HMV is the U.K.'s largest retailer of music, DVD/video, computer games and related products. In addition to its flagship store on London's Oxford Street - which was opened in 1921 by the celebrated British composer Sir Edward Elgar - HMV operates around 200 stores in key shopping locations throughout the U.K. and Ireland, totaling more than one million square feet of retail space. It also has a successful online store. Parent company HMV Group plc additionally operates 366 HMV stores in eight countries across Europe, North America and Pacific Asia as well as 193 Waterstone's book stores principally in the U.K. and Ireland, all of which are wholly owned by the company. With digital media dramatically changing the entertainment retail industry, product promotions have become an increasingly prevalent and complex part of HMV's business. HMV in the U.K. and Ireland recently implemented a new solution from Eqos to streamline management of commercial deals and promotions.
Q: How large a role do promotions play in HMV's business?
Consalvi: Promotions have become an increasingly large part of business over the last 10 years. Back then, which is about when I joined the business, we would have standard-priced product in the stores with two set sales a year, one in January and one in July. These were big events and vendors would supply reduced-priced products specifically for the sales. Today, promotions are a continual process and something we always make available to the customer. We always have several offers going on in our stores at any one time. These can range from the "buy-three-for-the-price-of-two" sort of campaigns to smaller offers that may give the buyer a free accessory with the purchase of an mp3 player. Behind each of these offers is a deal negotiated with suppliers - perhaps we negotiated an extra discount to enable us to offer a particular deal, for example.
Q: Does HMV typically initiate these deals or do they come from the supplier?
Consalvi: It's a combination. A supplier may decide to drop the price on a certain range of products in order to boost sales. As with most industries, we have a group of buyers who are in daily contact with their counterparts at various suppliers discussing these things as well as discussing new products that are coming out. Our industry may be slightly different from most in that there is a constant flow of new products and constant discussions about what promotions we will be doing. A typical scenario, even with a new product, is that the buyer at our end and the supplier will talk about the number of units of a new product that they think will sell. If it turns out that the artist isn't in as high demand as they had anticipated, they will negotiate a new deal on that product, sometimes within the week of release. It is just a continual process. Keeping track of all this and managing it effectively was becoming increasingly difficult, which is where the Eqos solution comes in.
Q: Can you describe more specifically what issues you were having and how you were handling this previously?
Consalvi: Our particular pain points were around the administration of deals. Our buyers are good at negotiating and buying, but they are not so enamored with the administration. So we would end up with all sorts of deals being made, but the information associated with those deals just wasn't getting captured - or at least not captured consistently. A buyer might strike a great deal with a supplier and be patting himself on the back, but finance would not get informed of that deal and we might never capture the proceeds because no one knew that the invoices should be reflecting a different price.
In addition to the details of the deal, we really needed to capture the authorizations from the suppliers, because the biggest problem we had was that if there was a dispute over whether or not a deal had been honored by a supplier, it was always very difficult to come up with supporting evidence of the deal. So we wanted to be able to capture that authorization, which we also saw as an opportunity to streamline the whole process. If we could capture the authorization, both parties would have access to that information and we could largely avoid commercial disputes, which are enormously time consuming and expensive for both parties.
We had developed our own tool to capture this information for the three types of deals that we do most frequently, but this was only being used by our audio department and, while we were catching all the information we needed, it was very labor intensive to keep it up to date. It was taking far more of their time than it should have and it was not covering every deal.
Q: What prompted you to seek out Eqos?
Consalvi: It goes back to the end of last year when our last major competitor, Virgin Retail Group, went into administration (Ed. Note: an alternative in the U.K. to liquidation). I knew that Virgin Retail already had worked with Eqos a few years ago to develop the same sort of system that we were looking for. We knew it was similar to what we needed because as the two major entertainment retailers in the U.K, there was a lot of passing back and forth between us of staff. When Virgin went into administration we tried to see if that system was a saleable asset and, as a result of those inquiries, we ended up in direct discussion with Eqos. We had already investigated the market and knew there wasn't a comparable system out there, so we hired Eqos to develop a system for us.
Q: What time frame was this?
Consalvi: We started discussions with Eqos in March of this year. We were under some time pressure because we really wanted a system in place to catch all of our deals for Christmas, which is a massive peak period for us. We knew that capturing all the information around the deals we struck for the holidays would really help us with the payback on our investment. Even if we had decided to go ahead with developing a tool internally, we would have struggled to meet those deadlines, but Eqos was able to commit to our timelines because we were able to use the work that Eqos had done with Virgin rather than starting with a blank sheet of paper.
As of now [mid-July 2009], we are on course to deliver that. We expect to go live the middle of August and we already have had the Eqos guys come in for test runs and and presentations to our key suppliers. It was very well received by the suppliers, which is make-or-break for a system like this. Suppliers have to buy in to the whole idea and so far they seem to be pretty happy. It was an advantage that many of our suppliers also were suppliers of Virgin so the process was not completely new to them.
Q: Can you describe how the process works today?
Consalvi: It is a Web-based system so our buyers can sign onto the Eqos system while they are on the phone with a supplier negotiating a deal, or they can enter the information when they get off the phone. They set up the details of that deal - the titles that are included, the negotiated net price for the titles and the number of units. Because the solution is hosted on one server, suppliers can then log on from their side to review the deal. If the information is correct and they are happy with it, they just click the "authorize" button. In addition, the system has dashboards where they can see all the deals that are waiting for authorization and deals that are active. Some of our suppliers want to be able to see how those deals actually are doing so we are looking at feeding in sales and stock information that would give them a real-time picture of how well the deals are doing in our stores.
Q: What are the key benefits?
Consalvi: We are able to have a much more accurate picture of what is going on with the deals. At present, it is quite hard for us to see what is being negotiated and that makes it difficult for us to have an accurate picture of our own margin. And by streamlining this whole process, we will minimize the amount of time our buyers have to spend on administrative tasks.
Also, capturing deal information accurately and consistently means that we will not miss getting the advantage of deals that are negotiated. And if there is a dispute, it can be easily resolved because the information will be there for both sides to see. On every deal we make, we will have an audit trail. Everyone will know who was involved and who authorized it at the time the deal was struck, so neither side should have a problem.
Also, because we are able to capture this information reliably, we will perhaps enter into more complex deals that we steer away from now because they are simply too much of a headache to administer. One example is what we call "bundles," where we might want to offer a deal around a game console, including free games and maybe an accessory, with all of those pieces coming from different suppliers. This means we need to negotiate separately to come up with a discount on the unit price and that is something the games department has struggled to do with spreadsheets. By being able to capture all this information we will be able to better evaluate which are the best deals to do.
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