Friday 5 April 2013

HMV: Grocery Lessons in Survival?

News that Hilco is set to rescue HMV from 3-months administration added to the belief that music companies and film studios have agreed new supply terms with HMV and are backing the deal, means that the company has gained some breathing space…

As suppliers will be unable to offer unilateral support that not also available to other retailers, including grocery, the aim of music companies and film studios should be to reward HMV for any in-store activity that improves and delivers category performance. This support could also be offered to the grocers and mass retail.

However, given that online has possibly made the home entertainment format redundant, survival could depend on HMV being run more like a grocery shop, a format that manages to survive against impossible odds…

Leaving the ‘romance’ of home entertainment retailing aside for a moment, there are a number of grocery measures that could be adapted to the new HMV finance-based model, ideally with the support of suppliers…

Overall, the aim should be to make HMV home entertainment retailing comparable with leading edge major multiples as follows:
  • Retail pricing: Suppliers need to set shelf pricing within an omni-channel strategy that will optimise the store model, and reduce unplanned leakage via other routes to consumer
  • Net Margin: From its current net losses of 13%, HMV needs to achieve net margins of 5%+. This should start with average Gross Margins of 25%, allowing for 15% to run the shop, and 10% to cover central overheads and net profit.
  • Sale-or-return: should not be offered, given that it can remove the incentive to sell and maintain the range and condition of in-store stock
  • Stockturn: the grocers manage average turns of 20+, with individual SKUs  varying in response to demand. This can mean suppliers delivering some titles several times per day, if necessary (good practice for dealing with the grocery guys)
  • Space Management: Again, leading grocers achieve £1,000 per sq. ft.  per annum on their store areas, with footprint of their fixtures/gondolas over-performing to 'carry' the non-selling space in the aisles. Given the near-vertical merchandising of CDs and DVDs i.e. minimum foot-print, this should be a no-brainer KPI for HMV
  • Credit period: In the short term, credit should be limited to 30 days to encourage financial discipline in what is a cash business at point-of-sale.  The current 45-90 days enjoyed by some retailers is a ‘temporary’ aberration that will be corrected as soon as a government begins to fully appreciate the damage being done throughout the demand-supply chain
  • NAM/KAM involvement: Acting as leading-edge retail business consultants to the store, with 50% of the NAM/KAMs‘  costs covered by the supplier’s advertising budget, if necessary, given their contribution to brand-building in the aisle
Having covered the above basics of good shop-keeping, HMV will then be in a position to apply all the ‘romance’ of the entertainment category (within a category management & shopper-marketing envelope), and really show the grocers how to optimise home entertainment retailing …

Meanwhile, have a really romantic weekend, from the NamNews Team!

No comments: