Hmv & Waterstones Analysis

Introduction

For this assignment I have been tasked with conducting a strategic analysis of the HMV group. This analysis shall be in the form of a report and will include an environmental, internal and external audit of the HMV group. I will also be basing my recommendations on the future direction that HMV group should move in for the next 3 years from the audits and other research data.

Introduction to the HMV group

HMV Group is one of the world's leading retailers of music and DVD and the leading retailer of books in the UK and Ireland in terms of total sales. Including the acquisition of Ottakar's, the Group operates from over 730 stores in 8 countries. All of the Group's operations, both in the UK and internationally, are wholly owned.

Music is the Group's largest product category, accounting for 37% of Group sales for the year to April 2006, closely followed by DVD, which was 32% of Group sales. Books, which comprise the vast majority of Waterstone's sales, contributed 24% of Group sales in the same period.

The Group is a focused international retailer and highly selective about the countries in which it operates.

Executive summary

I concluded through my findings that HMV Groups markets had experienced rapid change over recent years and have become more competitive and with a diminishing amount of in store sales as consumers choose to use the internet to fulfil their needs.

To counteract these changes I recommended that the HMV group change their current philosophy and rely more heavily on the services that the internet provides as consumers are branching out when it comes to services that they require.

Main findings

Environmental Audit

There are a number of environmental factors or forces that can influence the behaviors of the market place affecting the consumers or the competition just as much as any business. For this reason it is necessary to conduct an environmental audit of the HMV Group to evaluate what these factors and forces are.

An environmental audit is a study into environmental trends and events that have the potential to affect strategy and is used to analyse and identify such trends and events and to estimate their likelihood and impact.

The primary tool for evaluating the factors that influence an organisations environment is PEST analysis. There is a large list of factors that affect the HMV Groups environment. The pest analysis is viewable in section 1.3 of the appendix

The main Factors that affect the market for HMV and Waterstone's are technological or social. The main social issue that affects that can influence sales are lifestyle or consumer trends. The products sold by the HMV Group and its competitors are not necessity goods and have very wide ranges of appeal. Consumer trends can change very rapidly and can be very troublesome or profitable for retailers in the industry as it can either leave them with to much or too little stock to meet demand.

These trends are heavily influenced by celebrities and other social icons as well as advertising and publicity. The industry is also becoming more largely affected by technology as it is changing the way the consumers purchases goods and interacts with the sellers as well as where they purchase their goods.

The main technological development is that of the internet. It has enabled consumers to communicate directly with the seller and buy their goods without ever having to enter a store. This has influenced the way goods are sold and the types of goods sold within the industry. It has also given rise to competition in the form of piracy which is a growing social/ political issue. Piracy has had a large affect on sales and demand within the industry and any changes in law/ legislation or enforcement of piracy will have a large effect on the HMV group.

There are 5 forces at work in the HMV Groups retail environment. These 5 forces being;

* Supplier Power

* Buyer Power

* Product and Technology Development

* Competitive Rivalry

* The force restricting New Market Entrants

It is important to evaluate these forces to determine the competitive nature of the HMV group's external environment. To do this I shall use porter's 5 forces analysis

Porters 5 forces show that the markets that HMV Group is involved with are highly competitive and rely heavily on the seller's ability to offer the consumer the choice they want and to be able to offer there good to the consumer in a variety of ways allowing the consumer to exercise a choice. It is also important to note that it is vital that the consumer has easy access to the seller as otherwise they will buy from a rival due to the low levels of customer loyalty.

External Audit

An external audit examines the opportunities and threats that are available to it within its market and is also the study of other rivals that exist within its environment. It is important to study this when constructing a business plan as it is necessary to know what affects your rivals have on you and the environment you work in as well as the outside factors that affect your environment. An external audit will usually involve carrying out competition and market analysis.

Market analysis

HMV Group is in a retail industry that has shown signs of continuous growth. A large proportion of HMV group's sales come from that of CD's and DVD's. There is a very large market for these goods and this can be seen in section 1.0 of the appendices. Sales have seen a continued increase however CD sales and in particular singles sales have seen a fall in recent years as consumers seek cheaper alternatives.

The International Federation of the Phonographic Industries (IFPI) says sales of all music formats fell by 10.9% in the first half of 2003, but by just 7.1% in 2002. The interim sales of the industry also show evidence of a decrease of sales