As HMV prepares to relaunch following its acquisition by Hilco, the retailer faces a more fundamental challenge than competing with online stores. It needs to reconsider what business it is actually in.

The collapse and subsequent rescue of British high street institution HMV has prompted plenty of discussion about the future of physical retail. The familiar argument is that the internet has killed the record shop, leaving traditional retailers with little hope of survival.

There is some truth to that, but it misses the bigger picture.

HMV’s problem is not simply that consumers have found somewhere cheaper to buy music. It is that the commercial value of owning music is disappearing, and with it the foundations of the retailer’s business model. Hilco’s acquisition may have given HMV another opportunity, but a new website, improved pricing and a refreshed brand will not be enough to guarantee its future.

The company needs to consider whether selling music should remain its primary business at all.

The music industry has changed beyond recognition over the past 15 years. First came digital downloads, which removed the need for physical distribution. Now services such as Spotify, YouTube and Deezer are changing the relationship between consumers and music altogether. Increasingly, people are paying for access rather than ownership.

Why purchase an album when a monthly subscription provides access to millions of tracks? And why maintain a collection of CDs when the same music can be accessed instantly from a phone? As streaming services improve their catalogues, pricing and availability, it is difficult to see physical music sales returning to their former levels.

Even digital downloads may prove to be a relatively short-lived stage in the industry’s evolution. Once consumers become accustomed to unlimited access, purchasing individual files begins to look unnecessarily restrictive. The future of mainstream music consumption is likely to be streaming, not ownership.

There will, of course, be exceptions.

Vinyl records have maintained an appeal that extends beyond simply listening to music. For collectors and enthusiasts, the artwork, physical format, sound characteristics and experience of ownership are part of the product. Specialist independent record shops understand this particularly well. They offer expertise, discovery and a sense of community that cannot easily be replicated by an online catalogue.

Physical music may increasingly become a specialist market, much like photography enthusiasts who continue to shoot on film despite the convenience of digital cameras. The difficulty for HMV is that a nationwide retail estate cannot necessarily survive on specialist collectors alone.

Music Is Becoming a Marketing Channel. The shift towards streaming has wider implications for the music industry. Artists increasingly depend on a combination of live performances, licensing, merchandise, endorsements and recorded music to generate revenue.

From a marketing perspective, music itself can become a customer acquisition tool. An artist might be willing to distribute tracks at little or no cost if doing so helps sell concert tickets, merchandise or future releases.

This creates an interesting opportunity for retailers. If the commercial value of music is shifting away from the transaction and towards audience development, perhaps HMV should follow it.

Traditionally, HMV has operated as a retailer. It purchases or stocks products, attracts customers and generates revenue through sales. But what if its most valuable asset is not the stock on its shelves?

HMV has an established brand, prominent high street locations and a customer base with a demonstrated interest in music and entertainment. Those assets could be valuable to record labels, promoters, artists and entertainment brands looking to reach consumers.

Rather than relying entirely on the margin generated from selling CDs, DVDs and games, HMV could develop a business model in which its retail estate becomes a marketing platform.

Record labels might pay for promotional space, product launches, exclusive performances or access to targeted audiences. Emerging artists could use stores to build awareness, while established acts could promote tours, merchandise and new releases.

HMV could effectively rent access to its audience, physical locations and promotional capabilities.

This would require a significant change in operating model. Instead of measuring success primarily through sales per square foot, the business could begin measuring customer engagement, event attendance, promotional revenue and the commercial value delivered to its partners.

The concept is not entirely new. Retailers have always sold promotional opportunities to suppliers through displays, advertising and preferential positioning. The difference would be making those services a central part of the business rather than a secondary revenue stream.

HMV would no longer exist solely to sell music to consumers. It would also sell access to music consumers to the industry.

There are obvious challenges. Record labels would need convincing that the audience and promotional results justified the investment. HMV would also need the operational capabilities to manage campaigns, events and partnerships at scale. But it offers a potentially more sustainable direction than attempting to compete with digital distribution on price and convenience.

HMV is also expected to relaunch ecommerce, which will undoubtedly be presented as an important part of its recovery. The future. However, simply operating a website alongside physical stores is no longer particularly innovative. Many retailers have invested heavily in multichannel strategies, only to find that their digital and physical operations compete with one another.

Stores are measured on store sales. Ecommerce teams are measured on online sales. Marketing budgets, inventory and customer data are managed separately. The result is often two businesses operating under the same brand rather than one business serving the same objective..

Retailers need to move beyond multichannel and towards omnichannel, where the customer relationship is managed consistently regardless of how or where a transaction takes place. John Lewis has already demonstrated the importance of recognising the contribution physical stores make to online sales, rather than treating the two channels as entirely separate operations.

HMV should take this further.

A customer might discover an artist at an in-store performance, listen to their music online, buy tickets through the website and later return to buy a limited-edition vinyl release. These are not four separate customer journeys. They are different interactions within one relationship.

The retailer should be able to recognise and support that relationship across every channel.

This requires more than a redesigned website. It demands shared customer data, coordinated inventory, consistent promotions and an operating model that rewards the overall customer relationship rather than individual channel performance.

One advantage physical retailers retain over pure play digital competitors is their ability to bring people together. Online platforms are exceptional at providing convenience, choice and increasingly personalised recommendations. But there is still value in physical experiences that cannot be downloaded. Independent record shops have long understood this.

Their customers visit for recommendations, conversation, discovery and the opportunity to engage with people who share their interests. HMV could develop a similar proposition at a much larger scale through live performances, listening sessions, artist appearances, exclusive releases and partnerships with local music communities.

These activities might not always generate enough direct sales, but they could attract valuable audiences and create opportunity for commercial partnerships.

The important distinction is that stores would need to be evaluated partly on their contribution to the wider business, not simply the products sold through their tills. A store that introduces thousands of customers to new artists, generates online transactions and provides valuable promotional opportunities could be commercially successful even if its direct retail sales are modest.

Of course, this assumes the additional revenue can justify the cost of operating such a high street estate. That is far from guaranteed. HMV’s future remains uncertain.

The company faces structural challenges that a new owner cannot easily resolve. Its traditional product categories are increasingly vulnerable to digital distribution, while its physical stores carry costs that online competitors can largely avoid.

A renewed focus on ecommerce may improve convenience, but it will not reverse the decline in demand for physical media.

Nor can HMV assume that its brand recognition and high street presence will be enough to attract customers indefinitely.

The more interesting opportunity lies in reconsidering the purpose of those assets.

If HMV can transform its stores into destinations for music discovery, integrate its physical and digital operations, and develop commercial relationships based on promoting artists rather than simply selling their recordings, it may find a viable role in the changing industry.

That does not mean every store will survive, or that the business will ever return to its former size. The HMV of the future may need to be a considerably smaller retailer with a very different revenue model. The underlying opportunity is worth exploring.

As consumers move from owning music to accessing it, the businesses that succeed will be those that understand where value has moved.

For HMV, the answer may no longer be on the shelves. It may be the people walking through the doors.