HMV boss Alan Giles yesterday quit after the books and music retailer reported particularly disappointed sales figures - including the worst Christmas trading figures reported by a UK retailer so far.
The HMV bit of HMV (they also own Waterstones) suffered most. In the six months up to the end of October underlying sales were down 12%, meaning the 200-store chain made a £300,000 loss, compared with a profit of £13.5 million in the same period the previous year. The sales decline slowed in the run up to Christmas, to just under 9%, but given that that is by far the busiest time of year sales wise for HMV it was still too big a decline.
Giles blamed a combination of new competition from online retailers and a price war led by the supermarkets for the poor performance. He said that online sales of records had been through "a quantum jump", adding: "A year ago I was saying the internet would plateau at about 10% of this market. Now I say that I was wrong. I just don't know now how far it will go. This is a brave new world for retailers."
Industry insiders admit that it is the combination of online and supermarket led competition that is making times so difficult for the likes of HMV. In order to compete with the cost-cutting bulk-buying supermarkets on mainstream chart releases, HMV has to slash its price-point on those releases. With much higher high street overheads than the supermarkets, that makes their profit margins on those titles tiny. Therefore the high street record stores rely on the sales of back catalogue or alternative releases not stocked by the supermarkets. But that is the area where the e-tailers compete - offering music fans a hugely comprehensive and easy-to-access range of releases - and again, with their lower overheads, the e-tailers can easily compete on price point.
All that said, as Giles was announcing his disappointing sales figures and resignation, those crafty types over at Virgin Megastore decided it was just the right time to tell everyone they'd had a very good Christmas thank you very much.
The retail chain's MD, Simon Douglas, told reporters: "Contradictory to retail industry concerns prior to the Christmas period, shoppers returned to the high street in their droves following a sluggish start to the Christmas shopping season. The third week of December saw a sales increase of over 44.8% week on week, which was stunning, and the overall period has seen Virgin up 3.2% on last year's like for like Christmas sales. Furthermore, we've managed to increase our margin during a period, which saw competitive pricing across many entertainment products. In a challenging year, Virgin has made a huge investment into its store portfolio and opened a record number of stores in 2005. We have continued to work closely with our suppliers to support their releases and operational improvements has led to improved margins, increased stock availability and a stronger customer offer. Furthermore, Virgin has heavily invested in customer service in 2005 and saw the benefits by coming second out of 300 shops in an independent customer service audit." Although he admitted that this was a challenging time for traditional music retail, Douglas said he was optimistic about the year to come.
Despite the interesting differences in performance from the two high street leaders, it is still pretty impossible to predict what the future holds in the digital age for HMV, Virgin Megastore, Woolworths as a music seller and the smaller players in this space. Both HMV and Virgin have now moved into the digital arena, of course - five years too late some would argue, but before downloading has really gone mainstream they would no doubt respond. Despite the dominance of newer rivals online, there is still a place for the traditional music sellers in the long term, but that future surely lies in being able to offer consumers a combined real world, mail order and download experience. While the traditional companies continue to operate their stores, mail order websites and download platforms as almost separate businesses, short term successes, although a real achievement for the management behind them, do not necessarily improve long term prospects.