HMV has put its UK expansion on hold and is to open stores in Ireland and Belgium instead, because of rising wage costs announced in last autumn’s budget that begin next month.

Phil Halliday, the managing director of the entertainment retailer, said it had hoped to open up to 10 more stores in the UK in the coming year but had put that plan on hold as it was “peddling pretty hard” to maintain profits despite strong sales growth.

Sales rose 6.5% to £11.6m in the year to 30 May 2024, as the group reopened its Oxford Street store in London and grew online sales amid a resurgence in traditional formats including vinyl and CDs, but pre-tax profit fell more than 6% to £4.9m amid rising costs led by higher wages, according to accounts filed at Companies House this week.

Halliday said interest in exclusive releases from artists such as Taylor Swift, Billie Eilish and Charli xcx, as well as old and young shoppers seeking out more classic albums from artists such as Oasis, was currently driving a 15% increase in vinyl sales and a 5% rise in CDs

“Growth is great but we are just about covering cost increases,” Halliday said. “It is quite frustrating at times.”

He said the group planned to open a store in Limerick, Ireland, in June and a second store in Antwerp, Belgium, this autumn, adding to two existing stores in Belgium and one in Ireland. It will also open its online store to shoppers in Ireland and mainland Europe later this month.

Halliday said HMV was hoping to be opening up to 10 stores a year in Europe from the end of next year but still hoped to expand in the UK if conditions improved.

In October’s budget, the chancellor, Rachel Reeves, announced that the rate of national insurance contributions paid by employers would increase from 13.8% to 15% from this April, which will push up the cost of employing workers.

Halliday said the government should have introduced changes to business rates, which will help those who operate stores with a rateable value of less than £500,000, this year rather than in 2026 to help offset higher costs from increases on employers’ national insurance and the minimum wage. “Hopefully the moves on business rates next year will change the picture a bit,” he said.

“We understand that there are challenges that need to be addressed but the burden of tax put on retailers feels unfair. Other sectors contribute less as a percentage of revenue.”