Analysis: What next for HMV following its acquisition by Hilco?

The rescue seems to be music to many people’s ears, going by the number of people Tweeting enthusiastically about it today.

But goodwill alone won’t ensure its survival. While it may have shed its debt, HMV still faces an uphill struggle to combat declining markets and fierce rivals including Amazon, Apple and the supermarkets.

So what is Hilco’s grand plan to turn around the entertainment specialist? The restructuring firm is keeping its cards quite close to its chest about details of its strategy for HMV. However, there is a definite sense that HMV will be returning to its roots as a music and film specialist, with a breadth of range to differentiate itself from the grocers, and the experiential store environment to offer something different to Amazon.

On the HMV website this morning the retailer says: “A new website and digital services, a rebooted Pure rewards scheme, and a fresh approach to our stores are all in the works.”

We also know that HMV will be moving away from technology products to focus on its core offer. It is a smart move by Hilco. When HMV was trying to push into technology under former boss Simon Fox, it was going head-to-head with established players such as Dixons and high-quality experiential stores like Apple. When you consider that many electricals goods are incredibly low-margin products, it never seemed like a strategy that was going to be enough to revitalise the business.

So HMV will replace tablets with an “enhanced music and visual range”, according to Ian Topping, the former chief executive of furniture retailer Steinhoff in the UK, who has been parachuted in to lead the turnaround.  It is thought however that HMV will continue to sell headphones to capitalise on its market-leading position.

We also know that Hilco will make the most of lessons learned from HMV Canada, which it has owned for almost two years and which is “now trading strongly”, according to Hilco chief executive Paul McGowan, who will chair HMV.

He concedes that the UK will be more of a challenge because Canada still has a strong physical market in CDs and DVDs, and the competition here is fiercer. For instance, Amazon – largely blamed for HMV’s collapse here in the UK – has a less mature business in Canada where the huge distances between cities make it more logistically challenging.

However, there are lessons to be learned from Canada. Sources close to Hilco have indicated that it could bring The Vault – a new digital subscription-based music streaming service launched by HMV Canada in December – to the UK.

Online clearly has to be part of the ‘new’ HMV, but the store experience is also likely to be near the top of the ‘to do list’. Its stores have lacked the level of fizz and excitement that is needed to inspire entertainment-lovers through the doors.  HMV needs to bring entertainment to life, through in-store gigs, signings, exclusive product launches and whatever else that will differentiate it from its rivals.

Dan Wagner, chief executive and chairman of mPowa and Powa Technologies says: “It is hugely important now that HMV widens its perspective and creates a shopping experience that ticks all the right boxes in terms of interactivity and personalised service.

“Consumers looking squarely at price will be tempted by the likes of Amazon and iTunes. The place where HMV has the advantage is through the added value it can give to shoppers through the marrying of its online business and its high street offering.

“Shopping no longer needs to take place in a linear format and so options should be considered to redesign store layouts, payment systems and in store facilities to create a more modern shopping experience.”

With 141 stores – which are thought to represent about 70% of the turnover generated from HMV’s former 222-strong store base – suppliers will be happy they are able to generate enough volume to make it worthwhile backing the retailer. And with major stores including the Manchester flagship being brought back into the portfolio after initially being scheduled for closure, HMV has good coverage across the UK.

Free of debt, with a more manageable cost base and a renewed sense of purpose, most people will be hoping HMV can get back on song and become a relevant part of the high street once more. But Hilco will be all too aware of the scale of the challenge that lies ahead.