CD’s vs. Downloads – The Decline of HMV

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HMV have announced the closure of 40 stores over the next year following a 13.6% slump in pre-Christmas sales. The shutting down of the outlets (as well as 20 of the company’s Waterstone’s book shops) is undoubtedly not as devastating as the demise of other retailers such as Woolworth’s – not yet anyway – but will leave a scar on the nation’s high-streets, not to mention result in job losses. HMV are currently the biggest music retail chain – rivals Zavvi are no more, and formerly independent retailers Fopp have been amalgamated under the HMV umbrella. However, sales have been steadily declining, which has led to the store diversifying into other areas, such as venue ownership, gig promotion, fashion, and technology. Go into any HMV store and most of the floor space is occupied by merchandise other than CDs. Executives have made it clear how important it is that sales thrive in these areas, as competition for the CD and DVD markets coming from the internet and supermarkets remains strong. HMV has a tough few months ahead – owing bank loan repayments and aiming to cut back £10 million in costs, what has happened to the music giant?

Unsurprisingly, given the growing download market (both illegal and legal) album sales have suffered. According to the record company body BPI, sales are down for the sixth year in a row, despite well publicised pre-Christmas releases from the likes of Take That and Michael Jackson. This change in consumer habits has impacted directly on the sales figures of HMV.

The chain has attempted to accommodate the growing trend for digital album sales through selling them online, often with the promise of free delivery. Even so, they compete with established online retailers Amazon and Play.com, not to mention iTunes and illegal download sites. The BPI claims that 76% of tracks downloaded in 2010 were done so illegally, equating to 1.2 billion tracks. Furthermore, Spotify and YouTube users have also increased, meaning that more are accessing music online for free or little cost. The future of album sales is bleak, given that it has slumped by a massive 12.4% this year.

HMV are also not doing themselves any favours by setting high prices for their stock. ‘Doo wops and Hooligans’, the new release from Bruno Mars, for example, currently retails at £12.99 in store. On the HMV website, it costs £7.99, yet on Amazon, a new copy can be bought for £5.40. No wonder that sales have plummeted – customers will not remain loyal to a store if they can find cheaper goods elsewhere.

Despite broadening their range of stock, customers have bemoaned a lack of choice in the average HMV store. The rows of CDs have shrunk, sections dedicated to world, metal and classical music have been abandoned in favour of piles of chart and sale stock. HMV makes no claim to be an alternative or specialist retailer, yet limiting their products to the mainstream alienates a whole demographic searching for something a little different.

Worse things can happen to a chain than the closure of 1 in 10 of its stores – hard as it will be on the employees and customers affected. But to avoid further damage, HMV needs to rethink its pricing and stock, and quickly needs to evolve to adapt to a changing market.

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