From in-store to online: Charting the shutdown of digital retailers
Wednesday, February 15, 2017
Since the start of the year, Canadians have faced a few retail closures, with HMV being the most recent high-profile victim. As consumers shift their shopping behaviours toward the online marketplace, some bricks-and-mortar retail locations are becoming scarcer. Digital media retailers with physical stores are especially feeling this crunch.
However, recent studies are claiming that Canadian shopping malls are not necessarily becoming obsolete, but are updating their offerings to remain competitive. What's going on?
The consumption of digital media didn't always depend on procuring it from a digital platform. From albums to movies to video games, bricks-and-mortar retailers were very much responsible for providing the entertainment.
To learn more about the in-store digital retail market, I spoke with Dan Towers, who is currently a senior manager of digital media at marketing agency Arcane, and an instructor (market strategy) at Western University. Towers' first job was at Blockbuster Video, spanning a five-year period through his high school and university years.
"For the first couple of years, Blockbuster was the place to be on a Friday/Saturday night," said Towers, who started the job in 2004. "Going to Blockbuster, getting recommendations on movies and picking out the right one for you (while browsing through seemingly thousands of films) was an experience."
But as the 2000s progressed, the introduction of online and on-demand streaming through technologies such as Tivo, YouTube, PVRs, DVRs, Apple TV, Netflix, among hundreds of piracy websites, took over. Towers saw this with customers shifting their movie-watching preferences.
"As opportunities to watch films online grew, people came into Blockbuster less and less — it was clear streaming and downloading were slowly taking over," he said.
By 2011, Blockbuster was in financial trouble and had started closing their stores. That was only the beginning, and it set a troubling precedent for digital retailers relying on their bricks-and-mortar locations for sales.
With an April 30 closure date looming, HMV has begun its clearance sales. Radio-Canada International reported that the company needed between $2 million and $5 million per year in cash to stay afloat, but was losing $100,000 a day, likely to their online competitors.
The shutdowns of digital retailers have been impacting Canadians for the past few years. From Sam the Record Man and Blockbuster to Future Shop and now HMV, shoppers will likely resort to exactly what put these retailers out of business — online streaming and purchases from Spotify, Apple Music and Amazon, to name a few.
In comparing HMV's fate to that of his former employer's, Towers believes HMV's shutdown was as inevitable as Blockbuster's — neither kept their relevancy, and they weren't adaptive to consumer demand. He pointed out that Blockbuster was way too slow to get into the online sales realm, and cited the fact that Blockbuster once had the chance to purchase Netflix for $50 million and didn’t.
"Ease of use and the ability to access pretty much any song you want from your fingertips has made HMV obsolete as a retail option," Towers said.
With HMV exiting the music/movies marketplace, Canadian music expert Alan Cross points out that the loss of HMV is going to "freak out the recording industry" — HMV's distribution was responsible for 25 per cent of all CDs in Canada. From here, physical music sales will likely drop, and record labels may seek to renegotiate deals with other big-box retailers.
Canadian artists could be especially impacted if they are not recognized on a global scale — would they do away with creating CDs altogether? Or sell them only at concerts or on their website? Streaming and online music sales could be a more viable option.
Despite the "doom and gloom" feelings that the thought of once-beloved retailers shutting down might evoke, the Financial Post recently discussed an analysis by the Retail Council of Canada that found that Canadian malls are actually thriving, while American ones continue to struggle.
In recent years, Canadian malls have worked to create lively atmospheres, with new stores and the addition of restaurants. In comparison, some American cities have been slower to renovate or refurbish their malls, and have been unable to replace anchor tenants that have shut down.
Diane Brisebois, Retail Council of Canada president, states that these Canadian factors "(make) people want to come to malls."
Where do we go from here? As some retailers shut down, shopping malls have been forced to diversify their offerings to keep customers coming back and remain hopeful. Retailers themselves have been forced to adapt to customer demand — those that don't often serve as a cautionary tale long after their shutdown.
Digital media retailers may struggle in a physical entity, but other retailers with refreshed offerings could flourish in the same space. With HMV's shutdown, it will be interesting to see how other bricks-and-mortar retailers evolve to avoid a similar fate, whether it be a year, five years or even a decade from now.
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