Supermarkets, online rivals hit HMV

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HMV, the entertainment retail group, on Thursday announced a first-half loss as the pressure from supermarkets and online rivals hit home.

The group, which sells CDs and DVDs at its HMV stores and books via its Waterstones chain, saw a continued decline in group like-for-like sales in the run-up to Christmas after a profits warning in December.

“The actions the group has taken to improve its competitive position are yielding benefits, but these are not sufficient to offset the profound changes taking place in our markets,” said Simon Fox, chief executive. “We will do more.”

Like-for-like sales in the five weeks to January 6 fell 0.8 per cent: HMV UK & Ireland increased like-for-like sales by 0.7 per cent, while Waterstone’s saw a 2 per cent decline.

In the 26 weeks to October 28 the group swung from a pre-tax profit of £200,000 to a loss of £36.4m. Sales rose to £767.2m compared with £759.7m a year earlier, as the acquisition of the Ottakar’s book chain offset the decline in like-for-like sales.

HMV announced the departure of Steve Knott as managing director of HMV UK and Ireland. “We both agreed that now is the right time for him to move on and to bring fresh blood and fresh thinking to the group,” said Mr Fox.

Mr Fox, who joined HMV in September, is to take direct responsibility for the struggling music-focused chain. He is due to set out a new strategy for the group in March.

Among the most important steps taken by the new chief executive was to cut CD prices to better compete with supermarkets and online stores. The action has helped HMV bolster its market share, but at the expense of margin declines.

Asked if the cuts had gone too far, he said: “I think there is absolutely room to refine some of our pricing, yes.”

HMV UK & Ireland saw an unexpected 30 basis point margin decline over Christmas, which Mr Fox attributed to product mix: a higher proportion than normal of lower-margin video games were sold in the period.

HMV shares slid 6¼p, or more than 4 per cent, to 140½p in afternoon London trading.

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