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HMV's future seen as handful of stores and website

By Neil Maidment and James Davey

LONDON (Reuters) - HMV, the 92-year-old British music retailer seeking protection from creditors, is unlikely to have much of a future beyond a rump of stores and the internet, if other recent retail failures are any guide.

After years of struggling as its business of selling CDs and DVDs was hammered by competition from supermarkets like Tesco, online retailers like Amazon and download sites like Apple's iTunes, Deloitte was appointed administrator on Tuesday to try to salvage some of its 223 British stores.

Hilco, the restructuring specialist that purchased HMV Canada in 2011, was watching the situation closely, given possible synergies, a source close to the matter said.

Media reports also named private equity firms Endless and Better Capital as possible suitors. Both firms could not be immediately reached for comment.

HMV's administration, which puts 4,123 jobs at risk, is the latest blow to an industry which has seen a string of household names like Woolworths, MFI, JJB Sports and Comet fall by the wayside in a prolonged consumer downturn.

Craig Amer, analyst at market researcher Kantar Worldpanel, said if HMV were to close completely Britain's entertainment market would lose 300 million pounds ($483 million).

"Some shoppers will simply move to other retailers but the value generated from browsing and buying on impulse will be lost," he said.

HMV, known for its Nipper the Dog trademark, will continue to trade while a purchaser is sought. Underlying sales had plunged about 10 percent year-on-year at Christmas.

Chief Executive Trevor Moore, who only joined the firm in September, said on Tuesday he was confident it would emerge from the administration process in some form.

"We know that HMV is a well loved brand which has a high level of support amongst the public and we want to ensure that it remains on the high street," he told reporters.

He had "a plan in mind" that would see the firm surviving with a stores presence along with a new digital and online offer, though he would not elaborate or say what the optimum size of the store estate should be.

SHAME

"It's a shame, it's been around so long. It's like a bookstore - it's nice to go and browse and feel them (CDs and DVDs), I'd miss it," said Paul Wood, shopping at an HMV store in Canary Wharf, London.

However other shoppers, typifying HMV's problems, said they were just looking before buying from cheaper outlets online.

Neil Saunders, managing director at retail consultancy Conlumino, said potential buyers could be interested in running the brand online or through some of its larger stores.

"I think it's a good brand with a good emotional connection and I think someone will want it. And someone will be interested in acquiring a rump of stores because there are some that trade profitably within the group," he told Reuters.

"A lot of the grocers have their own download services or mail order services so there could be interest from an existing player who just wants to use that name. Private equity may also see it as an opportunity."

One that will not is U.S. private equity firm Apollo Global Management LLC. It holds some of HMV's debt but ruled itself out of a takeover move on Monday.

The backing of suppliers - like music labels which look to HMV as one of the last major outposts for sales on shopping streets - has been crucial to the firm, and support remains.

"We are very supportive of them because they have been great trading partners," said Universal Music, the world's biggest music company.

But lenders and stakeholders were not prepared to strike another refinancing deal with HMV - whose 176 million pounds of debt as of October 27 dwarfs its market value of about 5 million.

"SEVERELY REDUCED"

"I think there is probably still some traction in having a presence on the high street but it would have to be severely reduced to be much more cost effective," said Maureen Hilton at retail researchers Verdict. "There might be some attraction from investors if they can just pick which stores they have. Otherwise I think it will just become an online offer."

Any residual presence online would see HMV following variety stores group Woolworths and rival entertainment group Zavvi.

Other collapsed retailers have managed to sell some stores, particularly to supermarket groups growing their convenience shopping businesses, though few have survived to trade under their own brands beyond a handful of outlets.

HMV, whose first store on London's Oxford Street was opened by English composer Edward Elgar in 1921, grew to become a musical powerhouse, selling vinyl records, tapes and CDs to generations and had a hand in the Beatles' big break, recommending the group's demo record to publishers.

But it struggled to reinvent itself when its core markets went into decline, with expansion into live entertainment and books failing to change its fortunes and a recent push towards tablets and headphones coming too late.

In 2006 HMV's board rejected an 842 million pounds bid from private equity firm Permira, saying it undervalued the group.

(Additional reporting by Kate Holton and Jonathan Cable; Editing by Mark Potter and Louise Heavens)

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