HMV: If you don’t fix it, you’ll end up broke…

The name Margaret Anne Lake might not ring too many bells. But if you were in the UK towards the end of the twentieth century, you’ll be familiar with her alter-ego Mystic Meg.

Having made her name as an astrologer in The Sun, Meg was catapulted into the national consciousness when she was given a slot on the fledgling prime time National Lottery draw programme.

In an attempt to build excitement and pad out an event that took two minutes to complete, Meg was brought in to ‘predict’ the winners.

Her predictions were suitably vague.

The norm was something generally along the lines of “the winner would live in a house with a 3 in the number, in a town beginning with L or M and have bought their tickets from a woman.” with a sprinkling of astrological terminology for extra authenticity.

However it would seem that back in the mid-to-late 1990s Meg wasn’t the only one struggling to see what the future held. Far away from the glamour of TV, a number of well-paid businessmen were busy making decisions that would see their organisations squander their dominant positions.

And a couple of weeks ago, after struggling along for years, both HMV and Blockbuster UK, once leaders in their categories, hit the buffers and called in the administrators.

Bad Advice

The wisdom ‘If it ain’t broke, don’t fix it‘ is relatively modern – it dates from 1977 – and was attributed to businessman Bert Lance in the May issue of the magazine Nation’s Business.

The phrase caught on, partly because it made a point in a catchy way. But like many wisdoms, it doesn’t tell the whole story.

Just because something works now, doesn’t mean it always will. And those in position of responsibility have an obligation to future proof their organisation.

Back when Mystic Meg was in her pomp, the digital revolution that helped bring about the demise of both retailers was in its infancy. But signs of its potential were there, particularly for HMV.

The first was how people acquired their music.

Software that ripped files from physical storage, coupled with faster web connections, gave birth to peer-to-peer sharing. Programmes like Napster, Kazaa and Limewire removed the need for physical reproduction and distribution.

The whole entertainment industry never really came to terms with illegal downloads, opting to use legal threats and emotional blackmail, rather than adapting their businesses to meet the demand.

In reality, not all pirated content would ever  have been bought legally. Peer-to-peer applications offered users the freedom to sample new artists they would never have paid for and get digital versions of music they already owned physically, easily and without it costing them money.

One of the reasons people wanted their music digitally is the second reason the digital revolution helped bring about the demise of the likes of HMV – the way people consumed and stored music.

The emergence of the digital music player, culminating in the release of the iPod in 2001 meant that people also wanted their music in a new format. They could now store their entire collection on one machine.

When people had upgraded their vinyl to cassette, and then their cassettes to CDs, HMV had been in pole position and reaped the profits. However a digital format didn’t require physical stores and HMV didn’t react. Their model was suddenly ‘broke’, but they didn’t realise in time to fix it.

Avoiding failure

Can such demises be avoided? The future is notoriously hard to predict, but there are some guidelines that can help companies avoid suffering a similar fate to HMV.

1. Be alert to new and niche competitors

Back in the 1980s and 1990s, HMV may have considered their competition to be the likes of Tower Records, Virgin and Woolworths. When they all disappeared, it might have seemed that HMV had won the battle. In reality they were all killed by the same bullet. The game changed as companies diversified.

Back in 1981, following a dispute with Apple Corps, Apple Computing agreed not to enter the music business. Now, iTunes offers over 28,000,000 songs.

Just because someone isn’t a direct competitor now, doesn’t mean they never will be.

2. Keep an eye on the Path to Purchase

HMV didn’t suffer because people suddenly stopped wanting to buy new music or watch films. What changed was how people acquired their material.

Online downloads provided a new way to access digital music. For those who wanted physical media, Amazon et al provided an alternative way to buy CDs and DVDs. Now that nearly 80% of UK households have broadband connections, consumers can stream films at the press of a button or watch a dedicated Movies channel.

Sometimes people will still want physical media immediately, but just not often enough to sustain a business as big as HMV.

3. Understand the next generation

Many years ago, I worked in Woolworths. A large proportion of the music we sold was to youngsters spending their pocket money on their latest idol. While online might have been niche in the mid-to-late-90s, the youngsters of today have grown up with it. As a result, consumers under 35 won’t have had the opportunity to develop an engrained habit of buying their music in physical stores like HMV. Buying entertainment online is no longer an alternative, but the norm.

4. Play to your strengths

While online retailers can offer lower prices and a wider catalogue, physical retailers offer immediacy and have the opportunity to provide enhanced in-store engagement.

Shoppers want convenience, value and experience.

Browsing for and buying music, film and computer games ought to be a fun, pleasurable act. Online shopping will continue to grow across pretty much every category. Physical retailers need to understand their role in fulfilling shoppers’ needs. Sometimes it will be about delivering the product quickly and easily, but sometimes it will be making the act of shopping an enjoyable experience that merits a slight price premium.

5. Be prepared to change

Taking all of the above into account, it might be easier to spot how a business structure that is dominant now might not be so successful in the future. It is often said that defending a title is harder than winning it in the first place.

However, it can be done.

McDonalds have long dominated the fast food industry. Just over a decade ago, their restaurants were tacky red and yellow places with plastic seats.

Yet they saw that their competition was no longer just the likes of Burger King, but also other food outlets and increasingly the likes of Starbucks et al who offered a more pleasant in-store experience.

Now their outlets have all been refurbished with designer furniture and offer free wifi.

They also observed other trends that would impact them. From obesity to ethical sourcing of produce and packaging, they adapted their business to stay one step ahead.

Their menu still offers the old favourites, but also includes lighter options. Their burgers come from British and Irish farms and much of their packaging is made predominantly from recycled materials.

As a result, they are still thriving on the high street.

The Pitfalls of Brand Personification

In a quest to be all things to all people, brands can sometimes lose their way. They become lost in a miasma of dilution as they try to stretch their brand equity to appeal to every consumer, or branch out into new markets. Some, like Virgin, have managed this fairly successfully – let’s forget for the moment about Virgin Brides – while others, such as Cisco (which we wrote about recently) have fared less well. Virgin’s equity relies in part on the man behind the company, Sir Richard Branson. His affable qualities have appealed to both consumers and investors. The balance he maintains is a delicate one, driving the essence of the brand without ever overwhelming it.

In the world of luxury, companies have often used brand ambassadors. The watchmaker Breguet has long claimed that luminaries such as Napoleon, Churchill and Marie Antoinette wore their brand. Each of these characters had their flaws of course, not least the megalomaniacal Frenchman. However, when the person personifying the brand is also at the rudder of the ship, the situation can prove more complex. This was evident in March this year when master designer John Galliano was fired from his creative directorship at Dior, as well as from his role at his eponymous label.

Similarly affected by ramifications at the top has been Lagardère Group, run by Arnaud Lagardère, who inherited the company from his father. As well as owning a range of media assets, it also has a 7.5% stake in the defence contracting firm EADS. Recently the 51 year-old has taken up with a 20 year-old model by the name of Jade. A cutesy video for a glossy magazine shoot made its way online (see below). Any semblance of dignity the man maintained – already in question prior to this video – was lost. This may decide future business directions at the company. Arnaud is a keen sports enthusiast, at one point mulling a bid for the rights to the Tour de France. Any such wishful thinking must now be considered just that as shareholders are keen to refocus on existing assets. His overt publicity has cost him dear; Arnaud may now be at risk of losing some of his control over the company. Writes The Economist,

“Executives at EADS are dismayed to see their future boss behave like a nincompoop. “In Germany any manager who shot such a video would be finished in business,” says a person close to the company.”

And so we turn to Apple, which has been recently hit with the news that Steve Jobs will be stepping down from his current role. He will remain at the company as chairman of the board, and his ideas and personality will affect the company’s direction for several years still, but after that the company’s direction, and its brand equity, will be at a crossroads. The company has, even relative to its own stellar performance, recently been enjoying great success, briefly becoming the world’s largest public company. In managing this feat, it overtook Exxon Mobil. As The Economist pointed out, however, “oil remains a vital raw material” (though not for a great deal longer, admittedly), whereas Apple’s appeal is in “delighting customers”. A company that serves such a fickle master so directly is in danger of losing said appeal at any given moment. Last week, an editorial in the FT pointed out that an Apple without Steve Jobs at the helm will be a less irascible but also a less happy place, and hence perhaps less appealing to customers. The New York Times echoed such sentiments that weekend, with an article headlined “For Apple fans, departure of Jobs is personal”,

“…[P]eople love Apple products in a way that they do not love other products they use every day. And Mr. Jobs as chief executive has been uniquely connected to Apple’s creations.”

The article details personal consumer reactions to the news, which range from tearful incredulity to concern over future business inspiration and product innovation.

All of which goes to show that having an impresario at the top can benefit a company hugely for decades. Could Steve Jobs have made Apple as popular, while taking a slight back seat, a la Bill Gates, Howard Stringer, Howard Schultz or Jack Welch? Probably not. If he had, Apple wouldn’t be the company it is today. But one thing’s for sure, what it is today will not be what it is in the future, when Jobs’ influence has left and the company has to decide which path to take.

The laziness of whimsical advertisements

These two TV spots came on the other night consecutively, both with fantastical imagery and vaguely folk-like music. The goal of such campaigns we suppose is to elucidate what the brand of the product is all about; how it should make the consumer of said product feel when they open themselves up to experiencing it. It’s seen most often for those products with intangible benefits or hard-to-discern advantages over their peers, like cars and mobile networks. A few years ago, and ad using this type of approach would have been distinctive; no longer. The problem now is that all these adverts with brands presented as ethereal experiences blend together as much of a muchness, a gloop of mediocre, wishy-washy intellectualism. It’s specifically the music, which many a creative (and Zeitgeist included) may be a fan of, but it occupies such a niche as to be repetitive and conversely reductive of a brand’s unique identity.

So let’s please curtail this ephemeral, intangible, whimsical attempt at an execution. Not because it never worked, but it’s been so overused now that it surely can’t be effective, because it is certainly no longer attractive.

Sigur Ros for one is glad that he’s inspiring people with his music, except when his music is being plagiarised.