Credit fears for HMV send shares lower

SHARES in HMV Group plunged yesterday after the music and book retailer confirmed some of its suppliers have had levels of credit insurance cut.

A shadow has been cast over HMV since it issued a profit warning earlier this month with store closures ordered in an attempt to cut costs.

The share price sank by 13 per cent in early trading, before recovering to close 2.9 per cent lower at 25.5p as the company, which is in the middle of a turnaround plan under chief executive Simon Fox, confirmed that credit insurers were reviewing their cover to the retailer. “Credit insurers are reviewing the level of cover they provide on the group. Whilst this has resulted in the reduction in the availability of credit insurance to certain of the company’s suppliers, our business remains a core channel to market for them,” said HMV.

The problems besetting HMV are similar to those which plagued Woolworths and Zavvi which both collapsed, at least in part, due to supply problems. HMV, which took over 14 Zavvi stores when it went bust, has been trying to revive its business with live music venue tie-ups but has seen downloads devastate its CD and DVD business.

Kate Calvert, Seymour Pierce retail analyst, said HMV has time to head off a supply crisis. “January is the time when HMV is reducing stock rather than building. It may become more of an issue if the situation has not changed by the autumn when HMV builds stock ahead of Christmas,” she said.

HMV | HIGH STREET NIGHTMARE

HMV’s insurance headaches and their impact on suppliers echo the challenges faced by retailer Woolwoths which eventually collapsed as it lost its cover. It plunged into administration in 2008, just a month after insurers abandoned it. The only way it was able to secure stock was through cash – a situation impossible to sustain.