HMV uses last man standing advantage
Sep 1 2009 by Anthony Peart , The Journal
IT has been a very difficult period for high street shops with customers watching their pennies over the holiday season.
It is easy to understand the problems that are influencing consumer spending with unemployment on the rise and families worried about what the future may hold.
The North East has experienced a jolt from the impact of the recession and although the worst may have now passed, a number of shops remain empty in Eldon Square.
The Bank of England has acted quickly to help support the UK economy in a number of ways and interest rates have been cut to historically low levels. The Government also took the decision to reduce the rate of VAT to 15%. Although the cut was certainly welcome for high street spenders, it has not stimulated the additional demand initially expected.
The change also put pressure on retailers to change prices and reprogramme tills and this can be a costly process. It is likely that these measures will remain in place for the time being to encourage and support any green shoots of recovery.
However as conditions begin to improve it is expected that VAT may be increased, possibly as early as next year.
The recession has triggered a shake out on the high street with a number of weaker retailers going into administration.
These include some long standing names such as pick and mix retailer Woolworths and furniture group MFI.
Indeed, the collapse of Woolworths also had a knock on effect on others in the industry. One of the group's divisions, Entertainment UK, distributed around 30% of music CDs in the UK, as well as film and TV DVDs. The sudden lack of supply and few alternative options led to Zavvi becoming another high profile casualty.
In these challenging times, and whilst the weak struggle, it also provides an opportunity for the strong to take market share, acquire attractive businesses at worthwhile prices and consolidate any leading position.
With this in mind, the collapse of Zavvi and Woolworths has taken significant capacity out of the market place leaving HMV as one of the only entertainment retailers left on the high street.
Its last man standing advantage has helped the group to pick up market share especially in the computer games and technology side of the business. To compete with on-line retailers such as Play.com and Amazon, HMV has improved its website with great success.
The group is two years into a three-year restructuring plan to improve efficiency and reposition the business, and it appears that more initiatives may be in the pipeline.
Although the retail sector may not be out of the woods yet, it is likely that the stronger players will emerge from the downturn on a sure footing and in a good position to take advantage of opportunities in the market going forward.
Anthony Peart anthony.peart@brewin.co.uk
