Refinancing HMV – what would Sid say?

The world of sport is famous for producing incredible comebacks. And as we look ahead to a summer of sport we can think back to England in the 1981 Ashes at Headingly, Nick Faldo in the 1996 Masters and Kim Clijsters’ remarkable victory at the US Open in 2009 after coming out of retirement following the birth of her first child. So in the week that HMV Group announced the terms of its refinancing deal with the banks, how can these sporting anecdotes inspire the beleaguered business to make, what the inimitable Sid Waddell might call, “a Lazarus-like comeback?”

Without question HMV is being held over a barrel by its banks. The terms of the deal are built around an early repayment with the interest not unreasonable, but amortisation fees looking pretty tricky. Management now has to focus on what they (should!) do best – generate sufficient sales.

In many ways HMV enjoys more fortunes than most. Music, which is at its heart, will always have a current edge to it. Their high street competitors have been retreating in their droves. They have high brand awareness and people trust them. They’ve invested in digital technology and are growing that part of the business. But it is the vast opportunity that digital creates which has also created so much difficulty for the brand.

Richard Baker, the venerable former CEO of Boots, believes like many, that online retailing has barely scratched the surface of its potential. Not so comforting for HMV. With Amazon and Play.com providing a bigger choice cheaper, HMV has had to reappraise what it is all about and has adopted the same commodity retailer stance as it’s leaner, online rivals flogging everything from films, to games, to books (cannibalising its sister business Waterstone’s in the process) and even clothes.

While Amazon has innovated with “one-click-buys,” mobile commerce apps, browser based recommendations and targeted e-mails, HMV has been tying itself up in knots. Ironically, Waterstone’s, has further enhanced its reputation with in-store experiences that play to its strengths.  Attentive knowledgeable staff providing reassurances to customers with informed recommendations. The stores are well stocked with logical product adjacencies. It’s a better experience than online because it adds something. HMV is a poor experience because it’s slow, has inattentive staff and has an unpleasant environment. Waterstone’s has even extended the brand online well with e-book downloads and Marketplace, its online second hand book store.

With a significant condition of the banking deal being the sale of Waterstone’s, HMV has to take Waterstone’s lead even quicker than it needs to pay back its debt. So what’s required?
Unlike its creditors famously did, HMV has to stick to its knitting. Lots of commentators have spoken of the in-store experience and bringing back the “try-before-you-buy” features like listening stations. Others have spoken about coffee or food outlets. But for me these are flawed. People are not consuming music the way they used to so the idea of queuing up with your pocket money to buy a 45 from a selection of 10 new releases when you’re with your pals just isn’t relevant anymore. And if you’re in the centre of town why would you have a “coffee chain” coffee in a music store when a nice little independent coffee shop is round the corner?

Instead, HMV can focus on the experience but bring it back to a core organising idea based on quality music. What the brand was famous for. Generation Y and future consumers do not have the same affinity for physical music as previous generations – the tactile experience of album covers and tangible collections. The MP3 format is also a limited musical experience because the compressed sound withholds aspects of the original studio recording. How many consumers know this and indeed recognise the difference in sound purity?

So herein lies an opportunity for the brand to re-shape its reputation. With a renewed focus on music alone HMV can reconnect with its core. There are commercial opportunities for the brand to partner with digital streaming technology manufacturers to deliver this purer “studio recording” form of music, educating its audiences in the process – something HMV’s reputation gives them the authority to do. And finally, one of its more successful activities of late has been live music experiences. A positioning based on pure music will build more value into this association.

In essence HMV needs to portray more expertise and less commodity. With a focus on high footfall sites where informed staff provide recommendations beyond what you know and an environment where the look and feel will increase dwell-time, HMV will also need a robust CRM that can keep customers up to date with exciting live music announcements and educate them on music purity.

If they can reinvest savings made from the 60 or so store closures it has identified to finance this brave refocusing of its strategy, then who knows, even the great Sid Waddell will be lost for words.