His Master's Voice gets lost in the hubbub

Alan Giles jumped, insists HMV; he was not pushed. Given the perilous state of the book and music retailer, it is hardly surprising that the chief executive was reaching for his parachute. HMV's results and Christmas trading statement demonstrate just how much the Internet is damaging its business: and the real problem is that it is still not clear how - or whether - it can fight back.

A year ago, Giles was insisting Internet music retailing would peak at 10 per cent of the market. Now that there are 42 million iPods in circulation and mobile companies like Vodafone are launching their own download service, that view is dangerously out of date. Giles appears belatedly to have worked this out: he now accepts his estimate was a mistake, and last autumn HMV launched its own downloading service. However, as with most such sites, HMV's is not compatible with iPods, so must battle for the 30 per cent or so of the market that uses other MP3 players.

For HMV-owned bookseller Waterstones, the Internet is less of a threat than supermarkets, which are cutting prices of new books to the bone. Kwik Save, for example, was selling the new Harry Potter book for just £4.99, less than half Waterstone's already discounted £11.99. The result of these problems was that operating profit in the six months to last October fell by 80 per cent, and the position seems to be getting worse: sales over Christmas fell by 5.5 per cent at HMV's UK and Irish business, and 2.4 per cent at Waterstones, despite more price cuts.

HMV's bid for rival bookshop Ottakar's - which is being investigated by the Competition Commission - looks more like a desperate bid for cost savings than a sensible industry consolidation. HMV insists that it still wants it to go ahead, but with Ottakar's sales also affected by supermarket and Internet discounting, the price could end up some way below the 440p a share HMV was offering. One analyst, who preferred not to be named, says buying Ottakar's will offer scope for some savings, which will help give 'short-term earnings momentum', but it was not a long-term answer.

However, he cannot see any other solutions. HMV is hoping for a jump in games sales with the recent launch of new consoles, and its own Internet business is doing well (web sales over Christmas were up 78 per cent), but it still contributes less than one of the company's big London stores.

HMV's business may be particularly exposed, but the rest of the high street is hardly booming. While many Christmas trading statements were better than expected, no one is getting excited about prospects for retailing this year. Only those with real recovery potential (like M&S, Sainsbury's and, we hope, Morrison's) or potential for significant expansion through store openings (such as Primark and Land of Leather) are likely to make headway as consumers continue to repay debts or save for their pensions in preference to buying another sweater or standard lamp.

At HMV, Giles has agreed to stay on until the end of the year. He is unlikely to find his long goodbye a comfortable one.

print this article

Return to internet news headlines
View Internet News Archive

Share with: