Monday 14th January 2019
Much of the media coverage around ERA’s annual entertainment sales figures announcement on January 3 focused on my comment that it had been a “Christmas from hell”, evidenced by CD and DVD sales that were down 30% in the last full week before Christmas compared with the same week of 2017.
What some perhaps did not fully appreciate was the crucial role Christmas now plays in the lives of physical retailers, a point often lost on commentators or indeed suppliers who naturally take a whole market view of the world.
For physical retailers the fading fortunes of music downloads or surging revenues of streaming are strictly a spectator sport. What interests them is first and foremost the total size of the physical market, their share of that market and to a lesser but still important extent the way those physical revenues are spread through the year.
Physical sales have of course been declining. In volume terms physical music sales were down 20.8% in 2018, physical video sales were down 21.8% and physical games down by 7.1%, amounting to an overall decline in the physical entertainment market of 19.3%.
It is nothing new that retailers hope for a good Christmas to rescue the year, but to understand why you need to remember that physical stores have a high percentage of fixed costs like rent, rates, electricity, heating and of course staff.
If in addition you are in a sector like entertainment which tends to have a bias towards the fourth quarter, it is entirely possible that you will rely on the Christmas season to bail out your entire year.
Look at the arithmetic. If the year’s sales were equally spread across the year, then 8.33%-recurring of your annual sales would take place each month. In entertainment, however, it’s never quite like that.
In 2018 music, video and games each fell short of that 8.33% in eight months of the year.
| Percentage of Physical Sales By Month 2018 |
| Jan-18 | Feb-18 | Mar-18 | Apr-18 | May-18 | Jun-18 | Jul-18 | Aug-18 | Sept-18 | Oct-18 | Nov-18 | Dec-18 | |
| Percentage if equally spread | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 |
| Physical Albums | 7.4 | 6.7 | 8.5 | 6.7 | 6.1 | 8.5 | 6.2 | 6.2 | 7.1 | 6 | 8.3 | 22.1 |
| Physical Video | 7.1 | 7.4 | 10.5 | 6.8 | 6.5 | 8.2 | 5.6 | 6.6 | 8.4 | 5.9 | 8 | 18.9 |
| Physical Games | 5.7 | 5.4 | 6.2 | 4.5 | 3.5 | 4.8 | 3.8 | 3.4 | 9.1 | 12 | 16.4 | 25.1 |
The situation in games is so extreme that an incredible 62.4% of games revenue comes in the last four months of the year. If it were possible, any sensible physical games retailer would only open each year between September 1 and December 31. That way, for a third of the overhead, they would capture nearly two-thirds of the value in the market. Alternatively for the period of 1 January til August 31 they could consider charging suppliers rent for the High Street presence they provide for the category free of charge.
Sadly life’s not like that.
But it does demonstrate quite what a seismic shock it must have been to HMV and others when the figures came in on arguably the most important shopping week of the year that sales were down by nearly a quarter.
A Christmas from hell indeed.
ENDS