HMV Group to close 60 stores

Earlier this week I spent part of my lunchbreak in the flagship HMV store on London's Oxford St.  Walking down aisle after aisle filled with products that I could buy more cheaply online - even in the post-Christmas sale -  either as a download or as a physical product, I wondered how its business model could be successful in today's marketplace.  When I got back to my office, I read that the HMV Group was to close 60 stores (40 HMV, 20 Waterstone's) and I was hardly surprised.  Other than a few deeply discounted lines that it couldn't have made much (if any) profit on (DJ Hero, with decks, for £30 for example), I didn't see why anyone with access to the internet would need to purchase from there.  This was particularly true in the videogame section, where some games were more than double the price asked by online competitors.

Last year Game, when announcing its poor half-yearly results, stated that it was going to close 85 of its stores (across the Game and Gamestation brands) by Christmas 2013, a move that will leave it with 550 stores.  Game is a little different from HMV, in that it is a specialist retailer and also that it has a fair amount of overlap in its branches, as a result of the earlier acquisitions of the Electronics Boutique* and Gamestation brands.  In my town (population 84,000 - thanks Wikipedia), there are two Game stores and a Gamestation in the town centre, a pattern that is repeated in many locations in the UK. In the same precinct, there is also a HMV, a Cex and a Tesco that sells videogames - this amount of competition in a falling marketplace is sure to result in closures.

Two years ago, zavvi went into administration and subsequently closed down.  Shortly before, Woolworths, which sold videogames, DVDs and CDs as part of its lines, also went into administration (this was a contributing factor in zavvi's failure, as a Woolworths subsidiary supplied it with much of its stock).  HMV has its differences to zavvi - its larger,  its brand is better established, it sells preowned games, it also owns Waterstone's (itself under pressure from Amazon and the like) - but the core business is essentially the same.   I don't think that HMV is on the brink - and it is clearly acting now to avert problems in the future - but fault lines can be seen in its business model.

The ultimate question in considering the entertainment media retail market is 'can it survive?'.  I'm not sure, in the long-term that it can, other than in flagship locations such as central London,  which can cater to the day-shopper market.  I often pop into Game and HMV in my lunchbreak, or at weekends but a lot of the time I only browse and don't buy anything.  This behaviour essentially turns the bricks and mortar retailers into showrooms for the online customer - not the basis for a successful business.  I think that this is a shame (not least for the thousands of staff that work in these businesses) but, ultimately, this is part of the evolutionary effect of the internet and of digital distribution, which have been very beneficial in many other ways.

Many people in the UK were sorry when Woolworths failed but how much of that was down to nostalgia from shopping or working  there in the past? How many of those decrying its closure had shopped in one its stores recently? As Woolworths' core market had been eroded by the large supermarkets selling similar lines more cheaply, online retailers have done the same to HMV and Game, a trend that seems irreversible.  Will HMV and Game be here in 5 years' time?  Probably.  Will they be here in 30 years' time?  I doubt it.



* it was actually Electronics Boutique that bought Game and then rebranded all the UK-based EBs as 'Game', presumably as 'Electronics Boutique' is such an awful name for a videogame retailer

How much? No, really, please tell me

As I've mentioned before, supermarkets have taken to giving new release games super discounts in the first week of sale, often bringing the sale price below their cost price. As major (read: hyped) releases sell an enormous amount of copies in that first week (Modern Warfare 2 sold more than one MILLION copies in the UK on its first day alone), supermarkets can drastically increase their customer footfall by doing this. The 'losses' on the games are recouped by the profits on the other puchases made by gamers when in store and everyone's happy.

Except the specialist game retailers.

Left 4 Dead 2 is out this Friday, 20 November (as is Assassin's Creed II). I've pre-ordered through Game and popped in yesterday to see what the retail price will be but the sales assistant said that he didn't know yet. Last weekend, Gamestation told me that they would not know the instore sale price until the afternoon of Thursday 19th but that it would be between £38-£50 (thanks guys).

I don't know if this is standard practice, though I do remember knowing the Fable II price, for which I had similarly pre-ordered, well before release. I think that it may be the case that specialist retailers are being more cagey. If a new game is going to be what I will term 'price bombed' by a supermarket, it doesn't matter what the specialist retailer sells it at, as they can never price match. They could, in fact, add another £5 on their normal new release price (say £45 instead of £40), for as long as supermarkets are price bombing, with little effect on their sales. I think Left 4 Dead 2 (and probably Assassin's Creed II) is too much of a niche title to rouse the supermarkets to this type of behaviour but you can understand the specialist retailers' circumspection.

The market is clearly not working here but I'm not sure how it can be resolved - supermarkets will try to make money, gamers will try to save it and specialist retailers will be left in the middle. A download-only future would end this but, in that event, all of those parties will lose out.