OK for today

HMV’s profits were up 17.7% in the year to April, with sales passing the £2bn mark for the first time, although like-for-likes fell in both HMV and Waterstones. Nevertheless, that’s a good performance in anyone’s book, particularly as many marketwatchers are convinced traditional entertainment retailing is dying, and also in the light of all Waterstones troubles over the past year.

Chief executive Simon Fox has done a great job of reshaping the HMV business and the moves into areas like live music and ticketing are diversifying the revenue streams of the business, which is essential when you look at the state of the recorded music and games markets. Meanwhile the changes new Waterstones managing director Dominic Myers is instigating are clearly having an effect in the stores and as its supply chain difficulties are overcome it should start to recover in the absence of any significant multiple competitors.

But while Simon has done well to hold back the tide so far, the most recent trading update showed just how tough things have got for the core HMV business and I’m not sure that’s a short term blip. With none of the benefits of competitors coming out of the market which HMV has enjoyed over the past few years, it’s now facing the enormous shift in customer buying patterns alone.

I’m one of those few old-school types that still buys CDs and DVDs but whenever I’ve been into the stores in the last few months they’ve been really quiet. It’s noticeable that its like for likes have fallen while total sales have risen, suggesting it’s the stores acquired from Zavvi which made the difference to the performance.

The problem is nothing to do with HMV but simply that younger shoppers are now downloading all their music requirements, and while good ideas, projects like The Studio - HMV’s new dedicated area for music-related clothing - aren’t going to be enough to guarantee the future for a store estate the size of HMV’s. Despite its recent woes, I reckon Waterstones has the brighter future, and has yet to feel the full benefit of the disappearance of its only multiple competitor, Borders.

Fox is, as every article on him always mentions, a member of the Magic Circle. I hope I’m wrong, as a big fan of entertainment stores, but his ability to pull rabbits out of hats is going to be needed even more over the next few years.