HMV: where do they go from here?
The 19 weeks to the 4 September have been difficult ones for HMV. Across the UK and Ireland total sales shrank by 13.9% while like for likes were down by 14.9%. Neil Saunders, Consulting Director of Verdict comments
In many ways, a poor set of results was expected. This was a difficult trading period which included disruption from the World Cup and a very weak release period for gaming. However, that said, there remains a fundamental problem with HMV’s business model: most of its core categories are migrating online and continue to do so at a pace.
As such, its no surprise that one of the focus areas is on product diversification, particularly the move into fashion and into venues and events via HMV Live. The latter is an area where HMV, with its strong music and entrainment credentials, can do well. I remain unconvinced on the former. The clothing market is intensely competitive with a vast array of choice already available. It is difficult to see what HMV brings to the market that isn’t already available and, therefore, even more difficult to see them making a substantial business out of fashion.
The relaunch of HMV Digital and its compatibility with Apple’s iTunes is a sensible move, but one which was long overdue. This and the growth in eBooks, which will benefit Waterstones, are potentially strong areas for future growth. That said, they will not mitigate the weakness in store based sales and it is here that HMV must give further thought to its future strategy.
On the Waterstones front, sales growth was also in negative territory. However, a positive update on strategy, including the store refurbishment programme, was provided. The group does have a long term vision for the Waterstones brand which makes it less likely that it will look to offload the company anytime soon. That said, if sales growth does not move into positive territory by the next trading update in December, pressure will inevitably grow for a sale of the Waterstones chain.
