HMV Canada says it will survive despite struggles
People walk outside a branch of HMV music store on Oxford Street in central London on Tuesday, Jan. 15, 2013. (AP Photo/Lefteris Pitarakis)
The Associated Press
Published Tuesday, January 15, 2013 2:57PM EST
Last Updated Tuesday, January 15, 2013 3:24PM EST
TORONTO -- While British music and entertainment retailer HMV tries to salvage any viable parts of the business, the Canadian offshoot of the famous brand says it's far from the financial strife of its former owner.
The two companies parted ways just over a year ago when British-based parent HMV Group PLC sold off the Canadian stores to private equity firm Hilco for $3.2 million.
That means while HMV's future in the UK looks dim, HMV Canada's domestic stores are still bustling with traffic -- and in some cases even growing -- as customers snap up movies and music.
"We generally believe this is an area that has life in it for a number of years yet," HMV Canada president Nick Williams said in an interview, noting that the growth of digital downloads has been on a much slower trajectory in Canada.
"We've gone after a significantly different business model (than the UK stores)."
The change in direction appears to have saved HMV Canada from the immediate fate of its former owner, which admitted defeat on Tuesday after more than 90 years in business, suspending trading in its shares.
HMV is the last big retail chain selling recorded music in Britain and employs more than 4,000 people working in 238 stores, which will remain open for the time being.
The British company's management said it had failed to gain agreements with lenders and suppliers to continue trading. It has appointed three partners of Deloitte LLP to administer the business.
The name HMV stands for "his master's voice," from the company's trademark of a dog named Nipper staring intently at the bell of an early gramophone player. The first HMV music store was opened in London in 1921.
The company opened stores in Canada in the late 1980s, and later moved into the United States, Japan, Australia, Hong Kong and Singapore.
But it's the Canadian operations that appeared to be adjusting to changed market conditions more rapidly than other parts of the international group. After downsizing to 113 stores in the past year and a half, Williams said HMV Canada is now preparing to re-enter some of the markets it left, particularly in malls.
He credits the retailer's perseverance in the Canadian market to a decision to abandon several low-margin entertainment products, like video games and technology hardware like tablets and iPod docking stations, in favour of higher margin branded products like superhero T-shirts and coffee mugs bearing the brands of bands like Kiss.
The shift in selection helped HMV Canada deliver strong holiday shopping sales, with $65.4 million of revenue over the period, coming in better than its $63.5 million target, and above the $64.5 million in sales during the same time in 2011.
Still, the heart of HMV Canada's business remains its physical disc sales, which in part come from music CDs.
Physical album sales in Canada have been eroding for years and dropped another 17 per cent to 13.2 million units in 2012, according to Nielsen SoundScan which tracks industry data.
Digital sales at online retailers like iTunes and Puretracks have picked up steam, rising another 25 per cent to 6.1 million units last year.
HMV Canada will also face pressure from Amazon this year as the company rolls out its unlimited, two-day shipping service in Canada. Amazon Prime will cost subscribers $79 each year for shipping that can also be upgraded to a one-day service for $3.99 per item.
The future challenges for the Canadian operations seem to echo the environment in the UK where the struggles of HMV Group are far more complex. The company suffers from the high costs of running too many shops in high-rent city centres, while competitors selling online have lower overheads.
HMV's shares closed at 1.1 pence in London trading on Monday, down from a high of 4 pence a month ago.
"HMV's notice of administration was inevitable with online retailers, downloads and supermarkets combining to marginalize a brand which has become out-priced and outdated, despite its strong heritage," said Julie Palmer, partner at recovery and restructuring specialist Begbies Traynor.
Despite steadily losing market share to Internet sellers, HMV still has about 20 per cent of the U.K. music and video market, which includes both downloads and discs.
The same pressure of rapidly changing technology, combined with Britain's sluggish economy, recently swamped two other major British retailers, appliance dealer Comet and the Jessops camera shops.
The British Retail Consortium says that about 10 per cent of the nation's shop buildings now stand vacant, and Begbies Traynor says 140 U.K. retailers on are its critical list.
An HMV shop on Oxford Street in London played a crucial part in the launch of The Beatles.
The group's manager, Brian Epstein, went there in 1962 with audition tapes which had failed to impress Decca Records. An acquaintance at the store suggested Epstein have the tapes converted to an acetate disc, which could be done in the building.
According to "Shout," Philip Norman's book about the group, the engineer who made the disc was impressed and sent Epstein upstairs to meet Syd Coleman, head of EMI's publishing company, who in turn connected the manager with producer George Martin. Intrigued by "something very peculiar" in the sound, Martin arranged an audition.
After meeting the group, Martin said he thought: "Well, let's put them under contract. I can't lose much."