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Amazon's music sales shakeup might not be working out

If you're a music lover in the U.K., last April marked a poignant moment when the online world finally nailed physical music stores into their coffins. Fans took to social media in their thousands to lament the toppling of HMV, once a stalwart of any U.K. main street.

But have they spoken too soon? Have industry types been too quick to write off the much-loved CD shops? New figures for HMV show that its new owners are battling back and trying to take Amazon's crown as the main music retailer in the U.K. And their new chairman Paul McGowan has offered some fighting words to Jeff Bezos's online giant too.

"It's only a matter of time before we overtake Amazon," McGowan told the Mail on Sunday at the weekend. "HMV is re-engaging with music shoppers and getting them back into shops. This is about being an authority in music, not selling music as a commodity."

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The British entertainment retailer was bought by Hilco Capital 18 months ago when it was placed into administration. Analysts pointed to online sales, digital downloads and the threat from supermarkets as key reasons behind the fall from grace for HMV. Critics also believed that the retailer had become too greedy, with prices for CDs rising to lofty highs during the 1990s.

An HMV store in Manchester, England
Shirlaine Forrest | Getty Images
An HMV store in Manchester, England

Hilco is a specialist financial services company that has a history in restructuring distressed assets in the U.K and picked up HMV for £50 million ($82.7 million). The company has since closed poorly performing stores, stripped back on staff numbers and reduced overheads. It has also focused on offering a greater range than its rivals at competitive prices and "dramatically" increased the number of in-store events. Enrique Iglesias, Roger Daltrey from the Who and Ed Sheeran are just some of the acts that have performed in its stores.

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The company said in its second-quarter report that HMV U.K., HMV Canada and HMV Ireland all reported strong sales and market share growth for the period, outperforming the market for physical entertainment media in their respective territories. Like-for-like sales in the second quarter were up 9.2 percent compared to the year before, the company told CNBC, with a 13.8 percent rise seen so far in this current quarter.

And the company is starting to steal back market share from the supermarkets, according to research firm Kantar Worldpanel. For the 12 weeks ending July 6, its data showed that HMV had increased its share of the entertainment market in the U.K. from 13.6 percent to 14.7 percent – up from the record low of 10.7 percent following it being placed in administration. Amazon remains the entertainment market leader with a 21.8 percent share, it added.

February figures from the British Phonographic Industry said that revenues last year from sales of CD albums and singles and music videos declined by 6.4 percent but stated that this rate of decrease was better than expected. It also said that physical formats still account for half of U.K. recorded industry revenues. As well as selling physical music products, HMV does offer music and video downloads on its website but does not sell physical goods online like Amazon.

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Richard Perks, the director of retail research at research group Mintel International, was skeptical at the time of the takeover by Hilco and told CNBC on Tuesday that he still remains so.

"I'm impressed with what they've done," he said, but disputed claims that HMV would overtake Amazon, in terms of market share, in the near term.

"Online has great advantages in making a full range available to everyone, so in many respects online is a superior retail format," he told CNBC via email. "For all retailers online should be complementary to in-store so if HMV is to have a sustainable future it needs to have a strong online offer as well."

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