Our Price may hive off distribution (CORRECTED)

CORRECTION (PUBLISHED 26 JULY 1992) APPENDED TO THIS ARTICLE

OUR PRICE records may be about to switch its distribution operation to Kingfisher, owner of Woolworth, its close high- street rival.

Entertainment UK, Kingfisher's wholesale subsidiary, has held talks with Our Price, which is owned by WH Smith. However, it is understood that the negotiations are not a prelude to a rumoured full-scale merger between the two chains.

The move comes as music shops are grappling with the biggest slump in sales for years. The recession and an uninspiring record chart have resulted in slack demand, which a summer price war has failed to revitalise.

For example, one record company recently released what it reckoned would be a medium- selling album. It agreed to share advertising costs with a large chain. The album was also being promoted in window displays.

The chain buyer said it would take 300 copies - one for each store. 'That tells you how serious it is,' said a music retailer.

The big chains - HMV, Woolworth, Our Price and WH Smith's own branches - are trying to outbid each other with special offers and discounts.

In some stores, surplus stock is running at 50 per cent above last summer's level. A shake-up of the industry involving branch closures, job losses and possible mergers, now seems inevitable.

Our Price, which has decided to concentrate on CDs - despite the fact that they cost more and are therefore more prone to the recession and less than a third of UK households own a CD player - is especially vulnerable.

Bought by WH Smith for pounds 43m in 1986, the chain is also suffering from high central overheads. Redundancies at head office will be announced within the next two weeks.

Since last autumn, Our Price has cut its number of branches by 18 to 318. An internal management review is thought to have recommended further streamlining and a rethink of the group's distribution system.

In an attempt to boost profits, Our Price may also sell off its back-catalogue cassettes, possibly for as little as pounds 2.99 apiece. This would free 25 per cent of store space, which would then be occupied by more profitable computer games.

Entertainment UK has just moved to a new plant at Hayes, which is believed to be working at only one fifth of capacity.

The company distributes records, tapes, CDs and videos for other retailers as well as Woolworth.

Nigel Whittaker, a Kingfisher spokesman, said: 'Entertainment UK are entertainment wholesalers and in that capacity they talk to everyone in the music and video industry. However, they never reveal who they are in discussions with.'

CORRECTION

Following last week's article on Our Price Music we have been asked to point out that the company has no intention of concentrating on CDs to the exclusion of cassettes. However, Our Price is maintaining tight control over cassette stock levels ahead of the launch of the new Digital Compact Cassette format in September. During the year to June 1992, Our Price Music relocated nine stores and opened 10 more, making a total of 315 and the chain is no more vulnerable to the recession than any other music retailer.

(Photograph omitted)