When HMV went into administration in 2013, the future looked bleak for the 94-year-old retailer and the brand’s demise appeared inevitable.

HMV

Few would have suspected that just two years later there would be talk of ambitious international expansion plans.

Yet Paul McGowan, founder of restructuring specialist Hilco, which acquired HMV out of administration, has been talking of big plans for the brand, proving there is life in the old dog yet.

McGowan, who is chairman of HMV, has laid out a vision of expanding via ecommerce into ten new countries, primarily European.

Continental preferences

Although the physical music market is declining in the UK as streaming services rise in popularity, it remains much stronger on the Continent, suggesting this is another canny move by HMV.

“There remains much stronger demand for physical formats in Europe”

George Scott, Conlumino

Conlumino senior analyst George Scott explains: “There remains much stronger demand for physical formats in Europe.”

He adds: “What we see in the UK is very different to the situation to the Continent. It is more value-led and not as developed in terms of digital.”

A brief look at 2014 recorded music sales confirms this. According to IFPI, the association that represents the recorded music industry, in 2014 45% of all recorded music sales in the UK were digital compared to 41% in physical formats.

Germany, on the other hand, remains committed to CDs and vinyl with 70% music sales still in physical formats, compared to just 22% of digital sales. In France, physical formats account for nearly 60%.

UK strategy

To makes its UK ecommerce business work, however, Scott believes HMV will need to take a very different approach. “It will really need to evolve the website to offer greater engagement,” he explains, pointing to retailer Game, which has created a gaming community around its website, as an example.

No matter the challenges posed by online, the UK store estate is still holding its own. HMV is opening two new UK stores before Christmas, in addition to 14 it has already opened this year, and confirmed a partnership to expand in the Middle East.  

Retail resurgence

With so much going right for HMV, Scott is not convinced by Hilco’s decision to expand into the Middle East, describing it as “strange” and a potential distraction from the core UK market.

“HMV has done some great things. It has cut costs, restructured and returned to its heritage of music with live events and getting in trend for vinyl”

George Scott, Conlumino

The entertainment retailer’s resurgence has already seen it overtake Amazon as the UK’s biggest music retailer, and, in June, it relaunched its UK website after a trial in Ireland saw sales overtake those from physical stores. It currently has 1m registered online users.

“It has done some great things,” says Scott. “It has cut costs, restructured and returned to its heritage of music with live events and getting in trend for vinyl. Any trend around physical formats has to be good for HMV.”

The live events, including album launches with live performances and artist signings, have been particularly effective in helping HMV re-establish ties with both music industry suppliers and the music buying public, who it has lured into stores with performances by the likes of Ed Sheeran.

Meanwhile, vinyl sales hit a 20 year high last year with sales hitting 1.29m, according the Official Chart Company, which has launched a weekly vinyl chart in response to the rise in popularity. The trend has come at a good time for HMV, which is reported to have seen sales of vinyl soar by 80% last year on top of a 200% rise the year before.

Much like the book market, where sales of electrical products have tailed off, the predicted death of physical music formats has been greatly over exaggerated with music buyers appearing to find room for both just now. That will be music to HMV’s ears.