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The decline of the physical market for books caused by digital downloading - as well as music - could hinder HMV's ability to prosper, a retail think tank has claimed.
The KPMG/Synovate's Retail Think Tank expressed a gloomy outlook for non-food retailers generally this year. However, it singled out the next 12 months as being particularly "important" for videogame specialists Game and HMV.
It said: "The stockmarket has decided that the structural decline of the physical market for games, books and music caused by digital downloading will very quickly overwhelm the efforts of both companies to adapt and prosper.
"The severe derating of Game and HMV seems harsh, but the stockmarket tends to get these things right, so both companies will have to work very hard to get both consumers and investors more on their side this year."
HMV Group's share price has almost halved during the past 12 months from 137p at the beginning of February 2009 to 76.75 on 28th January. In its most recent full year results, Waterstone's contributed £548.3m to total HMV Group sales of £1.96bn.
The think tank concluded that higher interest rates, another fall in house prices, more unemployment and tax rises could hit the country this year, ending recent resilience in retail spending.
Helen Dickinson of KPMG said: "Because retail is so heavily dependent on consumer sentiment and individual consumers’ personal financial situations, which, in turn, rely on the economy, the sector is affected very quickly by economic events. Unfortunately the current situation is more of a bumping along the bottom of the recession cycle than real recovery from it and the delicate confidence that has recently returned could very easily be shattered."