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Last Updated: Thursday, 28 June 2007, 16:21 GMT 17:21 UK
HMV struggles in 'severe' market
HMV store
Some HMV stores could face closure
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.

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's shares fell 3% to 118 pence on the news.

New products

"Our markets are changing profoundly," chief executive Simon Fox said.

"Entertainment is being generated and consumed in entirely different ways putting pressure on traditional retail space and traffic."

He added that efforts were under way to "reduce our dependence" on the sale of physical music such as CDs.

In this market, over time, there will be less need for people to visit shops
Nick Gladding, Verdict Research

These efforts include selling digital downloads in store and continuing to expand its online business

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.

'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.

HMV is not the only music chain looking to cut costs with Virgin reported to be keen to sell some of its stores.

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.

The company continues to put a brave face on the situation
Richard Hunter
Hargreaves Lansdown

"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."

Pressure

Although HMV's results were in line with expectations, the retailer still faces a tough future, according to Richard Hunter of Hargreaves Lansdown stockbrokers.

"The company continues to put a brave face on the situation," he added.

"Nonetheless, digital downloads are firmly taking hold and, in any event, the presence of online retailers and the supermarkets is exerting severe pressure on their business model."





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