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HMV struggles in 'severe' market HMV struggles in 'severe' market
(19 minutes later)
Profits at music retailer HMV have more than halved as it battles against competition from supermarkets and online retailers. Profits at music and book retailer HMV have more than halved as the firm battles against competition from supermarkets and online retailers.
The firm made pre-tax profits of £48.1m before exceptional items in the year to 28 April, down from £98.2m a year ago.The firm made pre-tax profits of £48.1m before exceptional items in the year to 28 April, down from £98.2m a year ago.
This was despite sales growing by 3.8% to £1.9bn.This was despite sales growing by 3.8% to £1.9bn.
HMV, which launched a recovery drive in March, said changes in music retailing had been "more severe than predicted" with CD sales suffering the most.HMV, which launched a recovery drive in March, said changes in music retailing had been "more severe than predicted" with CD sales suffering the most.
Cost-cutting New products
Analyst Nick Gladding of Verdict Research told the BBC that HMV faced challenges from people downloading material online and buying music and DVDs from supermarkets - which could offer cheaper prices. "Our markets are changing profoundly," chief executive Simon Fox said.
In this market, over time, there will be less need for people to visit shops Nick Gladding, Analyst class="" href="http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/shares/3/23444/intraday.stm">See HMV's share price class="" href="/1/hi/business/6444717.stm">Is HMV still 'top dog'? "Entertainment is being generated and consumed in entirely different ways putting pressure on traditional retail space and traffic."
"It's trying to make its shops more engaging to encourage people to shop in stores, to make them more dynamic and interesting, and is also encouraging people to do digital downloading in store," he said. He added that efforts were under way to "reduce our dependence" on the sale of physical music such as CDs.
"It's also running its own download service." In this market, over time, there will be less need for people to visit shops Nick Gladding, Verdict Research class="" href="http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/shares/3/23444/intraday.stm">See HMV's share price class="" href="/1/hi/business/6444717.stm">Is HMV still 'top dog'?
However, cost-cutting was inevitable Mr Gladding added, including the likely closure of some stores. These efforts include selling digital downloads in store and continuing to expand its online business
"It's looking at the number of stores it needs to have and in this market, over time, there will be less need for people to visit shops. HMV is also increasing the range of items it sells to include MP3 players and DAB radios, and will allow mobile phone firm 3 to open concessions in some of its stores.
"HMV will be looking at some of the more marginal locations and higher cost locations and will be looking to see if some of those will be more viable in the future." 'Dynamic' aim
The firm, which also owns book chains Waterstone's and Ottakar's, said it faced similar difficulties in the book market.
Competition from supermarkets and internet sites meant Waterstone's like-for-like sales fell 4.1%, despite the UK book market overall growing by 2.1%, HMV said.
The firm said it was looking to trim costs by simplifying its supply chain. It is also mulling the sale of its business in Japan, which has 62 shops.
Such cost-cutting was inevitable, said analyst Nick Gladding of Verdict Research
"It's looking at the number of stores it needs to have and in this market, over time, there will be less need for people to visit shops," he told the BBC.
"HMV will be looking at some of the more marginal locations and higher cost locations and will be looking to see if some of those will be viable in the future.
"It's also trying to make its shops more engaging to encourage people to shop in stores, by making them more dynamic and interesting."
The firm is not the only music chain looking to cut costs with Virgin reported to be keen to sell some of its stores.The firm is not the only music chain looking to cut costs with Virgin reported to be keen to sell some of its stores.