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HMV adopts lean digital business strategy
News Analysis: Consolidating back office may be trail-blazing gambit

By Julian Goldsmith

Published: Thursday 28 June 2007

Music, video and games retailer HMV Group has set out its web 2.0 stall as part of an effort to offset flagging physical store sales, and which could also lead to redundancies in the IT department.

The retailer, which operates the HMV and Waterstones brands, said in its financial results for the 52 weeks ending 28 April that sales for the period were up 3.8 per cent. However like-for-like sales, which are calculated purely on the same high street stores operating 12 months ago, were down 3.5 per cent, indicating poor high-street sales dragged down overall performance.

As part of an operational strategy shift, the retailer has a number of initiatives designed to bring it deeper into the digital age. It will be piloting two 'stores of the future' in Tonbridge Wells and Merry Hill shopping centre in the West Midlands by the end of the summer, which will feature destination areas where customers can burn music CDs or download music to MP3 players.

The retailer will also beef up its transactional websites with the ability to download music, made possible by a deal with EMI, and with social networking features slated for the end of 2007.

The retailer said it expects to have 20 per cent of HMV sales and nine per cent of Waterstones sales coming from online channels by 2010.

Cheat Sheets

♦ Web 2.0
♦ Mash-ups

Perhaps more effective will be changes to existing back-office processes where stores across the group will all be supplied by a central distribution centre, reducing daily deliveries from 10 to one, according to an HMV Group spokeswoman.

Alongside this, finance and IT departments will be consolidated to cover both businesses. The HMV spokeswoman confirmed this would result in job losses in both departments but declined to give any indication of the numbers of staff involved. She confirmed there are 330 personnel working in finance and IT across both businesses.

HMV expects to save £40m a year in 2010 as a result of back-office changes.

Robert Clark, senior partner at retail industry analyst Retail Knowledge Bank, acknowledged that HMV's far-reaching commitment to online sales is late and the sales forecasts are on the optimistic side.

He said: "They are fairly optimistic considering the competition but in a way they have to be. HMV has had online sales on the agenda for a long time and not achieved what they set out to do. You could argue that they've left it too late and I assume that they will be throwing money at the problem to make up for lost time."

Clark predicts the disparities between the two HMV businesses could make the consolidation of purchasing and distribution functions problematic at best. The bookseller market traditionally has a mix of central and direct-to-store distribution, where publishers will send stock direct to each branch. This could make the process of changing to a wholly centralised supply chain difficult.

Clark said: "Trying to centralise distribution and consolidate finance and IT may be a bit revolutionary and there may be some pitfalls along the way but I think all retailers are going to have to start looking at cutting back-office costs, which are collectively rising faster than sales, and HMV isn't going to be the only one in the sector looking at this strategy."