BMS231 Operations Management

Ahmed Al-own
Jean Modard
Charly Recinos

Winter 2014
Team Project due Thursday April 10

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. Thats 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 Masters 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. Thats 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
Groups revenues. The main one is the strategy adopted with the web in the different countries.
Three of them (the UK, Australia and Singapore) dont have their own HMV website. They
dont 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, dont 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 dont follow the evolution of the technology. Actually, HMV Group
doesnt 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 didnt 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 90s 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 2000s 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 cent1. Amazon has
benefitted the most from HMVs 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 Kingdoms 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 Canadas online retailers are significantly weaker than the UKs HMV Canada
still established a presence online by turning their website into a transactional website from an
informative one unlike HMV UKs 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. Thats 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.

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)

Mergentonline

04/28/2012

04/30/2011

Variance

GBP

GBP

GBP

-20.85

-19.62

-1.23

AvgEqty<0

-564.61

-15.36

8.38

-23.74

-2.54

0.93

-3.47

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

Equity<0

Equity<0

Equity<0

Equity<0

2.23

1.83

0.4

Item
ROA %
(Net)
ROE %
(Net)
ROI %
(Operating)
EBITDA
Margin %
Gross
Margin %

LT Debt to
Equity
Total Debt
to Equity
Total Asset
Turnover

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?. Macleans 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 2500 jobs. The
Guardian (online edition)

Babin, A-A. (2013). HMV en faillite !. Actualit 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-bestpractices/

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
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