HMV axes UK chief after crashing to £32m loss

HMV, the struggling music and books group, has ousted its UK head after a disastrous Christmas that has prompted a strategic overhaul by its new chief executive.

Steve Knott is in line for up to £320,000 in compensation for losing his job as managing director of the group's UK and Ireland music business. Simon Fox, who was appointed chief executive in September, will take on Mr Knott's duties until a replacement is found.

The shake-up came yesterday after HMV revealed it had racked up losses of £31.8m in its first half, compared with a small profit during the same period a year ago. Both its core music chain and Waterstone's bookshops fell into the red after a collapse in sales.

HMV, which was one of two retailers to issue a pre-Christmas profit warning, said its full-year gross margin would be 30 basis points weaker than expected because of a higher mix of low-margin chart music and computer games sales over the festive period.

Despite the retailer's woes, Mr Fox said he was "very optimistic about the long-term future of the business, despite the challenging markets we operate in".

His strategic review is expected to focus on ways to increase the group's share of the online music market. He is also likely to announce that HMV will increase the proportion of computer games it sells relative to music, which is a declining market. The group is also planning to launch a loyalty card.

In the five weeks to 6 January, like-for-like sales at its music chain rose by 0.7 per cent. They fell by 2 per cent at Waterstone's on the same basis. The group said its new pricing strategy, which slashed the cost of its backlist albums, had helped it to increase its share of the music market by 2 percentage points.

"The CD is not dead. We will just find a number of ways we can compete in the digital space, which is growing," Mr Fox said. He pointed to the success of Take That's greatest hits album, which sold a million copies in 27 days to become the second-fastest selling album of all time, as proof that CDs had a future.

Elsewhere on the high street, Game Group, the computer game retailer, said a 16 per cent jump in underlying sales meant its profits would beat City forecasts. Its shares shot 10.25p higher to 124p.