Outfoxed

It’s quite unusual as a journalist to write something you hope is going to turn out wrong. So before I do, I should make it clear that I have the utmost respect for Simon Fox and his efforts to reshape HMV, that the people who work for it are among the most committed and dedicated in retail and that Dominic Myers is doing a great job at turning Waterstones into a business with a renewed sense of purpose.

There’s a big ‘but’ coming though. I say this with a heavy heart and as a regular shopper, but after yesterday’s interim results, its very hard to see a positive future for the core HMV business (ie not including Waterstones). Simon has worked manfully to create a new role for the chain, and the expansion into venues, ticketing, cinemas and most recently new product categories all makes sense, even if clothing feels a bit like a bridge too far. But none of those avenues look significant enough to make a real difference to the overall performance of the business, which is probably why every update is accompanied by a new focus, on this occasion technology, one of the most crowded and lowest-margin categories in retail.

The City has made up its mind. The company has lost two-thirds of its value in the past year and trades on a PE ratio of just 3.7. At 31p anyone who thought the business had a future would be buying the shares, but the rating reflects that the square mile thinks it’s doomed and history shows that more often than not, when the City takes that sort of view of a retailer it tends to be proved right. Fox insists that the company will still make a profit in the second half and that there’s a good release schedule for Christmas, but that makes little odds in the overall scheme of things when there’s such a dramatic structural change going on in the markets in which HMV operates.

The HMV brand has huge value and will live on in some form, but perhaps more as a live music brand than retailer. That’s not a reflection of the management or the way the stores have been run, but that the way people shop has changed faster and more radically than anyone expected - not least, I imagine, Simon Fox who must now be regretting turning down the chance to run ITV to stay and finish the job at HMV. The UK’s high streets would be a poorer place without HMV, but it will take absolute retailing genius if Simon’s going to turn things around.