV’s administration, at the end of December, Paul McGowan, executive chairman of HMV and its then owner Hilco Capital, said that the market for physical entertainment had fallen fast over Christmas, with DVD sales in particular down by 30% on the previous year. “It is disappointing to see the market, particularly for DVD, deteriorate so rapidly in the last 12 months as consumers switch at an ever increasing ace to digital services,” he said.

 

In January, the Entertainment Retailers’ Association released figures that suggested 76% of entertainment transactions were digital in the UK market in 2018. But the rise of digital, said the ERA, had helped the games market, in particular, to double in value to £3.9bn since 2017 - although 80% of those sales now take place online.

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