HMV plugs the retail gap

“The markets we operate in are changing dramatically. In particular, fans of music, film and games can now discover and access these changes in many different ways. So HMV, clearly, can’t rely on selling recorded content, which has been our staple for so many years,” says Simon Fox, chief executive of HMV.

Fox’s dilemma is one that will be common to many brand owners facing rapidly changing industries. Earlier this month, HMV launched its first cinema in a joint venture with Curzon Artificial Eye to trial in-store silver screens as the next step in an evolution that has pushed its profits to the end of April 2009 up to £63m – a rise of 22.6% – on a turnover of £1.96bn, which is up 2.2%.

The first HMV Curzon is a 263-seat, three-screen cinema on top of the retailer’s site in the London suburb of Wimbledon and comes hot on the heels of investment into gaming websites, music streaming, ticketing, live entertainment venues, a souped-up loyalty programme and a stronger online presence.

For HMV, not only will the deal with Curzon enable it to venture into the as yet largely untapped arena of in-store cinemas, but the retailer will also be able to do more cross-marketing to promote the latest DVD or games releases, using the cinema screens as a base where fans can interact.

HMV claims that music now represents just 28% of HMV UK & Ireland sales, while DVDs bring in 45% and games/technology comprises 24%. Fox says the company recognises this and wants to use the cinema space to “show these products as the artists and producers intended them to be seen – on the big screen.”

Curzon will also benefit by matching older films with HMV in-store promotions and by broadcasting live entertainment on the silver screen. As Curzon’s first foray onto the high street, it believes having HMV as a part of this will be of huge benefit.

Both brands will also use their respective loyalty schemes to incentivise customers to view films with HMV Curzon. The PureHMV loyalty scheme allows members to collect points when they buy from HMV to redeem items such as film merchandise to cinema tickets.

Philip Knatchbull, chief executive of Curzon Artificial Eye, says the partnership will enable the group to “experiment with mainstream movies as well as arthouse and independent films based on the high street for the first time”.

Fox says the deal with Curzon has come at a stage in the brand’s three-year “exciting, radical and far-reaching” transformation plan to move the company away from its traditional record store model.

Three years ago, HMV was forced to issue a profits warning and became susceptible to a £762m takeover from private equity firm Permira. At the same time, its online rival Amazon was seeing sales hit $2bn. The traditional high-street music retailer was out of beat with the times.

As Fox puts it: “HMV is a great brand, but it did not adapt quickly enough to the way customers now buy and consume media.”

With more people buying downloads rather than physical products, filling HMV’s stores with CDs no longer made sense. So when Fox joined in September 2006, he determined that rather than seeing HMV as a music retailer, the brand would focus on becoming the UK’s leading multichannel entertainment specialist under a marketing banner titled “Get Closer”.

The burgeoning live sector was one opportunity in which Fox saw particular merit in expanding the brand, despite its lack of traditional experience in this area. He says: “We have to give our customers access to entertainment in all its forms. The ‘live’ experience is most potent of these. The brand has moved from being one that was purely about retail to one which stretches across the full entertainment needs of our customers.”

Rather than being about selling music specifically, Fox says the “Get Closer” ethos means helping consumers access entertainment of any sort at their convenience. He will push the strategy with an estimated £14m advertising spend each year on print, outdoor, broadcast, events, PR and online as well as investments in in-store marketing.

“The ‘Get Closer’ brand identity permeates the business, creating a real sense of identity, purpose and motivation for colleagues within the business,” he claims. “It’s integral to the direction HMV is travelling, to provide live experiences for them whenever we can.

“In a world where consumers quickly change the way they consume media, bringing entertainment to light in the best quality and with the best programming, atmosphere and technology, is really important to us,” he explains.

Keith Bowman, from Hargreaves Lansdown Stockbrokers, says Fox has taken the HMV brand in the right direction. He says: “The digital revolution and online piracy have dealt a huge blow to the industry – but may yet prove its saviour. The drop in record sales – down a further 6% last year – has coincided with an explosion of new ways to connect with fans.

“HMV has proved resistant to this [decline in record sales] with its wise choice of investments over the year and its ability to lure customers back in when they once spurned the stores.”

As well as stepping up its strategy to be seen as a media-neutral entertainment brand, HMV also plans to use other tactics to appear relevant to its shoppers. It has recently started running a host of campaigns in aid of children’s cancer charity CLIC Sargent – the latest being a calendar of inspirational artists – and has “green agents” in stores in a bid to improve its carbon footprint.

Despite the progress made in modernising HMV for consumers looking for more than a CD from their retail experience, the company continues to evolve. It recently shut down its online community website Getcloser.com and transferred the content to its multichannel Purehmv loyalty scheme, to emphasise the getting closer theme in its mainstream marketing.

With so many diversifications into cinemas, merchandise, online and live venues, can Fox really create a coherent brand that will remain relevant for the near future? He says he tries to keep the idea of content at the centre of everything before considering the way in which consumers will receive it.

He reports: “Ultimately, it comes down to engaging with your customers through your shared passions and getting them closer to the content they love, whether recorded or, increasingly, through the live experience.”