HMV no longer top of the pops

Like the chart stars whose tunes it sells, entertainment group HMV is susceptible to wild swings of fortune and last week’s update was hardly music to investors’ ears.

An unexpectedly steep fall in like-for-likes at the eponymous music chain was about as welcome as a re-release of Agadoo and came as a shock after the confident tone of March’s strategy update. The disappointing performance means a lot rides on the success of ventures unveiled then. HMV intends to more than double sales of new categories, such as technology and fashion, from 9% to 21% over the next few years and has been bolstering its online presence.

Such enterprises could be fraught with difficulty, despite HMV’s success in seizing share of the games market - the most prominent of its range extensions.

While fashion makes sense, being complementary to HMV’s music heritage, adapting to apparel retail dynamics and audiences might be tough. Broker Execution Noble refers to a Verdict study showing that a high proportion of HMV shoppers buy their clothes from M&S, Next and Debenhams, suggesting an older demographic, while younger customers increasingly buy online. Will HMV’s ranges such as Camden Cool bring more youthful shoppers into its stores?

In light of the rising importance of retail generally, whether clothes or music, HMV’s 7.5% fall in online sales - which analysts say was hurried over in last week’s update discussion - was especially worrying.

Some of the reasons for HMV’s poor fourth quarter - such as the impact of bad weather - are understandable and there were signs of improvement at troubled bookseller Waterstone’s. But the numbers prompted analysts once again to wonder whether HMV can overcome structural challenges.

HMV chief executive Simon Fox has shown himself adept at confounding expectations in the past. He may do so again, but it looks likely to be a while before HMV is top of the pops among investors.