Borders collapse is music to ears of its rival HMV

Published on Saturday 5 December 2009 13:12

MUSIC and book retailer HMV is expected to cherry-pick a number of stores from the collapsed Borders chain.

• Singer Katherine Jenkins launched her new album Believe at an HMV store. Picture: Getty

The demise of Zavvi and Woolworths last year has already delivered a sales boost for HMV.

Now it has the chance to pick up more stores from Borders, which went into administration last month.

WH Smith surprised the market by walking away from a deal to buy 45 UK Borders stores, leaving the administrators open to other offers.

Analysts at UBS believe HMV will pick up new business even if it doesn't buy some of the Borders' stores and that its bookshop chain Waterstone's could generate an additional 25m in sales next year.

"We believe Borders had book sales of around 100m from about 35 stores," says a UBS circular. "If we assume a similar 25 per cent transfer of sales as seen from Zavvi, then this may generate 25m of additional sales next year, or a 5 per cent like-for-like sales uplift for Waterstone's."

Under a reorganisation led by its chief executive Simon Fox – a rising talent who was tipped to become the chief executive of ITV and Marks & Spencer – analysts believe HMV is in better shape in the run-up to the important festive trading season.

Faced with competition from online music downloads, Fox has led a successful turnaround at the retailer following an increased focus on video games, which account for almost a quarter of sales.

A revamped website has also produced a strong sales increase, while the group rolled out its loyalty card in the past year.

Fox's efforts have helped HMV grow its market share, with the group's pre-tax profits for the year to 25 April up 11.5 per cent to 63 million.

Seasonal first-half losses, due on Friday, are expected to have narrowed from 27.5m to 25.2m, according to market analysts at Nomura International.

They believe that improving like-for-like sales trends will have continued in the first half, although Waterstone's is again likely to have underperformed.

Luckily for HMV shareholders, Fox, who joined the group from electronics retailer Comet in 2006, has so far resisted attempts to lure him to join other organisations.

Fox withdrew from the race to replace ITV chief executive Michael Grade last summer, while the top job at M&S eventually went to the former head of store chain Morrison's, Marc Bolland.

HMV's shares have improved 29 per cent from their low in December last year.