HMV, Smart Cities and dumb policies

Last week HMV (which used to be His Masters Voice, and was founded before World War 2), the last major music 'n movies high street chain store in the UK, went bust. It would seem that competition from the Internet (ie online shopping) finally did in for them. Cue anguished lamentation about The Death Of The High Street and so on and so forth.

So is the Death Of The High Street now inevitable?

Well, we've been doing a bit of work on the Future City over the last few months, focussing on the impact of the overall digital connectivity revolution as it sweeps through the overall Urban ecosystem. Major new forms of communication always make major changes to the way people live - where, how, with who etc, and this time will be no exception. So here are the "given" trends for high street retail in this age:

1. The shift to online ordering plus physical delivery is already well established, and growing rapidly - Ironically, in a way its "back to the future", in that before the supermarket and family car, the physical delivery was often done by the retailer - I still recall "the butcher's boy" in the small town my grandmother lived, and that existed until the 70's. This online trend is not going to go away. I wrote the first version of the matrix (top of post) in the mid 1990's predicting the "sweet spot" of very predictable commodities at lower costs (bottom left in the matrix), so Amazon as an early entrant was no surprise. What has happened over the last 15 odd years is that online retail has increasingly made gains outside it's sweet spot into adjacent areas (the orange quares). For example, experiential goods like shoes were supposedly going to be very hard to sell online...and then came Zappos. So were low shelf life, hard to transport items like fresh food - but in big cities, with short distances and high user penetration, the economics already worked - so new users drove innovation in low cost heating and refrigeration, so delivery range expanded, which increased penetration, which...is why you get Ocado vans buzzing around as the new London landmark vehicle (but it is still costly, so these companies are still struggling to be very profitable). What still remains hard to deliver online are things in the red square - like theatre, live concerts, drinks in pubs with friends etc - but even there TV + Twitter is delivering an interesting faux-attendance experience.

2. Players rigidly sticking to "The old ways" will increasingly struggle, and will need to be reborn or die. HMV had too many shops, in the wrong areas, and the offering had not moved on from the "pile em high, sell 'em cheap and deafen the buggers while they shop" mode. It worked in the Olde BC Days (Before Click-to-Buy), as people would put up with a crap environment for a bigger selection of cheaper discs, but once the internet and online store came along it was over - you got the cheap goods without the crap muzak. (Hence, by the way, the recent re-emergence of the smaller, personal record store again....).

3. No matter how hard people like Mary Portas try to help the High Street As Is, some goods are just continually going to go online (see matrix above) and those that retail them will continue to decline (unless they can bundle these items in with something else, whether goods, services or experiences).

4. "Bricks and Mortar" retailers who will thrive will sell things you cannot get online (whether the goods, service, or an experience), or goods that have short shelf lives, or are "need now" purchases, or reduce hassle elsewhere in one's busy life.

And many retailers still have dumb policies that drive people online! As Technotropolis notes, retailers are architects in their own downfall - here is how to not go about reducing the rush online:

Only last week I was told by an extremely frosty manager of one high street clothing outlet that, despite my having shopped there for 15 years and spending £100’s each year with them that “no”, I could not return a sale item I had bought the day before even if I did want a refund of just £30.00 but intended spending £140.00 on other items there and then instead. I went home to Amazon armed with my size details and product code and saved myself £38.00. I will now only use that high street shop to try on items, make a note of my size, then jump online to purchase it.

A dumb policy then, and this is clothing - a good which is a marginal vs online and ofline, as getting a good fit/right feel is an experience that customers enjoy from "real" stores. As Technotropolis notes it could all have been so different:

Had the manager been given the authority to accept my explanation – rather than strict training around company returns policies – they would not have lost me. Herein lies a lesson for the large chains to take on board. The importance now of a truly personalised service, and why chain stores need to let their managers act like independents, and allow them to make their own rational decisions.

However, even before online retailing took off, retailers, shop landlords and local authorities often behaved as if the customer were a problem, and not an asset, and continued to implement dumb policies that forced people away from the High Street. These sort of policies essentially were based on an axiom that the customer was largely powerless, was there for the plucking, and had no other options. And then the Local Authorities handed the shopper another, better, option, while still colluding to make it harder for the High Street. So for several decades now, UK High Streets have had to deal with the depradations of large, out of town but conveniently located retail parks - typically with a headline hypermarket food and general goods store and then other major consumer retailers pack around them, enabling an "all in one" shopping trip. Their other advantages were also readily apparent - no traffic jams, free, easy parking; a clean and secure environment, (fairly) easy movement of bulky and heavy items to the car, and customers voted with their cars. So, as footfall on the High Street inevitably fell, how did many local authorities react to this threat? They almost all did the opposite of the blindingly necessary, they:

- increased "traffic calming" and reduced public transport - thus increasing traffic delays and definitely not calming motorists, while simultaneously decreasing potential footfall from other transport sources
- increased in-town parking costs, and enforced them more heavily with traffic wardens
- reduced spend on the in-town infrastructure and policing so it became grottier and often less secure as local petty crime and vandalism rose
- increased rates on the small independent stores so they had the triple whammy of trying to compete with lower cost out of town stores, reduced footfall from parking restrictions, and then increasing costs of doing business.

Now to be sure, this was due to budget squeezes, but strangling one's own Golden Geese has never been a sustainable policy. In addition, the high street landlords didn't help, sticking to high-risk long rental period contracts and upward only rent reviews, even as the value of the high street shop assets was falling. So in effect, the High Street was crippled by a raft of dumb policies long before any online retailers emerged, they have merely been the last straw.

Now it would appear that some changes are (slowly) starting to emerge - some local authorities are starting to change, some landlords are becoming more rational, some retailers understand the need for good service and experiences - but it is slow, and piecemeal, so it is very unlikely to stem the onward march of the online retail world. And even if it does, it is very likely there will still be a lot of high street retail space looking for re-assignment, as there will just not be the need for what is essentially pretty warehouse shelf space. This needs to be seen as an opportunity by local authorities, not a problem - or it will turn into a problem. Organisations like London's Space Makers Agency are pioneering new approaches to retail space re-use, but its still very early days.

So right now there is tremendous flux, and Online Retail has just started to meet the Smart City, so it is hard to see clearly what the 3, 5, 10 and 20 year outcomes will look like for the High Street. But it is a good idea in such circumstances to "follow the money". In the UK there are some large socio-economic trends that are strong predictors:

- An extreme shortage of living space
- Increasing trends both towards urbanisation and away from urban car use, but trends is constrained by undercapacity in public transport systems - so the increasing utility of in-town living space wil rise
- Smart Working - the trend towards "home-working" and increasingly towards "collaborative working" - requiring collaborative workspace. Not so much the original Electronic Cottage, but the Electronic Coffeehouse
- More areas noted in the matrix above will go online, and there will be an increase in hybrid retail offerings (bricks and clicks)

So as we continue our work, the future is...still unclear. But one thing is for certain though - the High Street will restructure more radically in the next 5-10 years than it has in the last 100. Hang on tight, its going to be bumpy.....


(Update - been listening to DLD13, one of the participants in the online retail panel made a very interesting point, that financial crises tend to drive massive behaviour changes, so as OECD countries come out of it we can expect a major step-up to the shift online - plays to our point above)