Few people were surprised last week when it was announced HMV had been bought out of administration for the second time in six years. Despite its well-publicised problems, the retailer still has strong brand equity.

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What did come as a surprise was the name of the new owner. In the UK, few people had heard of Doug Putman of Canadian chain Sunrise Records – and most had thought Mike Ashley was in pole position to acquire the 97-year-old retailer.

However, it was Putman – who bought the distressed Canadian division of HMV in 2017 and subsequently brought the stores under the Sunrise Records fascia – who ultimately came out on top and he sees a bright future for the retailer under his stewardship.

“By catering to music and entertainment lovers, we are incredibly excited about the opportunity to engage customers with a diverse range of physical-format content and replicate our success in Canada,” said Putman on the deal’s announcement.

“We know the physical media business is here to stay and we greatly appreciate all the support from the suppliers, landlords, employees and, most importantly, our customers.”

He is going to need their support to turn the ailing retailer around.

So what is his gameplan?

Vinyl renaissance

While many people in the UK may not be familiar with Sunrise Records, the chain has a similar look and feel to HMV in terms of ranging.

At the moment, it operates just over 80 stores across Canada selling a wide range of goods, including souvenirs and band merchandise. Where it has been particularly successful is its focus on vinyl record sales, which over the last few years have enjoyed a global renaissance.

It has also shifted the focus of its store estate in Canada, according to Jordan Karp, Savills’ head of retail in Canada, who admits he was as surprised as anyone to hear Sunrise had bought HMV.

“There was a time in Toronto when Sunrise had flagship stores in prominent locations, but over the last few years these high-profile street locations have closed,” he says.

The company has instead focused on stores in suburban shopping malls, including areas that would be considered secondary locations, which house the bulk of the company’s estate.

“What you’re seeing in the UK is a repetition of what Sunrise has done in Canada,” says Karp.

Sites retained are generally well located and provide good coverage

Will Thomas, KLM Retail

What he is referring to is the closure last week of a number of large HMV stores in prime locations in major UK cities. Sunrise closed 27 stores with immediate effect – including the retailer’s iconic Oxford Street unit (see p30) leaving it with 100 stores, which may still be too many, according to some experts.

“We are all expecting phone calls to come in on the 100 stores where they want to renegotiate the terms,” says one retail agent. “I expect there will be more store closures because 100 stores is still a helluva lot. They just need good stores.”

Another retail source says the stores that closed are the ones with the biggest rents. He adds that following the first administration, in 2013, when restructuring specialist Hilco bought the chain, leases on the majority of stores were renegotiated, so the new owners were paying reduced rents on shorter leases. According to stats from the Local Data Company, since the start of 2014, HMV has closed 44 stores, relocated 21 and opened 19.

Commenting on the latest raft of closures, Will Thomas, partner at KLM Retail, says: “Looking at the closures announced, sustainable rental overheads seem to have been a key factor and this is pleasing to see for the long-term prospects of the company.

Expert view

Ronald Nyakairu, senior insight analyst, Local Data Company

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“The deal from Sunrise Records to save HMV at the 11th hour may have come as a surprise to some due to the current climate and given the decline in physical music sales due to competition from Amazon. However, HMV has a strong brand association among music aficionados and has stores in some very healthy shopping centres and high street locations.

“The new owners have already acted fast in getting rid of unprofitable stores, but the challenge remains to build bridges with suppliers, as some are still owed money. They will also have to work hard to attract a new consumer audience to existing stores, while at the same time negotiating with landlords on the 27 closed sites to get better deals in order to reopen.

“Sunrise Records does, however, have a great track record after taking over the 70 HMV Canada stores when HMV exited that market – they were profitable within two years.”

“Sites retained are generally well located and provide good national coverage. Store sizes will also offer enough flexibility for the owners to diversify the offer.”

Like Thomas, Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, believes that closing flagship stores in places such as the Trafford Centre, Westfield and Meadowhall was a sensible move.

“The new owners have stated that these stores are unprofitable and I think have rightly decided that it is unlikely this situation would change,” says De Mello.

“These centres can generate strong sales for the right retailers but come with high rents to match. HMV simply isn’t selling product in sufficient volume – at a high enough margin – to countenance continuing to trade in these locations.”

It is a view shared by Simon Morris, director at GCW, who says it could be argued that the large regional stores have the least regular and least loyal customer base.

“Those they’ve kept are stores where they can build a community that will be essential to differentiate themselves from the competition, particularly online,” he says.

So what does HMV’s new owner need to do to ensure the chain not only survives but thrives? Given that the margin pressures faced by music retailers are not going away any time soon, Thomas says customer experience will be a key factor.

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‘Characterful offer’

“Doug Putman certainly comes across as a music and record shop lover,” he says. “I expect we will see a move towards a more characterful, customer-focused offer.”

De Mello agrees. “My view on the business as it stands is that they need smaller high street stores now, which overtly cater to music lovers and collectors – focused around vinyl and entertainment, including live music.”

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Morris thinks the company needs to continue to evolve to ensure it is relevant to its customer base in a perpetually shifting market.

“It has a right to survive if it becomes more than just a place to sell records,” he says. “Becoming a more engaging, immersive experience with great customer service and a knowledgeable team will be how it achieves this.

“The likes of Dr. Martens, which in Camden has a sound stage for live music, or Stanford’s, which has a rolling programme of speakers within its store, are great examples of how to boost customer loyalty and provide another reason for people to visit.”

The fact that Putman is passionate about music and comes from a music background should ensure the business receives a positive response from music suppliers, adds Stuart Moncur, head of national retail at Savills.

He thinks landlords will respond positively towards the new owner. “They are all enthused that someone has bought the business that isn’t private equity,” he says.

“It’s really good that it’s not private equity or Mike Ashley that’s bought into the business. This is the first time we’ve seen a leftfield purchaser come in, so the market hopes they make a good fist of it and that it might encourage other overseas investors to come in too.”

A minor sticking point is the lack of public awareness of Sunrise. “They know they turned it [the HMV business] around in Canada, but they don’t know how they’ve done it,” says Moncur.

It is still very early days for HMV’s new owners, but the majority of the property industry agree that slashing that first batch of 27 stores was the right thing to do and, as a result, the retailer might finally be heading in the right direction.

“By reducing cost and improving the in-store experience in the remaining stores, I have no doubt they have many years ahead of them on the UK high street yet,” says De Mello.

Those who feared His Master’s Voice was about to be silenced will be hoping De Mello is right.