HMV Group gave warning yesterday that Harry Potter would not fly to the rescue of the ailing retailer this summer as it revealed further sales declines at its Waterstone’s bookstore chain.

The seventh and final adventure of the young wizard, Harry Potter and the Deathly Hallows, comes out on July 21 and Simon Fox, the chief executive, said that Waterstone’s had already sold nearly as many by preorder as were sold in total of the sixth Harry Potter book.

He said that it was vitally important for Waterstone’s to offer the book at a competitive price but because it was selling it at £8.99 – half price – it would be “hard to make money”.

Mr Fox said that Ottakar’s, the bookstore that Waterstone’s bought last year, was a clear example of how a retailer’s fortunes could be damaged by not engaging in price competition on block-buster books.

“It was a turning point for Ottakar’s. Because it is such a high-profile book, by not being price competitive on that single title you set a perception that you are highly priced,” Mr Fox said.

Mr Fox’s comments reflect the fears of Kate Swann, the chief executive of WH Smith, and Philip Downer, the retail director of Borders, as the high street prepares for a Harry Potter price war with the supermarkets and online stores such as Amazon, which is already offering the book for £8.99. Asda and Tesco will deliver the Bloomsbury publication for 12p less, plus postage and packing.

The retailers admit that the preorder price may fall to a 55 per cent discount closer to the publication date.

Bloomsbury, which has sold 325 million Potter copies worldwide, sells the books to retailers for about 55 per cent below the cover price, so supermarkets will be making a loss if they sell them much below £8.10.

Neill Denny, the editor-in-chief of The Bookseller trade journal, said that Harry Potter was one of the most discounted of all the children’s books series available. He said that UK retailers had sold 22.5 million copies of JK Rowling’s series for a total of £172 million compared with the £243 million they would have earned if it was sold at full price.

Retail sources said the Harry Potter series had become gradually less profitable as it had grown in popularity. “It started with the third book and by the fourth, when the films began to come out, it was unstoppable. The supermarkets succumbed to the temptation to use it as a loss leader to drive sales of £100 of groceries,” one source said.

Waterstone’s reported a 7.3 per cent decline in underlying sales, a further slump from the 6.1 per cent decline in the nine weeks to March 10. Mr Fox said that the Waterstone’s internet site had more than four million visitors and registrations had grown by 60 per cent.

However, shares in HMV were steady at 116p as investors expressed relief that the company did not deliver another profits warning. Almost £100 million was wiped off HMV’s market value in March when the retailer issued its second profit warning in three months.

The HMV chain also had a tough quarter, with underlying sales in the UK down by 2 per cent, worse than the 0.7 per cent rise reported in January.

...but profits magically disappear

Simon Fox, chief executive of HMV, the owner of Waterstone's which is selling the book for £8.99 including another free book on preorder: “It is important that we have big market share and have people into our shops but at half price it is hard to make money.”

Kate Swann, chief executive of WH Smith which is selling the book for £10.99 with another free book and a £10 WH Smith voucher on preorder: “Harry Potter will help sales but looking at the current offers we are not expecting it to help profits.”

Philip Downer, retail director of Borders which is offering a 15 per cent discount voucher with preordered books: “It will be a terrific evening of parties and events but we don't expect to make any money from Harry Potter. The book will be available more cheaply from the supermarkets who treat it as a loss leader.”

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