WILL WATERSTONES BE THE NEXT VICTIM OF A CHANGING MARKET?

HMV Group has described the 2009/10 performance of Waterstone's as "disappointing" as profits slumped by more than 70% to £2.8m.

HMV Group primarily blamed the slump in profit in a "disappointing sales performance", led by an offer that focused too much on promotions, in addition to the exceptional costs. It said: "The sales performance was particularly disappointing through the autumn and the key Christmas season, as the delayed implementation of supply chain changes through the book hub reduced stock availability and weakened our store proposition."

Market share declined by 1% during the year, during which time the book market itself fell 2.6%.

However, HMV Group said there was a "marked" improvement in the bookseller's performance in the final quarter of the financial year (when like-for-like sales declined by 4.8%), as it launched its turnaround plan, handing greater buying control over to its stores and focused on range bookselling

The retailer is now aiming for non-book sales, including e-books and stationery, to account for 10% of its mix by 2013, up from 6% for the 09/10 financial year.

In the chairman's statement, Robert Swannell said: "Waterstone's disappointing performance issues are being tackled through a clear plan for the turnaround of this business."

He added: "It is clear that the implementation of our new centralised distribution centre for books also adversely impacted performance last year by disrupting our core strength as a range bookseller.

"However, we are clear that this remains the correct supply chain for our national store network, and the fact that this is now in place and working effectively provides Waterstone's with a platform from which it can rebuild profitability."

Looking ahead, HMV Group said it was confident profits could be rebuilt at Waterstone's, despite the "significant challenges" in retail. However, it said it had seen some sales disruption by the World Cup.

Like for like sales at HMV fell 2.4% during the year, with total sales up 7.6% to £1.24bn. Profits increased by 37.5% to £73.8m. HMV Group's operating profit increased by 14.2% to £80.4m with total sales up 3.1% to £2.02bn. Like for like sales across the group fell 4.2%.