Analysis: HMV blames web for sales slump

He added that music retailers were facing more competition from piracy
and internet sales, causing the value of the market to shrink by more
than 10 per cent in the UK.

However, industry experts do not understand HMV's failure to cope with
the threat of online retail, given the channel's emergence over the past
10 years.

James Roper, head of the Interactive Media in Retail Group (IMRG), is
clear that any retailer that hasn't adapted has been negligent. "I can't
have any sympathy for these people," he says. "It has been 15 years
since the IMRG was set up, and to some it was obvious that (the growth
of online sales) was going to happen."

He cites a consumer survey by ITV's Tonight with Trevor McDonald, which
asked two families to change their shopping habits. One had to buy a
basket of goods online, while the other, web-converted family bought the
same products on the high street. The former saved two days and £1,000.

"It is about retailers listening to customers. Their customers are
telling them they like to shop online," says Roper.

The British Retail Consortium (BRC), which represents the retail
industry, says the internet is just one of many factors putting the
squeeze on the high street. "The internet is not the cause of this
increasing competition, but part of a change in behaviour. It's about
retailers adapting to a rapidly changing environment," a spokeswoman
says.

To distinguish between the web and the high street is incongruous, she
adds: "Most high-street retailers have adapted to consumers' changing
buying patterns (by launching sites), so the argument that the internet
is taking over doesn't fit."

Under fire

Meanwhile, HMV's claim that it operates in a sector under particular
threat from online also comes under fire. "We ran a workshop in 1997 for
the music industry, so how can anyone not have got to grips with online
trading?" says Roper.

He is convinced that it is not individual sectors that are under threat,
but purely individual retailers that have not evolved.

The BRC agrees, although it argues that online sales are particularly
suited to items such as books and CDs, on which HMV's business - it owns
bookshop chain Waterstone's - relies.

Yet, rising sales at rival Virgin Megastores and the continued growth of
CD sales on the web suggest that HMV's problems may be
self-inflicted.

Virgin saw a 3.2 per cent lift in sales over Christmas, while Play.com,
the second-biggest web retailer of CDs behind Amazon, reported annual
growth in the fourth quarter of 37 per cent for music.

Still, HMV's problems are important as the chain accounts for 20 per
cent of music sales in the UK. The biggest threat, according to the
music companies' trade body, the BPI, is to sales of compilation
albums.

Hard-copy piracy and the rise of services like Apple's iTunes, where
users can compile their own song collections, are having the biggest
impact.

A major question is whether legitimate download services can help
replace the revenues lost by the music industry due to piracy, illegal
downloads and the CD price war.

BPI communications manager Matt Phillips says: "It's extremely difficult
to tell at this stage, as it's still such a fledgling market. But it is
a growing one, and certainly one that we expect to comprise a large
proportion of our sales in future."

HMV launched an own-brand music download service in September, as did
Virgin. Last year, the number of legal downloads increased by 357 per
cent, from 5.8 million units to 26.4m, and that doesn't take into
account tracks downloaded through subscription packages like HMV's.

In music, it seems, online may be the solution rather than the problem
facing retailers.