Music's retail master is losing its voice

LONDON BRIEFING:IN A MOVE that's been likened to severing a healthy limb to save a sick patient, HMV has hoisted the "for sale" sign over the most profitable part of its business, its live music division.

As survival strategies go, it’s an unusual one, but then these are desperate times for the entertainment retailer. The board laid bare debt-ridden HMV’s parlous position this week, with the now familiar news of mounting losses and slumping sales. At the pre-tax level, losses for the first half of the year, to end October, topped £36 million (€41 million), up from £27 million (€30 million), while underlying sales were down almost 12 per cent. In the seven weeks to December 17th, the decline was 13.2 per cent.

Directors warned of what they called “material uncertainties” which they said “may cast significant doubt on the group’s ability to continue as a going concern in the future”. In other words, unless it sees a last-minute rush of shoppers through its doors over the next few days, its very survival is at stake. Christmas week traditionally accounts for some 10 per cent of annual sales at HMV and, in another worrying admission, chief executive Simon Fox told reporters on Monday that, “frankly, it’s fingers crossed.”

In the City, HMV shares plunged by 25 per cent to just 2.9p, valuing the 90-year-old business at less than £15 million (€17 million). The shares have collapsed by more than 90 per cent over the past 12 months.

HMV has been fighting for its life for several years now and some would say it’s done well to survive this long. The turnaround strategy being pursued by Fox has seen some success, including the move into technology products such as headphones, expected to be among the most popular purchases this Christmas.

The push into live music has also proved an astute move, with profits of the division more than doubling to £3.4 million (€3.86 million) in the first half. That’s small beer in terms of overall losses but at least it’s a growth area, unlike CDs and DVDs, where HMV is being thrashed by the supermarkets and online retailers.

HMV has already sold off its Waterstone’s books chain and Fox reckons the live music business, which takes in venues including the Hammersmith Apollo, the Jazz Cafe in London and the Lovebox festival, should raise more than the £60 million (€68.5 million) HMV paid for it in January 2010. That would go some way to reducing the company’s debt, now standing at more than £160 million (€190 million). But if the most profitable part of the business is sold, where will the recovery come from?

Almost certainly not from HMV’s struggling chain of stores, which on top of its own structural challenges is mired in the same gloom that is hurting even successful retailers. There was some better news on Britain’s high streets yesterday from the CBI, which reported a rise in retail sales volumes in December for the first time in seven months. But the very modest advance has been driven by heavy pre-Christmas discounting, which will have further eroded margins, and volumes are expected to fall again next month.

At this stage in HMV’s lengthy battle for survival, it will need something more than Fox crossing his fingers to ensure HMV is still around this time next year.

IT’S A painfully slow process but, little by little, Britain’s banks are being forced to treat their customers fairly. The latest scam to bite the dust is the widespread practice of charging holidaymakers for using their debit cards to pay for foreign currency, with fees of up to 2 per cent of the amount taken out.

The Office of Fair Trading calculates that the banks have been raking in more than £1 billion (€1.2 billion) a year from holidaymakers and that a large proportion of it has come from hidden fees on credit and debit cards, including charges of up to 6 per cent for withdrawals from cash machines abroad.

The banks have now agreed to drop charges for those who buy currency with debit cards and they will also have to be more open about other charges levied on holiday money. Thus in future customers will be able to see on their statements exactly what charges have been incurred.

As usual, though, there’s a sting in the tail with the banks. They say that the changes will not be put in place until the end of next year, by which time a further £1 billion will have been unfairly extracted from holidaymakers.

Fiona Walsh writes for the Guardian newspaper in London