Asda and HMV: The pros and cons of a potential acquisition

Details of Asda’s interest in HMV remain thin on the ground and Asda vehemently refuses to comment on speculation. Retail Week examines the pros and cons of the possible deal.

Pros

A digital future? Retail Week revealed last year that Asda is eyeing a digital acquisition to catch up with rivals Tesco and Sainsbury’s who have bought a raft of digital entertainment websites including Blinkbox and Global Media Vault respectively. The HMV brand may still have enough cache to become a pureplay. Walmart bought online movie service Vudu in the US in 2010, and Asda Direct trading director Frazer Locke said the UK grocer is deciding whether to launch the service here or offer something different.

The new Amazon? With Asda parent Walmart’s Everyday Low Price strategy, Asda could use the world’s largest retailer’s buying power to offer shoppers cut price bargains to rival etail giant Amazon.

A convenient solution? After watching rival Morrisons reacting quickly in buying former Blockbuster, HMV and Jessops sites to build its convenience arm, Asda boss Andy Clarke may fancy a piece of the rapidly growing convenience food market. Asda has hinted at interest in this market with three dedicated click-and-collect sites but acquiring HMV’s 119 stores not earmarked for closure would give it real presence in the market.

A market share play? Asda has made a significant push in its marketing to win entertainment spend following the collapse of Game last year, promoting big releases with midnight launches. The grocer held a 10.4% share of the physical video, games and music and digital music market in the 12 weeks to December 2012, Kantar Worldpanel data released in January showed. Asda has the fourth largest share behind rival Tesco at 12.2%, HMV at 17.5% and Amazon at 23.4% so HMV’s share is up for grabs.

Cons

The HMV brand: HMV’s name has arguably been tarnished by its administration and was not a leader in selling music digitally before its collapse. Kantar Retail insights director and co-author of Walmart: Key Insights and Practical Lessons from the World’s Largest Retailer Bryan Roberts today tweeted: “It’s such a mystery. Why would a retailer with 10,700 stores in 27 countries & global ecommerce ambitions be interested in the HMV brand?”

A declining market: HMV’s demise was not simply a case of mismanagement. The administrations of HMV and Game – and a host of high street names throughout the last decade – have shown how tough physical entertainment retailing is. The problems for high street retailers began when Tesco and Asda began selling CDs and books, however online rivals have made competition far fiercer and the market less attractive. Moreover, the likelihood of Asda being interested in selling low volume back catalogue products appears slim so a new HMV would not mirror its former existence.

Hilco competitionn: After acquiring HMV’s debt, restructurer Hilco appears to be the frontrunner in the race to buy HMV. If Asda is to purchase HMV then it will have to outmuscle Hilco which has proved it can run the retailer’s Canadian arm after acquiring it in 2011.

The store estate: If Asda is plotting a step into the convenience market then HMV’s high street locations do not appear the most logical sites for the grocer. Facing potentially high rents and stores which are largely bigger than the average convenience grocery store, HMV sites do not appear the most appealing. Asda’s model has always been to operate on low costs by taking out-of-town sites with lower rents and rates allowing space costs to be kept to a minimum. Moreover, sites with some car parking space are often favoured by grocers, but the HMV sites are unlikely to have any.