Led Zeppelin provides shot in the arm for ailing HMV music chain

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The Independent Online

The excitement around Led Zeppelin's sell-out reunion performance has boosted business at HMV, which reported a narrowing of first-half losses yesterday.

Its chief executive, Simon Fox, said sales of the rock legends' back catalogue had jumped by 500 per cent since the announcement in September of the concert which took place at the O2 in London on Monday.

Albums from the X Factor winner Leona Lewis and the Arctic Monkeys also contributed to a 9.2 per cent like-for-like sales growth at HMV stores in the UK and Ireland in the six months to 27 October.

"This shows that, when there is good material, people will still buy a CD," Mr Fox said. The high-street retailer has been struggling as more consumers ditch CDs in favour of downloads to get their music fix.

Mr Fox added that the group was confident ahead of Christmas, the most important part of the year for the retailer as this is when it does 40 per cent of the its business. However, he was tight-lipped on current trading, only saying: "We are entirely satisfied with where we are."

The Simpsons Movie and The Bourne Ultimatum are expected to do a roaring trade as presents along with compilations and box sets of favourite television series. Each week in November and December sees a 25 per cent rise in sales on the previous one, Mr Fox said. "We are well prepared, we are exactly where we expected to be," he added.

HMV posted pre-tax losses of 28.7m in the first half, down from 29.2m in the same period last year. Like-for-like sales at the group's book division Waterstone's grew 1.4 per cent, mainly due to the final instalment in JK Rowling's Harry Potter series.

Traditional retailers have had to contend with the expansion of supermarkets on to their territory, offering cut-price books and CDs, along with the migration of the consumer on to the internet. Market analysts Verdict are predicting that digital downloads will be worth 163m this year, an increase of 45.5 per cent on last year, with the market expected to be worth 600m by 2012. However, CD and DVD spending has declined, with the overall music and video market down 2.9 per cent to 4bn this year.

Mr Fox said that there is still room for "a deep range specialist" He added: "We have much more knowledgeable staff who have a passion for CDs or books. Supermarkets have limited space, they can only stock a small range of best-selling titles."

HMV is now one year into a three-year recovery plan aimed at transforming the group into a multi-channel retailer with a greater emphasis on computer games and technology. The HMV.com website is now attracting 2 million unique visits a week with sales up 68 per cent, and by the second half the integration of music downloads into the site should be complete, giving consumers a choice in whether they buy a CD or simply download an album or choice of songs.

Mr Fox said that although the music market continued to decline and had fallen 11 per cent in volume, HMV had outperformed the market with an increase of 2.6 per cent in market share this year.

The move into high-tech products is also progressing well. Computer games currently make up 15 per cent of sales, up from 9 per cent a year ago, while technology products, such as digital music and video players, make up 6 per cent of sales. The company's target is to get the category to 13 per cent of sales within three years.

HMV is also testing new-format stores at Merry Hill in the west Midlands and Tunbridge Wells in Kent, which include a central hub of iMacs where customers can download music and play games. A further five stores in the new format are expected to open next year, including one at Heathrow Terminal 5.

The poorest performing part of the international business was Canada as a weak US dollar sent many shoppers over the border to the US where HMV does not operate.

Its shares recovered 1 per cent yesterday, but are down more than 25 per cent on the year, and analysts remain divided on the future of the stock. Christian Koefoed-Nielsen, of Panmure Gordon, said: "While these results may reassure those who believe in a turnaround, the profit performance of HMV on what is a strong top-line number is disappointing in our view."

Meanwhile, Freddie George, at Evolution, said: "Over the medium term, we continue to believe the HMV format will evolve. It is a strong brand, which could still position itself as the conduit to the consumer exploiting the opportunities in live music, podcasting and ultimately downloading."

Online expert who halted sales slide and calmed spooked investors

Simon Fox had his work cut out for him when he joined the ailing high street retailer HMV just over a year ago. A series of profit warnings had spooked investors but the 46-year-old chief executive, right, was resolutely upbeat yesterday, insisting that the company was well prepared for the all-important Christmas trading period as he reported a sales uplift at the group.

Mr Fox, who is married with three children and lives in Berkshire, began his career as a graduate trainee at Security Pacific Bank before moving to management advisory group Boston Consulting, and later Sandhurst Marketing. In 1989, he set up UK-based stationery retailer Office World for Swiss company Globus before joining Kingfisher in 1998.

As managing director of Comet, he led its demerger from the DIY group establishing the chain's leadership of the online electricals market. He was then appointed chief operating officer of Kesa with responsibility for Comet and the group's e-commerce developments. Mr Fox's online experience means he is well-placed to oversee HMV's transformation into an all-singing all-dancing multi-channel retailer.

The City will be able to asses his performance, one year into the company's recovery plan, after the all-important Christmas period.

Rivals who fell like dominoes

HMV has been increasing its share of the competitive music market as other players exit the arena. The music market declined by 11 per cent in volume over the year, according to the high-street retailer, but HMV's share grew 2.6 per cent.

Specialist retailers have been collapsing like dominos under pressure from the supermarkets, online e-tailers and illegal downloading.

ChoicesUK was the latest in a long line of brands to call in the administrators in August after the DVD and CD chain failed to secure refinancing for the business. Unprofitable stores were closed, but a buyer was found for its mail-order and online division.

The low-cost music chain Fopp was another victim to the changing tide and collapsed earlier this year, following in the footsteps of MusicZone, which had been gobbled up by Fopp after it went bust.

The MVC and DVD retailer Silverscreen also failed to cope with a tough market, and HMV and Virgin Megastores are having to diversify. They are expanding into the growing gaming and technology sectors, and improving websites to compete in an increasingly multi-channel retailing world.

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