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Last Updated: Tuesday, 13 March 2007, 11:47 GMT
'Top dog' HMV no longer leads pack
By Robert Plummer
Business reporter, BBC News

HMV store in Manchester
Some HMV stores could face closure

On the wall of HMV's flagship store opposite Bond Street Tube station in London, a prominent display sets out the history of recorded sound.

Old vinyl records and other ageing music formats are preserved behind glass, as part of a timeline charting the development of music retailing and HMV's role in it.

Few customers seem interested in stopping to read about the chain's very first shop, which was opened just across the road in July 1921 by Sir Edward Elgar and closed in April 2000.

But fears are growing that some of HMV's 421 existing outlets - 235 of them in the UK - could follow that landmark store into oblivion, as the traditional record shop becomes as much of a relic as the dusty old 78.

Alarmed at falling sales of CDs, the firm has announced a three-year "transformation plan" that could see it disappear from many of Britain's High Streets and withdraw from overseas territories.

HMV's chief executive Simon Fox says he is confident that the proposals will allow the group, which also includes Waterstone's bookshops, to overcome "challenging" market conditions.

But if he fails, the company that once proudly proclaimed itself to be "top dog for music, DVD and games" may well have had its day.

Digital dilemma

HMV, along with its main UK rival Virgin, is under attack on a number of fronts.

Much of the media coverage of record retailers' woes has centred on tech-savvy teenagers downloading copies of their favourite tunes rather than buying physical CDs instead.

Man listening to CDs at the Midem music festival in Cannes
CDs remain popular despite the growth of downloads

Both HMV and Virgin have risen to this challenge with their own digital download services, although they are subject to the same digital rights management (DRM) restrictions on usage that were recently criticised by Apple's Steve Jobs.

But figures from the British Phonographic Industry indicate that such digital formats still account for no more than a tiny proportion of all music sold in the UK.

Just 3% of music sales by value come in the form of downloads, while a whopping 87% are on CD.

Vinyl, by the way, is lumped in with "other formats" including the trusty old cassette, which amount to about 5%, while music DVDs make up the remainder.

Pile 'em high

The widespread availability of music illegally on the internet has undoubtedly had an impact on sales. Total music revenues fell between 3% and 4% globally in 2006, according to estimates by the International Federation of Phonographic Industries.

Even so, when people do decide to acquire music honestly, they are clearly still buying CDs. The problem is that they are spurning stores such as HMV and choosing to find them elsewhere.

Specialist music retailers now handle just 44% of CD sales in the UK.

HMV store in Oxford Street
HMV is well aware of the need to respond urgently to market changes

And while downloads are not yet taking over, online retailers such as Amazon have definitely eaten into HMV's market.

Sales of CDs over the internet now amount to 11% of the country's music purchases - although, of course, HMV is in that sector as well, with its own website offering music delivered to your door.

What is really hitting the music specialists is the growth of the supermarket as CD retailer. Stores such as Tesco and Sainsbury's, with their policy of stocking a small selection at a hefty discount, have collared a 26% share of sales.

Obviously your local supermarket cannot boast the range of HMV's other Oxford Street flagship store, close to Oxford Circus, which has 150,000 different music titles in its racks.

But as any frequent browser will know, HMV has been forced to lower its prices on newly-released CDs in order to compete with Tesco, further shrinking its profit margins.

Loyalty card

HMV bosses describe their turnaround plan as "exciting, radical and far-reaching".

Some of the ideas, such as introducing a loyalty card, sound like an attempt to tackle the supermarkets on their own terrain.

But HMV has already been beaten to the punch by Virgin, whose "Virgin Addict" card scheme allows customers to claim a 10 voucher after they have made 10 purchases worth at least 9.99 each.

For their part, retail-watchers are far from convinced that the plan will save the firm's iconic Nipper dog brand from being put to sleep.

"We remain very sceptical about the group's future prospects," said Numis Securities analysts, "as we do not see how these initiatives will save HMV from the structural problems it faces."

Why HMV's high street shops are struggling

HMV seeks to revitalise business
13 Mar 07 |  Business
Q&A: What is DRM?
07 Feb 07 |  Technology
Trading still 'difficult' at HMV
11 Jan 07 |  Business

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