HMV Needs Plan B

Although HMV chief exec Simon Fox has explained his business model at such gatherings as the Live UK Summit, he’s struggling to get his message across to retail analysts who believe the company’s heading for serious trouble.

Turning HMV Group, which floated on the London Stock Exchange in 2002, from a chain of record stores to a 360-degree business model encompassing live music festivals, artist and venue management as well as retail clothing merchant is also failing to woo investors.

Fox has gone as far as admitting recent half-year trading figures showing a 16 percent drop in sales are “scary,” but the groundswell of opinion among the analysts is that the company’s failing because he’s leading it up the wrong trail.

Many are beginning to slash their profit forecasts. Nick Bubb at Arden Partners has gone as far as saying HMV’s management will need to “change tack” or risk the company being broken up or restructured.

The consensus is that HMV should hive off Waterstone’s chain of book shops, which last year made only £3 million profit on sales of more than £500 million, and curb the current 360-degree business strategy.

Sanjay Vidyarthi, a number cruncher for analysts Evolution, who has cut his HMV profit forecast by 25 percent, says he expects the share price will continue to fall “until management outlines a radical Plan B.”

Figures published by the Entertainment Retailers Association suggested music sales would boom at Christmas, but High Street retailers have suffered as the UK was hit by the coldest December on record. Early estimates suggest sales during the week before the holiday were 11 percent down on 2009.

HMV’s share perked nearly 10 percent to 30.75 pence when the weather improved during the last week of December, but a year ago it was very close to 90 pence.