Woe On the High Street (Part 1.0)

I have already mentioned, several times in this blog, the problems that the 'Major Labels' have had and also continue to face. The recent change of ownership of EMI is only the latest in a long line of changes here.
The High Street retail music stores have also been feeling the pressure too - at least in the UK.
Last week HMV announced its profits had halved this year to £50 million. That still sounds a tidy sum, but given it was the return on sales of £2 billion it represents a margin of just 2.5% on sales. For a major High Street retail chain that is a dismal return and it shows just how competitive the market currently is. The smaller chain MVC , and a competitor of HMV, collapsed just before the end of 2006 although 67 of its stores were then acquired by another rival Fopp; a reprieve that has proved short lived as it too went into administration Friday last. It is possible parts of the business might be saved, but it is not clear who might be a buyer.

What has gone wrong?
Not as easy a question as one might expect. It is without doubt a combination of factors, some of which apply far beyond the music/video retailing industry (think travel agents - Thomas Cook announced a raft of store closures this week - and holiday store chains have been merging for several years, etc.)

Here are a list of the problems they face (in no particular order):

• Competition from downloading (legal or otherwise).
• Competition from supermarkets (who discount the current best sellers while not stocking anything else).
• Competition from web-based retailers (Amazon and the rest)
• Out-dated/unappealing retailing space and rapidly rising rentals for new retail space.

Any one would not have been a crisis but the combination of all four is proving near crippling. One thing that links all four factors, as they impact the High Street retailers, can be summed up in a single word - OVERHEADS. High overheads lead to low market competitivness - and that is a fact that it hard to dispute.
Is the current situation the result of an inevitable process with the High Street retailers as mere victims? My answer, given without hesitation, is... NO! NO! NO!

Accuse me of 20/20 hindsight if you like, (I don't work in retail management), but that is actually not a defence option for the afflicted chains: the retail environment is intrinsically fashion-prone and it is all about looking for future trends and therefore involves a high degree of risk-taking.
Had they done that, but somehow missed the mark, I'd have rather more sympathy than I can currently muster. If the retail chains had invested in on-line sales of physical music and of downloads before the market was proven they could have used their then cash-generative businesses to push those "new" markets forward as a logical extension of their existing markets. If they had used their retail advantage, even six years ago, they could have challenged the likes Amazon head-on and it would have made it much more difficult, maybe even impossible, for investor-funded e-businesses to get into the music market in the first place, let alone capture a dominant share of it.
In fact they made no particular concerted attempt to do either. One might well presume that sheer arrogance led them to presume that these developments were simply short-term trendy distractions.
That they failed to take full advantage of on-line sales of physical music might just be regarded as misfortune. That, having missed one huge opportunity, they then also surrendered the next one almost without so much as a whimper, is quite incomprehensible.
'Downloads' came came fairly soon after and to provide them does not require huge investment. The potential was surely obvious and the risk fairly small. That they also missed the opportunity to take the lead with downloads beggars belief: it and could have rescued the situation to a fair degree - so why they didn't latch on to it quicker?

Why has it come to this?
For thirty years, maybe even more, they simply couldn't believe that the gravy-train that they were travelling on would ever hit the buffers. In this way they have fallen into the same trap as the major labels - COMFORT breeds COMPLACENCY.
Complacency has a strange tendency that rather goes against the grain of capitalist greed: young entrepreneurs set things up, and young (or young-at-heart) investors put up the money to do so and both are not risk-averse. If it works out well then, naturally, they get older, richer and more risk-averse as shareholders.
Companies that look solid and risk-averse tend to attract other shareholders of the same persuasion. The senior management they then directly, or indirectly, choose match those ideals and they naturally tend appoint middle management, etc., and from there down employees with new ideas and grand plans either leave for other (probably newer) companies that match their ambition or to set up their own.
That is not necessarily a problem until a large organization is suddenly confronted with a sea-change in its traditional market and competition which, as likely as not will be provided by the sort of companies mentioned above. It is a fair bet that the main rôles in sales and marketing will be run and staffed by people who know exactly the potential weaknesses and strengths of the companies they chose to leave five or even ten years ago.

I'd be very interested to hear anyone's thoughts on this whole topic?

• Have you been/are you an employee in retail music? What do you think?
• Is this just a UK phenomenon? What is the situation in Europe and/or the USA?
• What kind of music stores will there be in 5 or 10 years time?

Or anything else on this subject or the wider implications that is raises. Woe On the High Street (Part 2) will, hopefully, be largely based on your feedback!

Rest assured I'm not going to make any money out of any of this. Google keeps telling my that I should include 'AdSense' on my blog, mentioning the fact that it could earn me money, (10¢/month probably!), but I'm generally inclined against that. If I choose to advertise/promote anything on my blog then I'll be the one who decides what that will be and how and it will be done (and done for free), not least so I can decide exactly where, when and for how long it will appear.
That is my view - do you agree with it?