strategy analysis

FORMERLY THE LOBLAW GROUP

1. KIRAN CHADARAM 2. NIANJIU LI

3. VI NGO 4. SEBASTIEN ROSNER

5. VARUN SHARMA 6. JEREMY WONG

1 1 © 2012 SGMT 6000

HMV GROUP SUBJECT TO CLASS PEER EVALUATION, SEE PROFESSOR TAN’S INSTRUCTIONS

33⅓ R.P.M.

company background

•  First store opened in 1921 (London, England) •  Public company; headquartered in England

•  252 stores (UK, Ireland, Singapore, and Hong Kong)

•  Entertainment retail: music, film, games, and music accessories/technologies

•  HMV Live: owns venues, organizes concerts and festivals

•  HMV Digital: online music sale

strategic issue

•  Industry structural changes: online delivery (Apple iTunes) •  Price competition against supermarkets (Tesco) and online

retailers (Amazon)

•  Seasonal; 1/3 of sales in December

•  Declining sales, negative net income, financial distress

•  Divesting Live business; sold HMV Canada and Waterstone (book retail chain)

Re-focus on in-store experience and bank on technology sales OR change strategic direction?

external environment

•  Consumers shunning high street retail

•  Online piracy + streaming vs. owning

•  Online downloads and streaming (e.g. Spotify, Songza, Pandora) increasingly popular

•  Proliferation of mobile and social media

•  Poor economy and tight access to cash

•  iDevices + accessories, headphones, etc. growth market

industry analysis

•  Industry: Entertainment retail

•  Last 5 years: revenue fell at 6.0% per year

•  Next 5 years: market will shrink by 1.7% per year

•  Key success factors: adoption of technology, online presence, relationship with suppliers, copyright protection

•  Life cycle: CD/DVD à decline, video games à maturity

•  Highly-concentrated: Tesco, Amazon, Apple, HMV

•  Products are “made for the internet”

main competitors

•  Tesco:

•  Supermarket •  Sells CDs and DVDs as loss leaders •  Price competition

•  Amazon:

•  Online retail •  Sells physical and digital, at lower prices, with reviews and

recommendations •  Price competition & differentiated services

•  Apple:

•  Online and store retail •  Biggest seller of music player and mp3s (iPod and iTunes) •  Differentiated products

industry analysis

•  Five Forces:

1

2

3

4

5 Suppliers

Substitutes

New Entrants Rivalry

Buyers

•  Oligopoly of studios & record labels

•  Store must stock popular items

•  Legal downloads •  Piracy •  Online streaming

•  Low fixed costs •  Undifferentiated product •  Online startups •  Brand and marketing (barriers)

•  Many players •  Undifferentiated product

•  Price competition •  Online competition

•  Low/no switch cost •  Price sensitive

•  Undifferentiated = no brand loyalty

industry analysis

•  Five Forces:

1

2

3

4

5 Suppliers

Substitutes

New Entrants Rivalry

Buyers

•  Oligopoly of studios & record labels

•  Store must stock popular items

•  Legal downloads •  Piracy •  Online streaming

•  Low fixed costs •  Undifferentiated product •  Online startups •  Brand and marketing (barriers)

•  Many players •  Undifferentiated product

•  Price competition •  Online competition

•  Low/no switch cost •  Price sensitive

•  Undifferentiated = no brand loyalty

Inferences

from Porter

•  Embrace new technology

•  Consolidate with small players

•  Focus on relationships

•  Tackle changing landscape

•  Must know how to sell old media

to new generations

internal environment

•  Century-old brand, specialist reputation

•  Industry experience (retail & live music)

•  Solid relationship with artists, record labels, and studios

•  Campaign and promotion experience

•  Formerly owned by EMI; music in its DNA

•  Laggard in the mp3 segment; not much success

value chain

Strong

•  Marketing: brand •  Procurement: artist and studio relations

•  Sales: knowledgeable employees

•  Operations: brick and mortar stores, locations Weak

•  Technological Development: online presence

swot analysis

Strengths

•  Established Brand •  Great relationship with

artists, labels, and studios

•  Industry expertise •  Retail experience •  Live events experience

Weaknesses

•  Inadequate technological capability

•  Inexperienced in online retail

•  Seasonal business •  Lack of cash

Opportunites

•  Live concert streaming (untapped market)

•  Niche markets (classical, jazz, audiophiles)

Threats

•  Fierce competition •  Changing consumer

preferences

alternative evaluation 1.  Status Quo:

•  Re-focus on core retail business and ride on growing technology sales; divest HMV Live

•  Technology undifferentiated; future uncertain

2.  Attack the Niche:

•  Digital delivery of classical and jazz •  Growing market of young listeners •  Existing player: X5 Musical Group

3.  Live Concert Streaming:

•  Adapt to consumer preference for streaming •  Uncontested market à first mover advantage •  Leverage all strengths •  No geographic barriers, revenue all year round •  Will not cannibalize existing retail (studio-recorded)

recommendation 1.  Status Quo:

•  Re-focus on core retail business and ride on growing technology sales; divest HMV Live

•  Technology undifferentiated; future uncertain

2.  Attack the Niche:

•  Digital delivery of classical and jazz •  Growing market of young listeners •  Existing player: X5 Musical Group

3.  Live Concert Streaming:

•  Adapt to consumer preference for streaming •  Uncontested market à first mover advantage •  Leverage all strengths •  No geographic barriers, revenue all year round •  Will not cannibalize existing retail (studio-recorded)

Unique

Position.

Awesome

Fit.

implementation

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implementation

•  Sell remaining venues to improve cash flow •  Retain and revive HMV Live: keep talents who know the in’s

and out’s of running live concerts; maintain industry relations (artists and record labels)

•  Negotiate and gain buy-in from artists and record labels

•  Strategic alliances & joint ventures with small live streaming firms, e.g. Livestream.com, for missing technological capabilities (they need access to the labels)

•  Synergy between retail and live business: share resources and capabilities (e.g. marketing, industry connections); develop cross-divisional teams

evaluation & control

•  Cost may > revenue in the beginning; think long-term

•  Monitor geographic and demographics trends

•  Collect and analyze demand data; provide it to suppliers

•  Make sure it does not hurt ticket sales, as implicitly promised

•  Exit strategy: sell rights to or partner with Microsoft for its war against Apple? (Remember the Zune?)

thank you.

(sorry, no encores)