You wouldn’t want to be selling anything entertainment-related right now, going by the updates from HMV and Game this week.
Both are in a near impossible position, facing declines in their markets as digitalisation continues to put pressure on their core offers. The internet – which offers free many of the products the two retailers sell – is ensuring that making money out of entertainment is becoming intensely difficult. Supermarkets have played their part too, selling CDs and games at knock-down prices.
Neither HMV nor Game is certain to turn a profit in their full years, according to analysts.
HMV’s better-than-expected Christmas trading performance did not allay analysts’ fears that the structural challenges the entertainment retailer faces could prove insurmountable. It should be noted that, while HMV’s trading was stronger than anticipated, it was still down by a hefty 8.2% on a like-for-like basis at the retail arm. HMV chief executive Simon Fox admitted it was a “disappointing” performance.
The retailer is taking action, but is it too late? HMV’s move into technology seems like a good idea when sitting on a London bus and seeing a constant stream of teens wearing the latest Dr Dre or Lady GaGa endorsed headphones, and HMV has successfully shifted half a million sets of headphones over the Christmas period. But how far will it get the retailer? Technology is a fiercely competitive category and generally offers thin margins.
Many would say that Game too faces its own structural challenges, although chief executive Ian Shepherd this week told Retail Week that this was not the case. He insisted Game is suffering because of the sector’s cyclical nature and, given time, the market will bounce back, and Game along with it.
Time will tell, but it will take decisive and even drastic action to get investors on side for those retailers operating in the discordant entertainment sector.