HMV sales suffer in changing market

Music store and bookshop owner HMV reported plummeting sales today as it continued to struggle to compete with supermarkets and the internet.

The retailer said like-for-like sales at its music stores were down 17% in the nine weeks to July 1 while they fell 6% at its Waterstone's bookshops.

The update came as it posted a 6% fall in like-for-like sales across the group for the year to April 29 - sending pre-tax profits down 21% to £98.2 million.

HMV today said it will introduce price cuts in its music stores by September this year and ramp up its online business as it looks to improve sales.

It also said it expected to make cost savings of £10 million from the acquisition of bookshop Ottakar's, which it agreed to buy for almost £63 million in May.

HMV chief executive Alan Giles said: "As we expected, trading conditions in the first few weeks of the new financial year have remained difficult.

"However, we are making excellent progress with a two-year programme of initiatives which we anticipate will begin to improve performance during the crucial Christmas trading period and ultimately transform the group into a world class multi-channel retailer."

HMV said that, despite the "challenging conditions", it will raise its annual dividend by almost 9% to 7.4p a share and return up to £100 million to shareholders in the next two years through share buybacks.

Operationally, the Maidenhead-based group unveiled plans to roll out a new store format which it had been piloting at HMV in South Wales and Kingston upon Thames.

The new format revolves around a simpler store layout and major price cuts, which has seen the price of chart CDs slashed to £9.95, while DVDs have been reduced to £14.95.

HMV said it will look for further growth at hmv.co.uk where sales have more than doubled and will launch waterstones.com this autumn.

Chairman Carl Symon said the UK retail market was "highly demanding" last year.

"The most popular entertainment and book titles were impacted by rapidly growing competition from supermarkets, while a pronounced shift in consumer preference to buying online put pressure on the deeper range of product," he said.

HMV said sales were particularly badly hit in June by the football World Cup, with England's Saturday games keeping people off the high street. It also blamed a lack of big new book or music releases.

But it said it was confident that the roll out of its new music store format tested in South Wales and Kingston-upon-Thames will boost sales and profits in future.

A company spokeswoman said: "It has been so successful that HMV has seen an 8.4% uplift in sales at those stores, and a dramatic increase in footfall.

"Not only has there been work on pricing but there has also been quite a lot of work on the store layout as well."

HMV said wider aisles and a more open shop front attracted more customers and encouraged them to move right to the back of the stores, where its back catalogue - "the bedrock of HMV" - is kept.

HMV has also secured deals with suppliers to lower prices without reducing profits margins excessively.