As HMV’s UK business enters administration after battling market pressures, Retail Week asks how the entertainment retailer’s Canadian business is achieving strong growth.
While UK chief executive Trevor Moore was furiously attempting to prevent HMV entering administration last week, his counterparts in Canada were cheerily reporting a 1.4% uplift in like-for-likes and $65m (£41.1m) in total sales over the festive period. The Canadian business, acquired in July 2011 for £2.05m by UK turnaround specialist Hilco, recorded sales of $270m (£170.1m) during 2012.
HMV’s collapse in the UK has been attributed largely to the growth in online sales of CDs, DVDs and games and the rise of digital downloads but, with the same competition looming large in north America, why has HMV Canada defied this?
Firstly, HMV faces less considerable competition both on the high street or online in Canada. There are fewer physical stores competing for the same market than in the UK where an albeit reduced throng of independents still exist competing with HMV’s back catalogue while the buying power of the supermarkets battle for new release competition. Its dominance is evidenced in the fact it has been named Canadian Music Retailer of the Year for the past 20 years at the Canadian Music & Broadcast Industry Awards.
Online, Amazon – largely attributed as the main source of HMV’s demise in the UK – has a less mature business in Canada where the huge distances between cities make it a logistically challenging market.
Moreover, the digital music market is reportedly 32% of sales in Canada compared with 55.5% in the UK, according to the British Phonographic Industry and HMV Canada has been taking strides to dominate that. In 2009, it launched digital music store hmvdigital.ca and the following year launched the HMV Pure customer rewards program, attracting 1.2 million cardholders.
Last month, the retailer launched new digital subscription-based streaming service The Vault, which uses a Spotify-like system to allow shoppers to listen to music across a number of different devices. The service is slicker and noticeably more appealing than the UK version, myhmv.
HMV president and chief executive Nick Williams said last week: “The Canadian consumer still wants CDs and DVDs and expects us to deliver them while adding value to their music experience. We also know that our consumers are counting on us to enhance their music experience in the online space, which is why we launched The Vault this holiday season.
“This combined retail and online offering is what will drive our business forward in 2013 and enable us to maintain our position as Canada’s most trusted music and entertainment retailer.”
The company also attributes its success to its breadth of range. Gift and collectibles achieved growth of 49% over the festive season while headphones were also a key Christmas gift with more than 50,000 sold, delivering $1.6m (£1m) in sales. In the UK, HMV has shifted its focus on to technology in the last year but has failed to make itself synonymous with the category in a way that would allow it to compete with online players.
Hilco UK chief executive and HMV Canada chairman Paul McGowan believes the business has made significant progress since the acquisition. He says: “From the start, we saw a lot of promise in the business at HMV Canada and are delighted to see the business performing so strongly 18 months after our initial investment. These results, combined with the structural advantages of Canada’s retail market that Europe and the US do not have, prove that, by working with all stakeholders - our staff, suppliers, and landlords - and focusing on providing an excellent shopping experience, specialty retailers can thrive in the entertainment sector.”
Ultimately, the HMV brand may have similar penetration in Canada as in the UK but the market it faces and the ways in which it has combated a seachange in consumer habits are decidedly different.