19 January 2011 | Angeline Albert

A number of suppliers to high-street music retailer HMV have been refused credit insurance for future stock.

The decision by credit insurers follows a profit warning issued by HMV in December and means the suppliers concerned will sell to HMV at their own risk and lose money if the entertainment group goes bust.       

While HMV did not say how many suppliers have been refused credit, the BBC’s Radio 4Today programme has today reported that two have been told they won't get insurance cover for selling to the group.

Gennaro Castaldo, a spokesman for HMV, said: “In light of recent comment on credit insurance cover, HMV Group wishes to clarify that, following the peak trading period, credit insurers are reviewing the level of cover they provide on the group. While this has resulted in the reduction in the availability of credit insurance to certain of the company's suppliers, our business remains a core channel to market for them. We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock.”

The CD and DVD retailer has been facing tough competition from online sites where music and films can be downloaded.

An interim statement by HMV for the 10 weeks ending 1 January, which followed last month’s profit warning, said: “The challenging entertainment markets, combined with the severe weather over our peak trading period, have had a negative impact on our trading year to date. Given the difficult trading conditions over Christmas and the likely outturn for the year, the board now expects that compliance with the April covenant test under the group's bank facility will be tight and is taking further mitigating actions during the next four months to address this.”

HMV said it is taking “aggressive action” to tightly manage its cost base. The group expects to close 60 UK stores over the next year. It has also identified a further £10 million a year of cost savings from across the group.