No, I am not packing in the blogs. However I use this title to capture the essence of yet another “problem” retailer.

The end of 2018 continued its sorry path in terms of devastation within the UK retail sector. His Masters Voice (HMV) is no more. That doyen of music retailing: HMV went into administration for the second time in six years. It must be said that this time it appears to be terminal.

Rescued by corporate restructuring expert, Hilco, in 2013, it appeared to be turning around during the past few years. However a major decline in DVD and CD sales hastened its demise. KMGP took over the administration and are currently seeking new investors. This is unlikely to happen anytime soon.

Why has this retailer, which has been around since 1921 and currently has around 125 stores in the UK, employing over 2,000 people found itself in such a mess? Let’s look into it in more detail.

Firstly we should acknowledge that the usual reasons are offered for such struggles in the retail sector. High business rates and rental costs, Brexit uncertainty and wary customers, unwilling to spend too much on entertainment are right up there in the “explanation stakes”.

However in my view this case masks one of the most glaring examples of a company ignoring the realities of the market. We often discuss in retail marketing classes the need for companies to proactively assess changing market trends, perceptions and behaviours: otherwise it is most likely that they will go out of business. This seems to be the case with HMV.

Superficially HMV would appear to have performed to an acceptable level as late as 2017. It increased its share of the physical music market from 26.7 per cent to 27.7 per cent (year on year). Its market share in the DVD segment increased from 20.1 per cent to 21.2 per cent during the same period.

However such figures masked the reality of the market-place. There was an inexorable move to people buying CD’s online, where the combination of much lower prices and quick delivery made for a more compelling value proposition than physically visiting an HMV store.

More worryingly for HMV most young music consumers had changed their buying behaviour more fundamentally: they were switching in droves to digital music services from operators such as Netflix and Spotify.

You might well ask how a long-established retailer such as HMV failed to monitor such change and react accordingly. It is a good question. Perhaps we can pick up some of the reasons in a statement by a former CEO, as far back as 2002, who rubbished the dangers from online retailers and music download operators. He also ignored the move by supermarkets into this sector. Such trends proved to be more than that. They changed the way in which people consumed music world-wide.

As is the case with many struggling retailers, irrespective of sector, HMV was very late into the online retail channels, preferring to rely instead on the “bricks and mortar” approach. This relied on the presumption that most shoppers prefer the “live” music environment that can be created in an outlet, the joys of browsing for their favourite artists and genres of music and the occasional promise of a live band playing at the stores.

While it is true to say that many of us like the physical store environment, the much more attractive proposition of lower prices from online channels continued to hold sway and indeed increase in recent years.

HMV is the classic example of a company that ignored reality and instead continued to plough on with its existing strategy, with a genuflection to online channels. It is surely a case of “too little too late”.

To be fair to HMV the high costs of operating physical stores: something that we have flagged up in previous blogs, has not helped. For instance in the context of business rates, it was faced with a bill of £15 million in 2017. With further rises in place for 2018, this was only going to go one way – upwards! By comparison online giants such as Amazon do not face such costs. This is clearly a case of a glaring imbalance in terms of competition.

Hilco, when it took over in 2013 succeeded in establishing more favourable relationships with its suppliers and also renegotiated more favourable deals with landlords. However to use a nasty analogy, you cannot stem a tsunami with ply board. Inevitably the market and more specifically the consumer will have its say in shaping the future.

Sadly for Hilco, music shoppers shifted far more quickly to streaming services than the experts anticipated.

This shift also raised questions as the willingness of people to actually pay for music. Then as now, there are many illegal streaming services providing music for free. Inevitably a culture of “can pay, won’t pay” prevailed. It is not hard to see why. If your favourite music is free and the quality of sound is excellent, what’s no to like about adding it to your collection?

Apple and its iTunes model changed to some significant degree, peoples’ conscience about paying for music. Most people are willing to pay something for music, as long as it is perceived as being value for money. Unfortunately music producers and retailers traditionally relied on the presumption that people would be willing to pay high prices for their favourite CD’s and DVD’s. This belief have been well and truly shattered by the emergence of digital music service providers.

Basic conceptions of selling music via full albums were also shattered: people want to pick their favourite tracks and not having to shell out on all of the tracks on a pre-developed album.

In my view HMV has fallen into the “sin of irrelevance”. Its products have no resonance any more with what people actually want.

This was rammed home to me recently when I purchased a new laptop. There was no facility for playing CDs or DVDs on the product. This confirmed to me that the product designers recognise the irrelevance of such a feature. In the future there will be no way back for such products. Yet walk into an existing HMV store (do so before they close) and you will see that the vast majority of the inventory revolves around CDs and DVDs.

The only area which exhibited signs of growth in the music sector is ironically a throw-back to the past. Vinyl sales have continued to grow as older shoppers rediscover their youth and younger people are attracted by the sound that emanates from this product. HMV has done well in this area and perhaps there is some way back if it wishes to survive.

Some commentators argue that a drastically “stripped-down” HMV (with only a dozen or so stores and a much stronger online presence) can operate in the vinyl area.

To be fair it is currently doing so, particularly with one of its subsidiary – FOPP. This was formerly an independent music retailer and has traded for over twenty years, with one or two problems.

Whether HMV has any relevance in such as retail space is very debatable. I accept that some of these independent music retailers offer the attractions of surprise, excitement and curiosity. Whether a slimmed down HMV can do so or not is a moot point.

Let us monitor the situation over the coming year.



We have witnessed the problems and tribulations of traditional “bricks and mortar” retailers over the past couple of years. In previous blogs I have discussed how increasing costs; revolving around rentals and business rates, have stymied their growth prospects. By contrast online retailers have forged ahead, unencumbered by such restrictions. It appears as though their nimble business models are likely to win out in the longer-term.

You can imagine my surprise when in mid-December (2018) I woke up to read about the profit warning pushed out by ASOS. This was the first time in my recollection, that a pure-play online retailer has expressed problems and concerns about its performance. Has the “worm turned”? Is this the first sign that the travails of “bricks and mortar” retailing has extended to online operations?

Let us consider some of the underlying background and key issues.

ASOS has been one of successful pioneers of online retailing. Founded by two brothers in North London in 2000, it has consistently posted impressive sales and profit statements over the past fifteen years or so. It claims to have over 18 million customers world-wide, operates in over 240 countries, employs around 4,400 people and operates state-of-the-art distribution centres in Barnsley (UK) and Berlin (Germany). It is working on a similar operation in Georgia (USA). In recent years it has invested heavily in its back-office operations such as distribution and warehousing along with its digital marketing. Approximately forty per cent of its sales comes from its domestic UK market. In truth it is a major player globally in the pure-play e-tail business space.

Thus the profit warning sent out in December has caused some significant ripples across the retail sector and beyond. Retail commentators are beginning to express some doubts about the efficacy of the respective business models of e-tailers.

Specifically ASOS announced that its sales for the three months to end November 2018 had increased by 14 per cent. On the face of it, not too bad you might say. However this represented some significant deterioration in the month of November and forced the retailer to revise downwards its anticipated sales of between 20 – 25 per cent full year growth to in and around 15 per cent.

This had the effect of wiping over 38 per cent off its share price.

More worryingly it predicted a decline in profit margin from 4 per cent to 2 per cent.

In another alarming disclosure similar problems in terms of sales were experienced in two of its main European markets: Germany and France (both markets representing 60 per cent of its European sales).

Was this an isolated event only featuring ASOS? Not really. One of its main online competitors in the fashion business: German e-tailer Zalando also had nearly £1 billion wiped off its shares. H&M, the Swedish fashion retailer also encountered a fall of 8.5 per cent.

Shares in Boohoo – a retailer that we have highlighted as one of the success stories of online, also recorded a drop in share price of 18.5 per cent. We can conclude that this is not necessarily an isolated case from the perspective of ASOS. Something is happening that we should not just acknowledge but assess, as it may have implications for online retailing going forward.

Let us look more closely for potential clues as to this decline.

The possible answer in my view lies in the predicted decline in profit margin from 4 per cent to 2 per cent in the case of ASOS. These figures reveal the dangers of operating on very low profit margins.

This has been exacerbated by the unrelenting heavy discounting applied by many fast-fashion retailers in an attempt to drum up business. Retail analysts also reveal that approximately two –thirds of the 4 per cent margin comes from ASOS charging shoppers for deliveries. If the margin continues to decline, as predicted by ASOS senior management, then we can expect even worse performance in the coming couple of years.

It highlights the dangers of discounting in a very clear way. The reality is that over the past couple of years, fashion retailers have survived by consistently offering promotions and discounts. The “Black Friday” phenomenon, established a few years ago, had bred an expectation among shoppers that they will get discounts if they are prepared to wait.

Heavy and sustained discounting erodes the value of the brand.

The 2018 Black Friday campaigns totally focused on discounting. In the case of ASOS, it offered a blanket 20 per cent discount on all items, on top of already heavy discounting in the previous months. Even so, many customers globally appear to have gone off the initial enthusiasm captured in previous “Black Friday” campaigns. Why? Because they expect discounts all year round now.

This has led to the effect of shoppers becoming discount-loyal at the expense of becoming store-loyal. Quite simply they will shop where they can get the best deal. If a retailer is already working with very tight, nebulous margins, the pressure to make money becomes even more acute.

We also need to factor in the typical demographic profile of fast-fashion shoppers who do business with the likes of ASOS and BooHoo. They are typically in their twenties and operating with lower disposable incomes than was the case ten years or so ago (due to a decline in real incomes). Although wages are showing tentative indications of increasing in the UK in 2018, such shoppers have cut back on their expenditure on fashion and are seeking better value and deals on the internet.

While footfall has declined in physical stores in the UK, we are perhaps witnessing the same effect in the e-tailing space as well.

Some e-tailers offer free delivery to shoppers. This in my view is no longer sustainable in markets where the margin is so low. ASOS charges different categories of shoppers for different delivery patterns such as standard next-day, same-day and Saturday deliveries. This is difficult to justify if some of its competitors are offering free delivery.

Shoppers will need to recognise that they will have to pay in the future, possibly more than they pay presently.

It is difficult to assess whether the problems encountered by ASOS and some if its competitors is temporary and a blip. Uncertainties surrounding BREXIT and economic performance in many European countries suggest that it may last for a longer period of time than is acceptable to retailers.

Pure-play retailers will need to revisit the basic dynamics of their business models – particularly with respect to discounting practices and management of their supply chains. Operating on such low margins works well in times where there is significant demand. In periods where demand declines, this affects the quantity of the items sold and places enormous pressure on the sustainability of such a model.

Trend-setters such as Amazon have set the pace in terms of retail innovation – particularly in the context of supply chain management.

Retailers such as ASOS would be well advised to study carefully the Amazon model and effect, and learn.

Let us see what happens over the next year or so!