TORONTO -- If Sunrise Records and Entertainment Limited wants the 100 HMV stores it just purchased across the U.K. to succeed, industry experts say it will need to get creative and quick.
The music retail landscape has been plagued in recent years by the rise of streaming platforms and the dramatic decline of CDs and DVDs, making ventures like the one Sunrise is embarking on tough, said music analysts.
They predict Ontario-based Sunrise, which operates 84 stores mostly in Canadian suburban malls, will have to diversify its offerings to keep the HMV locations, 1,847 employees and four Fopp stores it just bought afloat.
Mark Mulligan, a music analyst from Midia Research in the U.K., said Sunrise and HMV must focus on "monetizing fandom," by selling merchandise from games, tv, music and film, and perhaps even consider turning stores into live music venues.
"They shouldn't fight an epic, losing battle trying to compete against the streaming giants...Assuming they want to have a long-term vision, rather than three to five years of getting a bit smaller every year, they need to find new areas of growth," Mulligan said, noting that even games and DVD box sets, which used to be popular items at HMV and Sunrise, have faced challenges from streaming services and direct-to-console businesses.
"They have a long tradition of having bands come in and having performances, well, take that one step further and make it a place that people spend time with coffee and beer."
Sunrise Records was not able to provide a representative for an interview by time of publication.
It said in a press release that 27 HMV stores were not included in the last-minute deal it struck and will be closed immediately, causing 455 "redundancies."
However, the release said Sunrise president Doug Putnam was "delighted" with the deal and the prospect of being able to "replicate our success in Canada."
Putnam, who also runs toy and game distribution brand Everest Toys, has spent the last few years turning around Sunrise, which he acquired from Malcolm Perlman in 2014, when Sunrise was down to five stores.
Putnam took advantage of the closure of HMV locations in Canada and grew Sunrise significantly, stocking it with CDs and DVDs, but also board games, themed toys and a wide selection of music, film and TV apparel -- a strategy HMV had also dabbled in.
Vinyl became a key offering too, as Putnam tried to take advantage of its resurgence.
Mulligan called vinyl "a good news story," but said Sunrise and HMV shouldn't lean too heavily on it because he considers it a "niche segment" of the music retail market.
He also said if Sunrise bought HMV to profit from its real estate, timing isn't on Sunrise's side. The U.K., he said, has seen a "strong decline" high street real estate over the last decade, making the store locations less lucrative.
Canadian music industry expert Eric Alper doubts real estate was on Putnam's mind with this deal because Putnam has a history of crusading to keep the Canadian music retail industry viable and hasn't flipped Sunrise properties that were bought from Perlman.
"I see them doing a lot more in terms of outreach in the community than anyone had the right to expect from them," said Alper, noting Sunrise has built a presence at fan fairs, music conferences and record days throughout Canada.
Alper believes Sunrise should look towards partnerships with artists and exclusive merchandise to bring in customers.
The strategy has already been used by Canadian rapper Drake, who has begun flogging merchandise at a string of OVO stores, while Toronto-born singer Shawn Mendes has partnered with Roots to sell a limited edition clothing line, including sweatpants, leather jackets and toques.
"There is no reason why Sunrise Records can't start going into every single artist possible and designing and making exclusive merchandise or albums only available at HMV in the U.K.," he said.
Mulligan said he believes Sunrise has a 50-50 shot at success with its HMV deal because the brand previously failed at dealing with piracy, iTunes, Spotify and Amazon, but Alper said he is more of an optimist.
"The music industry itself is not dropping. It is just us finding a different way for us to consume music," Alper said.
"People still like to walk around and shop. Indigo has been able to do quite well with their stores having home merchandise and there is no reason Sunrise can't do the same thing for customers, who don't want to buy physical music anymore, but still want to show off their love of an artist."
