Fifteen years ago, I predicted the demise of the supermarket. Four years ago, I noted that that hadn’t turned out to be the greatest of predictions:
I wasn’t quite daft enough to think that everybody was going to do their food shopping online. My argument was slightly more subtle, though it has so far proved no less wrong: it was that enough of the cash-rich, time-poor customers from whom supermarkets make most of their profits would defect to make the job of serving the lower-margin customers insufficiently profitable to sustain the overheads of large sheds with even larger car parks wrapped round them. As it turned out, Tesco roughly trebled both its turnover and its profits between 1999 and 2007, which demonstrates fairly clearly that they know more about running whelk stalls than I do.
Now Andrew Curry has written two interesting posts about the collapse of HMV and some of its wider implications, in which he points out that:
In passing, some of the lazier commentary on HMV points out that younger people don’t tend to buy hard-format entertainment content. But hard format sales of CDs, DVDs and Blu-ray still account for three-quarters of the market. And if you’re in a declining sector, the decline is going to be slower if your remaining market is an older demographic that has more money than younger consumers do.
Now clearly there are two kinds of internet disruption in the music industry and only one for groceries: the physical object can be bought from an online retailer (which, as Andrew notes, was the basis of the Channel Islands tax scam); or the object can be dispensed with altogether and and the product downloaded in pure electronic form. In the interest of scientific rigour in the writing of this post, I have just downloaded a CD (or rather, of course, not a CD, though I am not sure what other word to use instead) from Amazon. It took 91 seconds. That’s not a level of instant gratification which Ocado is ever going to be able to beat.
But even with that important distinction between sellers of inherently physical goods and sellers of potentially virtual goods, the basic gearing effect remains interesting. HMV, Andrew points out
still sells 38% of all hard-format music and 27% of all DVD and Blu-Ray discs. These are market shares that are conventionally regarded as being monopoly levels. So there’s something dysfunctional about an economy in which a retailer with this sort of share can’t make sustainable profits.
In effect, it seems that there is a level or rate of reduction of demand which retailers struggle to adapt to, even if on the face of it there is still plenty of business to be done. And while established retailers might struggle, as incumbent players generally do, to adapt to radically changing circumstances, there’s not much sign of upstart competitors filling the space either.
It’s hardly surprising that you don’t have to lose anything close to all your customers for your business to become unviable. What may be more surprising is how small the drop needs to be before the issue becomes critical.
Public services don’t tend to have quite those pressures and quite those metrics. The pursuit of channel shift is core to the government’s strategy, not a threat to be avoided. And yet. How many potential HMVs are there scattered around the public sector? And how many of those are managing to become John Lewises instead?
Leave a Reply
You must be logged in to post a comment.