BMS231 Operations Management

Ahmed Al-own

Jean Modard

Charly Recinos

Winter 2014

Team Project due Thursday April 10

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1. An executive summary including the purpose of the project and your final

recommendations

Since 1921, HMV Group is popular in cultural industry. Now, it is set up in seven countries

through the world. However, their strategies are not the same. The most problem for some

countries is the non-attendance of online. That’s why there is an important decrease of sales for

some of them. HMV Canada, which wanted to separate of the group, was bought by Hilco UK

last year. But, other problems remain in the company, such as the lack of high-tech products and

diverse financial problems.

The best players in the music retail industry like Amazon use BI analytics to understand their

customers and provide with similar shopping items every time they go on line. Understanding

how shoppers are consuming music and entertainment by implementing practices like unified

omni-channel creates a different experience that enhances not only how the consumer perceive

the brand but actually encouraging loyalty. Also in-store mobility is a big success because it

allows users to have information on the products they want without waiting for a sales

representatives to help them. Following and actually understanding the industry best practices

and implementing them in the right time with the right approach, is the equivalent to success in

this highly competitive industry.

HMV Group has been losing market share steadily over the past year. Their stock prices have

plumped. They have lost around 8 per cent market share in the United Kingdome alone. HMV

Canada owned by Hilco UK have been operating successfully due to their presence online. HMV

Canada has also been more successful than HMV Group due to high competitiveness in the UK

and fast growing online retailers in the UK. Canada is slowing catching the bandwagon of online

retailing but is significantly weak than the UK and US.

This paper shows all the weaknesses and challenges that HMV group has been faced with in

the past 3 years. It is time for HMV group to increase their presence online. Start switching from

an informative website into a transactional one and compete head to head against Amazon who is

stealing market shares from HMV group.

2. An introduction with a clear statement of the operations management problem(s)

At the beginning, His Master’s Voice (HMV) was a record label, belonging to the EMI

Group. Now, HMV Group is essentially known to be a cultural goods retailer. Actually, the

company sells CDs, DVDs, books, accessories… It is present in 7 countries in the world: the

United Kingdom, Ireland, Canada, Singapore, Australia, Hong Kong and Japan. However, each

country adopts its own strategy. That’s why the operations management problems are different.

In this project, we mainly want to evoke HMV Canada and HMV UK.

The results of the different operations management problems are the decrease of HMV

Group’s revenues. The main one is the strategy adopted with the web in the different countries.

Three of them (the UK, Australia and Singapore) don’t have their own HMV website. They

don’t propose to send online their products, contrary to the others. This is a real drawback for

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this kind of companies. Besides, some countries, like HMV Hong Kong, don’t offer the

opportunity to sell a single song online. Indeed, customers have to purchase the entire CD.

Although HMV Canada gives the advantage to buy online, there is a problem with the variety

of the products. They don’t follow the evolution of the technology. Actually, HMV Group

doesn’t sell high-tech products, such as laptops, cell phones, tablets, cameras… Customers need

to find this kind of goods in these stores or online. Nevertheless, HMV Canada seemed to adapt

faster to the new conditions of the market than the other countries.

Finally HMV UK lives through the worst period. Indeed, last year the British Group decided

to close almost 70 stores across the country. There were about 4 350 lay-offs. Adopting another

strategy, HMV Canada asked to be separated of HMV Group because it didn’t want to be

associated to it. Therefore, Hilco UK bought Canadian stores. Now, it seems to be profitable.

However, the other countries have also some financial problems, like debts.

3. The best practices in that industry (do require some literature research)

Defining the retail industry in the segment of entertainment is a highly competitive area that

is suffering from the technological innovations that are constantly arising. From Napster in the

late 90’s to Amazon moving towards selling only e-books there is a wide range of possibilities

and the brick and mortar is no longer much appealing to the average consumer (Currier, T. 2003,

P.12). In the beginning of the 2000’s Best Buy tried the exclusivity approach for the “Elevation

Tour 2001”, the exclusivity on products was a strategy based on having exclusive products for a

certain amount of time, after that period every retailer could sell the product1. However this

proved to be a non-significant for boosting sells.

As internet became a more accessible and more dynamic in providing solutions, the tendency

from moving to just having online presence for pure informative moved to an integrated

marketing. This consist in tackling multiple channels and concentrating in one objective through

a consistent image which happened to be more effective as treating each channel separately2.

This Integrated Marketing consisted in 6 best practices:

1- Clearly Define Your Target Audience: starting with a segmented list with a tie on product

or service with the marketing campaign. Should answer who is the target shopper and his

buying behavior (channels).

2- Define Measurable Campaign Objectives: It is important to have measurable objectives to

provide with a realistic view and also to quantify results with what is forecasted and the actual

results.

3- Create Clear, Consistent and Compelling Content: Creating content that is clear and

remains consistent regardless of channel is basic to apply content strategy as a purchase driver

or to increase brand loyalty.

4- “Channel” Your Messaging: Knowing the channels where your shoppers use, customizing

and improving the different connectivity between channels.

5- Drive Campaign Decisions Based on Analytics: Using Big Data for comprehensive reports

on the whole retail process.

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Clearly Technology is changing the entertainment and music industry. HMV a company that

has many years in the industry is struggling to survive. But some competitors are already using a

set of technologies to improve performance and sales in the industry. These are some of the

technologies that significantly impact in a positive way the retail industry4, like the next

practices:

1- In-Store Mobility: integrating mobility in a store experience, as using mobile devices to

enable a more interactive way to create a customer-centric store experience.

2- BI/Analytics: Analyzing data with the right tools gives a significant profile of each customer.

Retailers are exploring how to turn this new data in high performance outcomes, like using

extensively CRM.

3- Unified Omni channel Platforms: Being able to stock just the right amount with the most

demand titles and being able to identify trends with high accuracy to maintain customers

satisfied with what they want, when they want it, and in their preferred channel.

4- Flexible Fulfillment: Technology is being introduced throughout retail making ship-to-store,

ship from-store, store-to-store options and using seamless reality to provide many ways for

shopping.

5- Location Awareness Marketing: retailers are required in this competitive industry to provide

a more personalized. Some of the most effective and innovative retailers are marketing and

providing info and buying options through mobile networks, WIFI and Bluetooth in-store via

mobile devices to consumers.

4. The main constraints and an explanation on how they affect the problem chosen

In an era where IT is an important part of businesses, Internet has become an important tool

to maximize IT potency. Companies such as ITunes, Play.tv and Amazon have taken retailers

market share by storm. According to Mergentonline database, HMV group are steadily losing

around 8.8 per cent market share annually. HMV's market share for the 12 weeks ending June 9th

2013 was 8.2 per cent1, for the same period last year it was 16.8 per cent

1. Amazon has

benefitted the most from HMV’s decline, gaining across music, games and video. It made an

additional £4.5 million in the second quarter of 2013 by welcoming former HMV customers and

has returned to its record share of the entertainment market – 23.4%*. According to the

Guardian, Major music labels and film studios want that a major entertainment retailer such as

HMV remains on the high street, and are understood to have agreed to new supply terms with

HMV and approved the deal. HMV Group has been faced with a few obstacles recently. The

current competitive environment with online retailers such as Amazon is making HMV group

scale down due to a decline in sales. Therefore the company announced that it will shut down 60

stores throughout London United Kingdom only over a one year period. Sales have been

slumping constantly at 13.5 per cent2 over the crucial festive trading period. Neil Saunders,

managing director of Conlumino, Says there is no future for HMV group using its current

business model (Conlumino is a retail research agency and consulting firm). Price shares have

been rapidly dropping (Appendix).

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According to Paul McGowan, the chief executive of Hilco and HMV Canada, the United

Kingdom is a tough market for the entertainment retail industry. The United Kingdom has a

higher level of competition than Canada. With almost all of the United Kingdom’s retails stores

now being online it is almost impossible to survive without fully utilizing the Internet to boost

revenues. Canada has been poor in terms of online shopping if compared to their counterpart the

United States and United Kingdom. Amazon.ca has notably 50% less products than

Amazon.com. Also Canada has been slower to pick up the online retail market trend due to high

freight cost in Canada. In the UK and USA almost all online retailers ship for free due to a strong

supply chain and freight partner ships. Canada is also a much bigger country therefor it is harder

to sell online and usually takes longer to receive products without paying a huge shipping charge.

There is no sugar coding that Canada is behind compared to USA in terms of online retailing but

it is still a growing opportunity that retailers have to watch out for. That is why HMV Canada

has already started selling online. Although Canada still has the option to purchase from the USA

an extra freight charge is applied which makes online retailers less attractive than physical local

stores. Although Canada’s online retailers are significantly weaker than the UK’s HMV Canada

still established a presence online by turning their website into a transactional website from an

informative one unlike HMV UK’s website whom is still an informative website with no options

to purchase any sort of product.

5. A proposal for a solution to the problem, a way to evaluate the change, and an

estimation of the benefits.

Some of the biggest and best performers in the music retail industry have integrated

marketing campaigns with solid software solutions. Based on how much difference are between

those who have the right strategy aligned with good investment in IT, we can say that the benefit

of the implementation of a CRM solution could give a significant advantage to operational

performance and sales to a music retail industry firm. The multiple channel environment that

surrounds firms in the retail industry creates a more much complex task to implement. Also

using mobility to create a more personalized experience for each customer is also necessary in

this industry.

HMV UK should use an internal benchmark strategy. Indeed, it can imitate its ex-partner

HMV Canada. There is a clear evidence that the British company chose the wrong strategy,

especially about selling online. That’s why, HMV Canada can be a reference for it in order to

analyze and imitate it.

HMV group is already a renowned and a very iconic brand in the music industry. Therefor

the brand is strong enough to compete with Amazon, ITunes and Play.tv. It shall try to attained

capital through investors and not through bank loans due to high liability in the balance

sheet3.HMV must start shifting its business model by utilizing the internet, if it wants to survive

in the upcoming future.

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Appendixes

1

(Christopher Dring, 2013, HMV suffers severe market share drop; Tesco up MVConline edition)

1

(Christopher Dring, 2013, HMV suffers severe market share drop; Tesco up MVConline edition)

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2

Mergentonline

3

04/28/2012 04/30/2011 Variance

Item GBP GBP GBP

ROA %

(Net) -20.85 -19.62 -1.23

ROE %

(Net) AvgEqty<0 -564.61 -

ROI %

(Operating) -15.36 8.38 -23.74

EBITDA

Margin % -2.54 0.93 -3.47

Gross

Margin % 3.4 6.36 -2.96

Quick Ratio 0.26 0.16 0.1

Current

Ratio 0.71 0.46 0.25

Net Current

Assets % TA -21.38 -39.87 18.49

LT Debt to

Equity Equity<0 Equity<0 -

Total Debt

to Equity Equity<0 Equity<0 -

Total Asset

Turnover 2.23 1.83 0.4

7

Mergentonline

(Christopher Dring, 2013, HMV suffers severe market share drop; Tesco up MVConline edition)

Bibliography

Castaldo, J. (2007). HMV CANADA. Canadian Business, 80(18),7.

CODY, T (2011). HMV Group Continues to Scale Down. Mergers & Acquisitions Report,

24(26),15.

Sorensen, C. (2011). WILL HMW BE R>I>P> IN CANADA?. Maclean’s 123(13). 47.

Parsons, R. (2013). HMC brand at risk as administrators called in. Marketing Week (online

Editions), 18.

RupertNeate (2013) HMV sold to restructuring expert Hilco in deal that saves 2’500 jobs. The

Guardian (online edition)

Babin, A-A. (2013). HMV en faillite !. Actualité Sympatico (online edition)

Shaw, H. (2011). HMV Canada sold to British turnaround firm. Financial Post (online edition)

Currier, T. (2003). How Exclusives Are Killing Retail. Billboard, 115(33), 12.

Justin Honaman Title: Partner, Consumer Goods / Retail National Practice Leader

Retrieved from: http://blogs.teradata.com/industry-experts/6-retail-integrated-marketing-best-

practices/

Best Practices for Online Retail Operations by Ian Linton, Demand Media

Retrieved from: http://smallbusiness.chron.com/practices-online-retail-operations-36326.html

[4] Retail Info Systems News 2014. “Five Technologies Revolutionizing Retail” P. 5-19