HMV shares hit historic low on fears over supply chain

Struggling entertainment retailer HMV's shares dropped 10% today after it was revealed that some key suppliers cannot get full insurance on stock they have provided.

The retailer rushed out a statement saying that after the peak Christmas period "credit insurers are reviewing the level of cover they provide on the group. We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock."

The scaling back on credit insurance which comes hot on the heels of a profits warning this month set alarm bells ringing because this is what preceded the demise of HMV's rivals Woolworth and Zavvi two years ago. Analysts pointed out that credit insurance might not be so big an issue at this time of year.

Kate Calvert of Seymour Pierce said: "Lack of credit insurance means the supplier trades at its own risk, though January is the time when HMV is reducing stock rather than building and so it's unlikely to be an issue in short term. It may be more of an issue if the situation has not changed by the autumn when HMV builds stock ahead of Christmas."

But others said this puts further pressure on HMV to meet its banking covenants in April and the need to conserve cash almost certainly blows any last hopes that it might pay a final dividend this year. Shares hit an all-time low of 23¾p down 2½p.