Market Watch

HMV to Close One in Five UK Stores


Display Driver IC Forecast


UK specialist entertainment retailer HMV is to close 60 stores in 2011. HMV Group, which also owns book retailer Waterstone's, issued a profits warning citing poor December trading resulting from extreme weather conditions. Like-for-like sales for the 10 weeks to 1 January 2011 fell 10.8 per cent, with sales over the crucial five-week Christmas period down 10 per cent compared with 2009. Following the announcement HMV shares, which lost more than two-thirds of their value over 2010, fell another 22 per cent to £0.255 ($0.35).

Analysis

HMV Group reported negative like-for-like sales throughout 2010 despite its stores outperforming the rest of the UK video sector. Poor Christmas sales, resulting from the UK's heavy December snows, may have hastened the decision to close stores but without doubt such closures were already planned. The strategy of closing unprofitable stores is a reasonable move for a retailer such as HMV in a declining sector, facing strong price competition from supermarkets, weak high street trading and crippling commercial rents-indeed the move echoes Blockbuster UK's in 2010. The closures will inevitably affect the chain's UK video market share but should make the business more profitable in the longer term. Critically for the UK market, following the many UK store closures in 2009, the departure of HMV, as the only remaining bricks-and-mortar entertainment specialist chain, will effectively strip video retail from some shopping venues. The current absence of retail video in some UK high streets, combined with the snow, was a contributing factor to poor sales in December. We expect overall market performance in the UK to suffer in 2011 as a result; particularly in categories less well supported by supermarkets, such as Blu-ray Disc (including 3D), DVD catalogue and promotional sales.