TROUBLED music retailer HMV came under further fire yesterday after suppliers revealed that its credit insurers were drastically cutting the amount of sales they would insure.
An internal memo from Sony showed that its credit insurers had withdrawn all cover for new sales to HMV after a meeting with HMV chief executive Simon Fox had failed to allay their concerns.
Other suppliers have reportedly also confirmed they cannot access credit insurance for sales to HMV.
The insurers’ decision is a sign they believe HMV is very close to becoming insolvent and may not be able to pay for stock delivered by its suppliers. It may make it hard for HMV to access the stock it needs.
“I need to advise you that our credit insurers have significantly reduced our insured credit limit on all HMV entities.
“Based on the current HMV balances, the limit is not sufficient to support any sales on an insured basis moving forward,” the message, sent to Sony label managers from its credit and collections department, said.
Sony’s email describes the change as a “quick and drastic reduction” and says it will discuss alternative payment terms and options with HMV.
But it confirms that sales made after 14 January “will be shipped at your financial risk.”
An HMV spokesperson said: “HMV continues to maintain excellent relations with all of its suppliers.”
The news is a further blow to HMV two weeks after it issued a profit warning over plummeting sales in the run up to Christmas.
Like for like sales fell 13.6 per cent in the five weeks to 5 January, and the group has announced the closure of 60 UK stores to pay down debt, as well as a programme of cost cuts. It also said it may breach bank debt covenants.
Chief executive Simon Fox said at the time that HMV “remains a profitable and cash-generative business.”
HMV’s shares have lost 70 per cent of their value in the past year and yesterday traded at 26.25p.
Sony declined to comment last night.