Price war forces Ottakar's into a £4.6m loss

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The bookstore chain Ottakar's slipped into the red last year, hit by a £2m bill linked to takeover talks and by the supermarkets' heavy discounting on bestsellers such as the latest Harry Potter book.

Ottakar's has suffered an 8.1 per cent drop in like-for-like sales in the past two months due to a fierce price war waged by supermarkets and high street rivals WH Smith and Waterstone's. Despite the launch of Harry Potter and the Half-Blood Prince in July, Ottakar's like-for-like sales were down 2.8 per cent over last year as it sold the book for £11.99, while some supermarkets slashed the price to £4.99.

James Heneage, the managing director of Ottakar's, said: "The price war began with Harry Potter. We had some supermarkets selling it for as low as £4.99, well below the price at which we could buy it. In this climate of aggressive price discounting, we chose not to follow others and at least kept margins intact, but sales suffered."

Things got worse over Christmas when WH Smith and Waterstone's followed the supermarkets in halving the price on bestsellers by Jamie Oliver and Sharon Osbourne, among others.Ottakar's lost £4.6m last year after posting a £6.9m profit the year before. Total sales rose 1.9 per cent to £176.5m.

Mr Heneage offered to take the company private last year but was trumped by a £100m bid from Waterstone's owner HMV. The 440p-a-share agreed takeover offer lapsed when it was referred to the Competition Commission, which is expected to publish preliminary findings this week. A final ruling is due on 22 May. Some analysts think the bid is likely to be passed because the regulator has said it would take into account the impact of the internet on the books market.

But if HMV decides to launch a new offer, it is expected to be lower than 440p a share, given Ottakar's poor trading. The company said it spent £2.1m during the bid talks on its advisers, Hawkpoint and Bridgewell. It also incurred an impairment charge on its stores of £3.4m and stock write-downs of £1.3m.

Mr Heneage said: "There is a structural shift towards supermarkets and the internet, but I think it will be finite. Supermarkets are never going to be specialist retailers and the internet does not have the service we offer. People still want to browse." He predicted a better second half, with new books by Michael Palin, Bill Bryson and possibly Dan Brown.