What shops have to do when their products go digital

Big stores selling books and music will have to find new ways to attract customers through the doors if they are going to survive in an increasingly competitive environment, writes JIM CARROLL

IT HAS been a grim start to the year for HMV. Last Wednesday the group that owns the HMV and Waterstone’s music and book shops announced plans to shut 60 outlets in the UK and Ireland.

The group has 28 HMV and eight Waterstone’s outlets, as well as a Hodges & Figges store in Ireland. A spokesman for HMV said the closure will not affect the “vast majority” of the music stores and that the move “in no way signals any intention to pull out of entertainment retail”.

A dire Christmas-trading period for the stores has prompted the planned closures, as music sales for December fell by almost 14 per cent compared with the same period in 2009.

The management blamed severe weather conditions during December as well as increased competition from supermarkets and online retailers for the losses, estimated to be about £20 million (€24 million).

But the problems for a bricks-and-mortar retailer like HMV go a lot deeper than a few centimetres of snow outside the shop doors. Chief executive Simon Fox probably hit the nail on the head when he talked about the “the pace of change in the markets in which we operate”.

Put plainly, people just aren’t going to record stores like HMV any more to purchase plastic discs. While some music fans will always want to buy a physical product, the vast majority are switching to digital downloads and streams.

Figures published in Britain this week showed that CD sales fell by more than 12 per cent last year, while sales of digital albums and singles grew by more than 30 per cent and nearly 6 per cent respectively. This trend is also mirrored in the United States, with CD sales down 20 per cent and digital albums up 13 per cent.

Such changes in entertainment consumption will have a huge impact on the shops you will find on your local high street in the future.

A preview of what might be in store can be seen in the United States, where the Tower music chain went out of business in 2006. Concerns were expressed this week about the future of the Borders book chain after it announced plans to delay payments to major publishers because of declining sales.

The editor of Irish Publishing News, Eoin Purcell, says competition from supermarkets is really what is putting the squeeze on such shops as HMV and Waterstone's.

“The average punter knows there’s a price difference, and the competition is fierce from the likes of Tesco and Dunnes,” says Purcell. “That’s difficult to compete with, even for a company of the size of HMV.”

He says that the traditional bookstore will rely more and more on heavy readers, those who buy a lot of books.

“The heavy reader will still go to the chains or independent outlets rather than the supermarkets. The danger for the booksellers is when the heavy reader moves to digital, and you are seeing that move already in the UK and US.”

Shops that want to continue to attract customers will have to be innovative, says Finian Murphy, consumer researcher at the Mindshare agency.

“At the moment it’s hard to get people to leave their house to go anywhere,” he says. “Look at what’s happening with the pub trade, for instance. A shop needs a hook to get the potential customer in. That customer is looking for an experience and value, and grocery shops and supermarkets do that kind of thing really well already with loyalty cards.”

Murphy points to record shops like Mono in Glasgow and Tower in Dublin as examples of innovative retail behaviour. “There’s something more for the customer than just buying a CD or record, like more room for browsing or a cafe. There’s probably a bigger profit margin in selling a mug of coffee than a CD,” he says.

By contrast HMV has just not been innovative, Murphy says. “In many ways the customers are more advanced than the shops.”

Purcell agrees that updating its offering is key for any shop, but he says it is difficult in the current environment. “It will be tough to be innovative in a retailing environment where customers are not being flaithiulach with the cash,” he says. “But as good book shops innovate and attract more customers, the shops that don’t do that are the ones that will fail.”

Just as the music business has had to grapple with digital, Purcell says the book trade will also see changes as a result of changes in technology, especially at retail level. “I think you are going to see publishers and authors publish in digital formats, and if a title works they may then do a print edition. A lot of books may be made available on a print-on-demand service.

“That’s not necessarily a bad thing, because it does reduce the investment required to get a book to market. So maybe we’ll see some more experimental books from publishers. It’s a problem more for booksellers than for publishers.”

Yet there are also opportunities for the retail sector. “Barnes and Noble in the US have really got on top of things with their own device and have encouraged their customers to become digital readers,” says Purcell. “They’re looking at sales of about $400 million (€308 million) for digital content in a 12-month period – and that’s impressive.”

He believes, though, that there will always be a market for print books. “It might not be huge. It might be down to 30 per cent of the market in 10 years’ time, but there will still be a demand for physical books and the browsing experience that you can’t get from Amazon or the Book Depository,” he adds.

Murphy is also optimistic about a future for some of the big outlets. “There will be a lot of scaremongering as shops close, and the internet will be blamed,” he says. “But, as with gigs, people will still want to go along to actually experience stuff if it’s good enough.

“I don’t fully agree that we are all going to sit in our bedrooms and look and buy online. Customers will still need a place to go, be it the music junkies who will go through all the records in a store or the dads who run into the shop on Christmas Eve for the last-minute purchases.”

What we don’t know yet is how far they may have to go in future to find a shop.