As I’m sure you are all now aware, the HMV chain has gone into administration. The HMV.com website is now closed for business, and the outlook for HMV and FOPP’s remaining high street stores looks, at least today, rather bleak. This is of course a tragedy, especially for the 4,000+ staff.
I would like to reassure our labels that, although this collapse certainly will have repercussions on the wider music marketplace (especially in terms of removing competition), Kudos will probably walk away reasonably unscathed. We recently moved across to consignment terms with HMV which required that we buy-back our in-store stock, leaving a large credit on their account. Our consignment terms also included swifter payments, so our debt exposure is pretty limited. There is an issue with stock, in that all Kudos stock on HMV’s shelves belongs to Kudos and under the terms of our agreement we have the right, now that they are in administration, to receive all that stock back. We are working on this and will keep you posted.
There has been much discussion about the failings of HMV. Certainly taking so long to embrace online sales and the digital market played a significant part in their demise, as did their unrealistic approach to pricing. From our perspective, as a relatively niche independent distributor, it seems that for a long time they forgot the importance of their core product; music. Ironically, just before their collapse, they started embracing significant changes that could have turned this around. In some sense it feels like they simply ran out of time.
Kudos History with HMV
Up until 2008, all of Kudos’ UK sales were handled by Pinnacle (at that time the market leading independent physical distributor). After the demise of Pinnacle, we decided to take all of our fulfilment in-house. We quickly opened direct supply accounts with all the independents and many of the major names in retail including Amazon and Play.com.
We applied for an HMV vendor account and were flatly refused. HMV would not deal directly with us. Apparently we were too small to warrant the cost of opening up a new vendor. We were effectively locked out of HMV for almost three years.
In early 2011 we finally opened up with HMV when one of their directors fought our corner. He understood that for HMV to distinguish itself, it was important for its product range to include our labels’ releases.
The most significant recent development was HMV’s move to consignment terms. We supplied HMV with stock, but this stock remained our property. HMV then provided weekly sales reports against which we would raise an invoice. The benefit of consignment is that the buyers at HMV could stock a deeper range without directly affecting cash flow. They could also be a bit braver when considering new releases. As a distributor, it meant that we would no longer be in the insidious position of ‘selling’ 500 units of a new release only to see 400 of them back as returns (usually AFTER we had already settled with the label for the 500 sales). Over the last couple of months we saw a really significant increase in our overall HMV turnover. This was also REAL turnover (over the counter sales). Consignment terms can also re-cast the buyer/vendor relationship. We (as a distributor) could really use our understanding of the national market to work more consultatively with the buyer. Sadly we may never know where this could have led.
Personally, I believe there is STILL a market for music on the high street. Shopping is still THE most popular leisure activity in the UK. People do like to get out of the house, browse and physically engage with music. Personally, I think the key, along with getting the price, range and environment correct, is to have shop staff and store managers that are properly engaged with their local market; who are not simply an appendage of some faceless head office. My fairy-tale outcome for HMV would be for an enlightened (and obviously very brave) entrepreneur with a music background to create an HMV franchise, with owner/managers able to operate like independent stores, but with the backing, back-room support and technical infrastructure of a strong franchisor. However, in the current retail environment with the recent collapse of Jessops and Blockbuster, I am not particularly hopeful that anyone is THAT brave.