Internet puts squeeze on retailers

UK music retailer HMV has become the latest victim of a move by consumers to digital. How long can South African high-street retailers hold out? By Craig Wilson.

UK music retailer HMV said this week that unless it can find a buyer, it will soon be forced to close its doors. HMV’s news comes just a week after the Virgin Megastore in France chain said it was headed towards bankruptcy.

Although South Africa is a very different market to both the UK and France — it has fewer consumers online and fewer in a position to buy entertainment products — yet local media retailers are also feeling some pressure.

Kim Reid, CEO of online retailer Takealot, says the “writing is on the wall for any bricks-and-mortar retailer” that specialises in products such as games, video and music that can be sold digitally. Music is being particularly hard hit not only because of new legal online distribution services like Nokia Music and iTunes, but also because of piracy, he adds.

Although Reid says Takealot’s sales of physical music are declining, DVD sales are flat at worst and gaming sales continue to be strong. He attributes this in part to the fact that consumers are turning to online retail in growing numbers. Even though Takealot has done well selling media content historically, it’s difficult for it to compete with the likes of Apple’s iTunes Store, which recently began selling music and movies in South Africa, and Amazon.

Reid says DVD sales continue to be strong, largely because of “bandwidth constraints” in South Africa. The same can be said of PC games, and South Africa’s sizeable console market keeps sales for those platforms growing.

“The problem if you’re only selling media products in physical retail is you can’t carry too much stock,” he says. “Online, you can list anything, even if it may take a few days to get. In physical stores, if it’s not in stock, you can’t sell it, and because you’re selling less you’re trying to take up less space. There’s an inevitable snowball effect.”

Look & Listen CEO Darren Levy echoes Reid’s sentiments about media sales. “I think what people need to realise is it’s not just music but all traditional, core formats, namely music, movies and games.”

Physical music sales have declined and there are now many more distribution channels available to consumers, Levy says. The same is true for video content and even gaming with services like Steam. “Those are the threats everyone understands.”

Although retailers like HMV have continued to focus mainly on music, games and DVDs, Look & Listen has gradually begun to stock a wider range of hardware, electronics and accessories like laptop and mobile phone cases.

“We’ve had to look carefully at how we manage that transition,” Levy says. “For us as a retailer, that involves looking at how we maximise performance in the space we own. As people move to entertainment content through digital means, the demand for physical product declines and we have to fill that space.”

Levy says Look & Listen is careful to choose products that meet both customer needs and with its brand. “The transition into technology, electronics and digital products is a natural one,” he says. “It started with the iPod and developed into stocking small, niche tech such as headphones, speakers, memory, cellular and iPod accessories.”

Although more South African consumers are shopping online, Levy points out that there is still a limited online market here compared to other markets. Yet, Levy warns that for retailers not to adapt to changing market conditions is “dangerous”.

“Getting the transition right is the challenge. It’s an exciting challenge.”  — (c) 2013 NewsCentral Media

• Top image: Gene Hunt/Flickr