HMV PESTLE and SWOT Analysis

1.0 Executive summary
HMV group a U.K giant entertainment company is one of the struggling firms that eventually succumbed to closure of its business operation in 2013.
This report will explore the HMV company profile, current financial, positioning in the marketplace, current business model, competitive positioning and HMV target market.
Why the company’s sales figure have dropped and how the company got into financial crisis that led to its closure in 2013. This report draws attention to the fact that in 1960s, HMV has a strong brand HMV is a major retailer that specialises in music, film, games and technology products, the organisation has been a top dog in the entertainment industry for many years now, prior to the rapidly evolution of technology advancement, which had affected and is still affecting the wider consumer behaviour in regarding to how music, film, games and technology products are being purchased by the consumers.

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With the rapid shifting of consumers onto online music / movie streaming distribution sites such as iTunes, Amazon, Netflix and so on, where does HMV fit in or how does HMV sustain in the current entertainment or music distribution market which is highly technological advancing and hyper competitive. It is therefore recommend that HMV needs to invest more in technologies to compete in the industry.
2.0 Company profile
HMV Retail limited is U.K leading music and Entertainment Company, founded in 1921 on the street of Oxford in London. The success continues with the expansion and creation of the retail branch of the business from 1960s with over 239 stores in UK and Ireland and employing over 5000 staff before the closure of its business operation in 2013.
Since HMV is been in operation “it has made music and entertainment available to its customers in every format imaginable: from sheet music and the earliest gramophone 78s to today’s digital downloads” http://www.hmv.ie/about-us
In 1986 HMV Group is formed and the retailer looks to expand and open stores in Ireland and In 1999 HMV media launched an an e-commerce site.
In 2002 HMV media went public on London Stock Exchange and changed its name to HMV Group.
HMV experience competition from other competitors in the industry such as iTunes, Amazon supermarkets and others in the industry and with increase in illegal download it was necessary to invest in online business.
In 2008 HMV launched its “social network “Get closer “which allowed users to import their own music library in a bid to rival online music stores iTunes and Napster” www.retail-week.com/hmv-timeline but prove unsuccessful and was closed in September 2009.. The business also piloted its refreshed ‘Pure Play’ loyalty scheme. HMV fail to respond quickly and compete against online music stores and the increase in illegal downloads the company suspend its shares in January 2012 and months later in April HMV is bought by Hilco for £50 million and takes over the remaining 141 stores
In January 2013 HMV went into administration with over 230 stores closed in UK and Ireland and over 4,000 jobs staff losing their job two months later a new HMV emerge under the new ownership of Hilco.
“Today HMV trades from over 120 stores in the UK and fast rebuilding its presence in Ireland, an updated product mix, refreshed stores and new digital services together with a commitment to bring customers more exclusive in-stores” and experience than ever seen HMV regain its rightful place at the home of entertainment. www.independent.co.uk/news/business/news/hmv-closes-historic-oxford-street-store-9056780.html
The current key executives of HMV are Trevor Moore (CEO) and Ian P Kenyon (Finance Director) http://www.bloomberg.com/quote/HMV:LN/profile
2.1 HMV financial status
Decline Financial Status of HMV
According to Whetten (1980a) financial decline happen as a result of company’s mismanagement or issues related to internal and external factors. The data below shows how HMV’s financial status started to nosedive from 2006 till 2012 which eventually cost HMV and the company went to administration 2013.

3.0 Competitors Analyses
In recent years, thus with the massive influx of online music / audio distribution sites such as iTunes, Amazon, Hulkshare, Soundcloud, Torrent, Mixcloud and many more plus recently infamous Netflix, an online video/ internet streaming subscription services that enables customers / subscribers to rent and watch movies online in the comfort of their own home. In a way Netflix is more or less a movie rental provider, thus all the transactions between Netflix and the customers take place online.  
HMV faces a huge challenge in sustaining in the current entertainment market industry in the foreseeable future, as the people’s way of doing things are drastically changing as a result of technology advancement, hence social media networks such as Facebook, Twitter, Instagram, Blackberry Messenger, Linkedn, Snapchat and many more social networks are developing and emerging on a daily basis.
HMV is a physical entity which currently relies heavily on consumer consumption based on how many customers visit its shops and how large the customers purchases are, thus vast majority of people in today’s world actually live in a virtual world, they shop online, interact with friends or make new friends online, study online, bank online, gamble online, game online and more importantly people tend to view the online community as their main source of getting new music e.g. if Lady GaGa intends to release a new single, the quickest way to learn about this is on her Twitter page or Facebook page.
Beyonce released her fifth studio album overnight and online on December 13th 2013 without no prior promotional fiasco or press releases, the album is exclusively available to be purchased on iTunes.
Amazon
“Amazon.co.uk, a subsidiary of Amazon.com, was launched in 1998. Today, the site provides fast, convenient service for customers in the UK and Ireland” www.amazon.co.uk/About-Amazon
Amazon operates online business selling CD’s DVD’s games and books. Amazon adopts the cost leadership strategy their aim is to sell their product at a lower price compare to others in the industry. They have been able to main the cost leadership strategy due to selling purely online hereby saving money to maintain a physical store. Due to lack of physical presence where customer can go into the store and purchase their products Amazon continue to invest heavily in technology to make the shopping easier for their customers. However Amazon is losing a lot of customer especially the older generation who will rather go to store and purchase their goods. However they have been able to maintain their share in the market with their low cost leadership strategy and ease online shopping which has contributed to the massive increase in their sales.
ITunes
In 2004 iTunes store was launched in the UK serving UK and Ireland due to its huge success in the U.S. iTunes sold over 70 million songs in its first year in the U.S.
“Apple’s online store is also more than just an online music service; there are other sub-stores too which offer music videos, audiobooks, movies, free, apps, and more” http://mp3.about.com/od/digitalmusicdelivery/tp/topmusicstores.htm.
“Apple’s iTunes account for 67% of TV downloads, 65% of movies” Kevin Bostic. ITunes success has been attributed to online presence where customers are able to download a single track rather than buying an album or physic disk. ITunes target younger generation than any other in the industry making it easier for them to download music
However it is not available for everyone which has greatly reduced its market share it’s only available to Apple device users i.e. iPhone, iPod and iPad. ITunes continue to face threats from Amazon, illegal music downloads and online free music downloads websites.
Netflix
Netflix was founded in 1997, started its subscription based digital distribution service in 1999 and has been very effective in the United States since then, thus after embarking on the Irish shore and The UK about two years ago, business has not been as usual for the DVD seller and rental stores such as HMV and thus also the likes of Xtra-Vison.
“Digital claims over 50% of all UK music sales value in second quarter of 2013” Fiona Keenan.
“HMV’s recent store closures have hit the high street retailer hard, with its number of shoppers almost halving in the latest 12 weeks compared with the same quarter last year and its market share dropping by 8.4 percentage points”(Fiona Keenan)
HMV slipped from its position as Britain’s second largest entertainment retailer to fifth in second quarters as Tesco replaced it as the second largest entertainment retailer in 2013.
Percentage share of the entertainment market (includes physical sales of videos, games and music and digital sales of music)

 

12 wks to 30 Sep 12

12 wks to 29 Sep 13

% change

Amazon

18.3

20

1.7

Tesco

11.9

17.1

5.2

Asda

9.8

12.1

2.3

HMV

18

10.6

-7.4

iTunes Music

9.1

8.8

-0.3

Sainsbury’s

6.8

6.9

0.1

Game Group

5.6

6.2

0.6

Morrisons

2.9

2.9

0

Play

3

1.9

-1.1

Other

14.5

13.6

-0.9

http://www.levidepoches.fr/contagiousideas/2013/07/digital-claims-over-50-of-all-uk-music-sales-value-in-q2-2013-kantar-the-research-firm-based-the-sta.html
Marketing environment of HMV
An organisation must understand its environment if it is to exploit changing market conditions and target its market successfully. BPP (2010:87) this consists of both Macro and Micro environment, within the marketing environment an organisation needs to consider both macro and micro factors.
PESTEL

Government enforces law on how organisation run and responds to competition. Any changes in government policies Environmental protection laws Taxation policy and Employment laws will influence how HMV makes its decisions. In the UK the increase in VAT to 20% has led to decrease in sales of music and putting HMV under pressure Illegal download is a major problem and still continues till today. It is therefore a problem in the music and movie industry.

The current economic situation has huge impact on household, HMV decisions will be influenced by economic factors i.e. Unemployment has gone up in the past years people have less money to spend on non-essential items leaving them with little or no money to spend on entertainment. Customers now prefer to shop around for better deal therefore not loyal to a brand anymore. Customers now go online to see what HMV is offering and most go for cheaper options from competitors or even download illegally .HMV needs to find a way to be competitive in the market

Social /cultural affects people’s values, perceptions and behaviours. Younger generations are more interested in media and social groups compare to older generation. Entertainment and music is becoming very important in our everyday life most specially the younger generations spending more on games and music. Market for DVD and CD is falling as customers are now turning to alternative such as MP3 players with more people storing music on their phones and laptops. Sales of CD and DVD have fallen massively as people now turn to downloads or streaming sites. HMV needs to understand what is going on in this constantly changing environment and try to market their product to meet the needs of this people.

Technology is very important in today’s market environment. Technology has given HMV competitive advantage in 2007HMV launch get closer which was launched via the media and in UK stores. The idea was for fans to discover content through the site and buy more music as a result. HMV also launch a download service through iOS and apps to tempt mobile users to purchase music while on the go. HMV also strike a deal with APPLE to allow users download song from the apps straight into their iPhone gaining competitive advantage over iTunes. Survey conducted by Entertainment Retailers Association (ERA) in 2012-2013 shows that digital download increase by 40%.
Expanding into digital market gives HMV completive advantage to compete in the market with growing consumer demand. “In 2009 HMV partner with Curzon artificial to bring the cinema experience to HMV retail outlets across the UK a move which could deliver earnings of £3m” www.theguardian.com. HMV needs to continue to invest heavily in online business and find a way to compete in the market as online market is continually growing driven by advanced internet technologies and secure payments. Online stores such as Amazon are offering customer’s competitive price due to cost saved running a physical store.

Government are putting pressure on organisations to become more responsible to the society by finding ways to reduce pollution and cut down their waste by introducing laws regulating environmental pollution to reduce environment damage and act in a way which benefits the society .People are becoming more conscious about the environment
Millions of media disc are thrown away yearly with burning them leading to the release of harmful toxins leading to drive to recycle them.
Larger capacity storage CD (album rather than singles) and DVD that can hold a larger amount of media are encouraged to reduce number of disc being made.
Amazon is offering cloud drive and cloud computing which can be used to store music eliminating the need for hardware and storage device this is something HMV can do as well.

Illegal downloading and Piracy are important issues that have constrained the growth of legal digital channel and severely affected the sales of physical entertainment. There is mass distribution of illegal download product which undercuts the retail price that HMV and others are charging for their product. Until government measures and controls to reduce and eliminate copyright infringement are successful issues such as illegal downloading and piracy will continue.
In 2010 the Digital Economy Act was made into law. It was introduced to regulate digital media in the UK, and to protect intellectual property and curb illegal file sharing. The passing of the Act into law was important for HMV, however its effect has been minimal as offenders of music and film piracy are rarely caught or face penalties.
SWOT ANALYSIS

HMV has a well-known brand name with extensive market presence, since its opening in 1921 with Physical presence across UK, Ireland, Asia, Canada and USA.
HMV has vast amount of experience in the music industry hence their relationship with music and film providers because they have been around for a while famous artiste/bands has recorded with HMV. HMV has both physical and digital presence in the market therefore sell to a broader market giving them competitive advantage over their competitors

HMV lack direction and leadership in the past and during market structure change leaving HMV in debt. HMV was slow to react to change with low barriers to entry in terms of online sales. HMV is competing in an industry where physical sales are falling and profit is being reduced by intense competition in the industry, If HMV lower its price and improve its stores appearance they will have competitive advantage over others who are just present online

HMV need to invest more money on digital market to develop a world beating online presence as few people now go to stores to buy goods and competitors such as Amazon are ahead of HMV in online market if HMV wants to get back their market share they need to invest heavily in online market. HMV will need to improve on advertising to improve brand awareness and save its brand.
HMV could also expanded further into international markets as there might be less competition compare to UK and Ireland market this could be more profitable. HMV could open more physical outlets around Ireland and UK currently they only focus on prime shopping district causing them to lose market in other areas
There’s opportunity for HMV in cloud digital storage to keep up with competitors like Amazon. Joint ventures with other market i.e. supermarkets for market share growth. Opportunity in e-book and social network, in 2012 Sainsbury’s acquired HMV Group’s shareholding in Anobii

The continued growth of technology, internet, and illegal downloads is a threat to HMV. It’s becoming more evident that customer’s wants goods provided from large numbers of services and it is complicated for HMV to meet these needs. There is also impact of recession on music industry people have less money to spend on entertainment and some are finding cheaper way to get their music hence downloading illegally. Illegal download is affecting the purchase of both physical media and online digital. According to Philip Beeching He explained, “The three biggest threats to HMV are online retailers, downloadable music, and supermarkets discounting loss leader product.” His warnings were ignored www.stratile.com
Competition has been growing and continues to impact on HMV profits this
Competition threatens to diminish HMV sales and market share as well as their profit. Competitors like Amazon, iTunes and Napster are taking over HMV’s market easily. Supermarkets continue to providing more service in a location that is usually far away from HMV stores to reduce this threats HMV can go into joint ventures with supermarkets. HMV failed to adapt quickly to today’s business model where more than 70% of music and video is bought online
Technology is advancing at an exceptional rate and opening new paths of opportunities by helping organisation to compete in the market place and gaining the attention of their customers. E business is the new trend in the music industry, HMV has been slow to embrace the opportunity and competitors such as iTunes and Amazon were the first to set up online music market and took the lead in the market.
HMV stores are under high pressure from music and DVD downloading, both legal and illegal. With stores across the UK & Ireland, it reaches the more physical customers in the market. This multi-channel distribution would be a strong advantage for HMV if managed well. Security is an issue with online market HMV need to constantly monitor their website against internet threats customers wants to know that their details are protected when shipping on their website if customer know their website is secure this will generate more sales and any issue with security will be a disaster for the organisation.