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Supply Chain Management of HMV Group plc

Supply Chain Management of HMV Group plc

Discuss Supply Chain Management of HMV Group plc within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Having inherited its name from the famed "His Master's Voice" logo, featuring Nipper the dog, HMV Group plc is one ...

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Supply Chain Management of HMV Group plc
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Netra Shetty
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Supply Chain Management of HMV Group plc - January 8th, 2011

Having inherited its name from the famed "His Master's Voice" logo, featuring Nipper the dog, HMV Group plc is one of the United Kingdom's leading music, book, and entertainment media retailers, and a rising force on the global scene as well. Formed from the spinoff of HMV and Dillons bookstores from EMI, which were then merged with British bookseller leader Waterstone's, HMV Group operates more than 540 stores, including more than 340 HMV music stores, and nearly 200 Waterstone's bookstores. Together, the company's store network boasts more than 3.2 million square feet of selling space. HMV's music stores traditionally focus on music sales; DVDs, however, represent a rising proportion of the group's sales. At Waterstone's, the company has been accused, notably by former chairman and founder Tim Waterstone, of "dumbing down" selection to appeal to a broader market. The United Kingdom and Ireland remain HMV's primary markets, at more than 70 percent of sales and representing more than half of its music stores--including its Oxford Street superstore, the world's largest music store--and most of its bookstores. The company nonetheless has a rising presence internationally, with strong markets in Canada and Japan, and stores in the United States, Germany, Hong Kong, Singapore, Australia, and elsewhere. HMV has also made the push into e-commerce, operating its own sites in North America, Japan, and Australia; Waterstone's online sales in the United Kingdom are carried out in conjunction with Amazon. HMV is traded on the London Stock Exchange; 80 percent of its shares are split evenly between former parent EMI and equity partner Advent Investors.

Single Store Origins in the 1920s

In 1921, The Gramophone Company, founded in 1897 to manufacture gramophones and to produce recordings for the machine, opened its first music retail store. Located on London's Oxford Street, where it remained for many years, the retail operation was launched under the auspices of British composer Edward Elgar. The retail store, the first in the world to offer listening booths, adopted the name HMV, after The Gramophone Company's famed "His Master's Voice" logo, itself patterned after a painting by Francis Barraud.

HMV remained a tiny part of the fast-growing EMI--formed in a 1931 merger between The Gramophone Company and Columbia Gramophone Company--which had grown to include U.S.-based Capital Records in the 1950s. Yet the explosion of record sales in the early 1960s, in part sparked by EMI's signing of the Beatles in 1962, introduced a new retail market for music sales. In 1966, EMI began to expand the HMV retail format, and by 1970, the company operated 15 stores.

The 1970s saw a period of rapid growth for the retail division, and by mid-decade, the company boasted 35 shops and gained a position as a leading music retailer in the United Kingdom. In the meantime, EMI had branched out into film production and diversified into other areas--one of the company's projects resulted in the invention of computer tomography imaging. Yet this latter endeavor had also played a part in EMI's financial difficulties at the end of the 1970s, resulting in the company's 1979 acquisition by diversified electronics and rental group Thorn Electrical Industries, founded in 1928. The resulting group was renamed Thorn EMI in 1980.

International Growth in the 1990s

HMV continued to grow throughout this period and in 1986, during a companywide restructuring, was recognized as one of Thorn EMI's core business areas and spun off from the recording company as a separate division under EMI Group. The new company was given the name of HMV Music Retailing, opening that same year its flagship store on Oxford Street, called the HMV Oxford Circus. The store, at 50,000 square feet of selling space, earned a place in the Guinness Book of World Records as the world's largest music store. The company's original Oxford Street store remained in operation, however.

As a full-fledged company within the EMI empire, HMV began its own quest for international expansion. In 1987, the company opened its first foreign store, in Mississauga, Ontario. The Canadian operation was a quick success, prompting the company to roll out its store format across the country. By the late 1990s, HMV Canada represented nearly 100 stores.

In 1990, HMV attempted to replicate its Canadian success in the United States, opening two stores that year in New York City. Yet HMV's effort to crack the U.S. market never neared the success of its Canadian counterpart, and the company's presence in the United States remained limited to less than 20 stores by the year 2000. Other markets proved equally elusive for the company, such as France, which it entered in the early 1990s, then quickly exited, and Germany.

More successful for the company were its excursions to the Asia Pacific, and especially to the Japanese market. Launched in Tokyo in 1990, the company's Japanese branch grew quickly, and, at 40 stores, claimed second place among international operations. Australia, Hong Kong, and, later, Singapore also provided profitable, if smaller markets for HMV.

Closer to home, HMV remained the leading dedicated music retailer in the United Kingdom and in Ireland. Yet the company's product mix was already beginning to shift, as it added video and then video game sections to capture a share of these rising markets. In 1995, however, the company gained a new branch when parent Thorn EMI added the Dillons bookstore chain. Founded by Una Dillon in 1936 as Dillons University Book Store, that chain had grown into a network of 75 stores throughout the United Kingdom. Dillons, placed under HMV, remained separated from HMV's music stores.

In another expansion move, HMV entered the music recording industry in 1995, when it released its first compact disc compilation. The disc, called HMV Classics, featured titles culled from the EMI catalog. HMV continued to add new titles in a similar vein through the 1990s, based on its access to EMI's strong backlist.

For years, rumors had circulated that HMV was slated to be spun off from Thorn EMI. Instead, in 1996, Thorn EMI itself split up, into its EMI music and retailing segment on the one hand, and its Thorn rentals business on the other. HMV remained an autonomous unit of EMI following the breakup. In 1998, however, the company was given new scope through the three-way merger between HMV, Dillons, and the fast-growing Waterstone's bookstore chain.

Music and Book Retail Leader in the 21st Century

By 1998, HMV had grown into an internationally operating chain of more than 270 music stores. Yet EMI, which had found itself among the smallest of the major labels, began a push to achieve scale in its recording and publishing operations, leading to its interest in spinning off HMV and Dillons. In the meantime, Waterstone's, founded by Tim Waterstone in 1982, then brought under the WH Smith retail umbrella, had developed into one of the United Kingdom's leading book chains, with an emphasis on so-called "high brow" and often hard-to-find books.

For the HMV spinoff, EMI created a 50-50 joint venture with private equity investment group Advent International, called HMV Media Group. That company then acquired both the HMV and Dillons chains from EMI, and, for 300 million, the Waterstone's chain from WH Smith. The Dillons chain was subsequently merged into Waterstone's, which became the brand for the entire book division. Tim Waterstone was named chairman of the new group, but CEO Alan Giles, formerly WH Smith's man in charge of Waterstone's, retained operational control.

While maintaining separate retail operations for its book and music stores, HMV nonetheless began imposing its own sales model on the Waterstone's chain, shedding some 15 million of slow-selling titles in a move to a more mid-market sales mix. The strategy appeared to backfire, as Waterstone's sales slumped in the new millennium, and new store openings were put on hold. It also led to charges that HMV was in the process of "dumbing down" Waterstone's, and to Tim Waterstone's resignation as company chairman in 2001. Waterstone then began lobbying to regain control of the bookstore.

In the meantime, HMV had discovered a new retail frontier, the Internet. In 1999, the company opened the first of four international e-commerce sites. HMV also began exploring other delivery formats for its music and books, such as online downloads and other digital delivery applications. Meanwhile, the company continued to expand its bricks-and-mortar chain, opening a new 66,000-square-foot flagship store in London's Piccadilly and adding new stores internationally. By 2003, the company operated more than 540 stores, including more than 340 HMV music stores.

A downturn in the music and book market at the beginning of the century had put plans to take the company public at the beginning of the new decade. In 2002, however, an upturn in sales, including growing profits at Waterstone's, brought the company to the London Stock Exchange. In that process, the
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