04/05/2011

By Andy Coote, Writer And Editor Of Bizwords

According to the Financial Times (FT) article 'Russian tycoon nears Waterstone's bid', it quotes that over the Easter weekend, “Russian tycoon Alexander Mamut is close to making a bid to buy Waterstone’s, the book chain that is being sold off by the ailing entertainment retailer HMV.”

HMV reported poor results back in January and, issued a third profits warning in early April (source: HMV issues third profit warning). The article quotes: “Full year profit before tax was likely to be £30m—£8m down on its last prediction. The figure is less than half of last year's profit of £74.2m and a third down on the £45m city analysts forecasted at the beginning of the year.” Analysts were expressing concerns that it might breach its covenant to its bankers. As always where Waterstone’s is concerned, the name of its founder, Tim Waterstone, has been mentioned in connection with any rescue. The FT notes that Waterstone and Mamut are friends and The Bookseller suggests they may be working together.

The bid is likely to be much lower than expectations. The FT is suggesting “an offer as early as this week of £35m for Waterstone’s, much less than £50m-£75m analysts had initially valued the UK book chain. However, a sale is seen as necessary to help reduce HMV’s heavy debt burden.”

Three factors have given HMV the 'perfect' headache –

• A retail spending downturn

• Increasing competition from online rivals

• Technology shifts

Despite a marginal increase in Retail Spending in March, which was mostly down to increased spending on food, Booksellers “suffered the worst March in six years, in one of the worst months across retail in almost 20 years”. (Read: April sunshine adds to March decline for more information). The Bookseller reported and the warmer weather in April, they suggested, was unlikely to send shoppers back to the High Street. Analysts seem to be suggesting that growth, if it comes, will be slow. It has, however, been possible to plan for this downturn which has been widely predicted and to survive. The other factors have proved rather harder to crack.

As consumers, we have embraced new ways of buying our books, our music and our movies, the three main areas in which HMV specialise. Amazon, Lovefilm, iTunes and similar online services have offered us an easier way of buying, simpler selection and a wide choice, too. Delivery is quick and easy. The cost of entry is no longer low. But it was relatively lower than operating expensive high street shops. Online shops carry extensive stock coupled with back to back ordering and some digital content to offer quick fulfilment of our orders.

Maybe it is the technological changes that have made it possible to download our content and enjoy it immediately that have broken the old model most effectively. We been able to access music in MP3 format to play on the iPod and other players for some time and that has been a challenge for HMV and other shop-based retailers. Streaming of movies is now becoming more widespread and as broadband services get quicker, it will become a very normal way of watching movie content.

Perhaps the most surprising, especially to those of us who are book lovers, has been the growth in e-readers like Kindle, iPad, other pads/tablets and smartphones. I became a Kindle owner at Christmas 2010 as part of a wave of new e-book consumers, expecting to miss ‘real’ books and have read little in traditional format since. The worry is that we might lose booksellers because of a surge in e-book buying and only afterwards realise what it is we have lost.

Other industries are also affected by another technology factor – easy access to a global market. As the internet makes it possible to communicate with anyone, anywhere, it opens the possibility that we can source low cost fulfilment of work we need doing for our businesses. These are sometimes based on a ‘lowest bidder’ marketplace with delivery across digital communications channels. Start Up Britain was criticised for linking to an offshore design marketplace. “Cue the disappointment of initial users reading ‘Top Tips’ to setting up a company who found that clicking the fourth tip, Create a Logo, transferred them to 99designs.com, a design sector bidding site based in California” noted Freelance UK. (source: Startup Britain removes link to U.S bid site)

The link has, I understand been removed. As well as design, typesetting and e-book production are also available from suppliers worldwide as have been call centres for some time, though not always successfully. My own trade of writing has also been targeted by low cost providers.

So what does this mean for businesses? We need to address our SWOT analysis, especially the Threats but also the Opportunities.

What are the potential threats to your business? How will you react to them? Do you seek to add value, differentiate your offer or move to the quality end of the market?

And what are the opportunities? Are there things you can now offer more widely? Do you provide a premium service? Are there products or services you can provide at lower cost?

It is not going to be easy but now is the time to be thinking if what you are doing is the right thing, if it is being done in the right place, with the right people and resources, to the right audience and delivered in the right way.

In other words, think what could be your market breaker and become that if you can. If not mitigate it early because the alternative may be finding a new line of business under pressure of time and money or of going out of business altogether.

Andy Coote is a writer and editor and runs Bizwords providing writing services for businesses and individuals. He writes about business, marketing, leadership and personal development. He has edited, and written for, the Virtual CEO Newsletter for over 4 years.


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