HMV axes Ottakar brand and 100 jobs as sales continue to slide
Friday 07 July 2006
HMV, the floundering music retailer that also owns Waterstone's, is axing the Ottakar's brand and making up to 100 Ottakar's staff redundant following its recent £63m acquisition of the rival book chain.
The Ottakar's brand will disappear from UK high streets by Christmas as part of HMV's attempts to integrate the chain and revive its fortunes after a dire year that saw annual pre-tax profits crash by 37 per cent to £80.2m. Its shares fell 5.25p to 168p.
The group also said it had misjudged its music download strategy less than a year after its belated entrance into the market. It is taking a £4.5m charge to its profit and loss account after failing fully to appreciate the stranglehold Apple has on the young download market, choosing instead a partnership with Microsoft.
When it was launched last September HMV's digital download site was widely criticised for its incompatibility with Apple's iPod MP3 players, which dominate the market. Alan Giles, who is quitting as chief executive, said yesterday: "Digital downloads are growing less rapidly than we first thought, particularly the sector that is not dominated by Apple."
The company, which rejected a 210p-per-share bid approach from Permira earlier this year, is believed to have narrowed its shortlist for Mr Giles's replacement to three candidates but would not be drawn on how much longer the search process would take. Mr Giles has said he will stay until December but analysts are anxious the company will remain in a strategic vacuum with a lameduck chief executive.
HMV is under pressure to fend off competition from internet-based rivals and supermarket chains, which are undercutting its prices and stealing market share. Sales figures released yesterday showed that trading had worsened in the past nine weeks. At its HMV stores in the UK and Ireland like-for-like sales fell 16.7 per cent during the period, while at Waterstone's they were 6.1 per cent weaker. Total group underlying sales fell 10.1 per cent.
The company pinned much of the blame on a weak retail market held back by the World Cup and a lack of big-name CD and DVD releases. It is still losing ground in the music market. It is investing £25m on cutting prices of CDs and DVDs as part of a new, simpler pricing architecture. The move will knock its margins by 250 basis points but is intended to drive sales by 8 per cent following a successful trial in a handful of its Welsh stores.
Mr Giles said it was "too complex and costly" to keep the Waterstone's and Ottakar's brands. HMV is closing Ottakar's offices at Salisbury, London Bridge and Clapham with the loss of up to 100 jobs. James Heneage, Ottakar's co-founder and managing director, will leave in six months.
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