Theo Paphitis: five ways HMV can thrive on the High Street

Retail magnate Theo Paphitis has said there’s still life in HMV yet, but warns that new owners Hilco need to overhaul its business model in order to survive on the High Street.

It was reported this morning, that Hilco UK is to swoop for HMV in a £50m deal that will save 132 stores. The deal will save around 2,500 jobs across the country at the retailer.

Speaking to Music Week, Paphitis – who has a history of taking retail brands out of administration – gave five pointers for Hilco to take on board.

• Re-focus the online business and keep the brand updated

It’s no secret that one of the reasons for HMV’s demise was the resurgence of the internet and subsequent change in the way consumers bought music. But it’s also the failure to modernise the HMV brand as a whole, says Paphitis: “We’ve got brand likes Spotify and Napster that didn’t exist a few years ago and they are big brands that most people will probably know them as well – if not better than HMV – you can’t just sit on past glories. I think the brand will survive at some level because it’s so well-known, however, people forget quickly so [Hilco] is going to have to carry on working it, they definitely need to focus on the online stuff.”

• Overhaul the business model

The business model needs a complete facelift, says Paphitis. Long gone are the days of CD players and HMV needs to get with the times. He explains: “The business model was fantastic for a point in time, but when did you get your first iPod? It was probably about ten years ago.

“We knew then that in this little thing we could store 1000’s of LP’s, CD’s and carry them around with us and it was really really easy. We’re finding different ways of buying our music, buying music is now cheaper than it’s ever been. They need to update the business model to reflect that change.”

• Trim down the estate by two thirds

132 HMV outlets, including stores in Edinburgh, Leamington, Nuneaton and Newport, that were originally set to be closed, will now remain in operation, but Paphitis says that HMV’s original estate still needs to be trimmed by two thirds to have a chance at profitability. The chain originally had 230 stores around the UK.

• Double up shops as venues

New revenue streams could start to make a mark on the retailer’s losses, says Paphitis. By doubling up High Street stores as venues, Hilco could get a slice of the live market, he explains: “The music business is changing rapidly, people are making money from different areas – it’s not just about record sales, live performances seem to generate a huge amount of money.”

• Be forward thinking

Ultimately, it’s about looking to the future and predicting what’s coming next. Paphitis concludes: “We are in this incredibly fast changing world and if we chose to ignore it because we’ve lived the way we’ve lived for the last god knows how many years, someone is going to get a very rude awakening.

“Nobody wants to see great British brands disappear, but some have just gone because of crap management, they’ve just sat there running the business through a rear view mirror, you have to try and work out what your customer wants in the future.”

HMV went bust at the beginning of this year after its debt grew to a reported £347m. Accounts for the six months to October 27 show that the High Street retailer made a pre-tax loss of £37.3m on sales of £286.6m. Do you think it can be saved? Answer our poll here.

Music Week