Sainsbury’s, Britain’s third-biggest supermarket group, is to shut down its online music and CD store after failing to make an impression on the industry.

The retailer said that it would stop selling CDs, DVDs, video games and books from its sainsburysentertainyou.co.uk website by the end of May.

The move is a setback for the group, which launched the website in 2003 as part of a drive to crack the online entertainment market, while its rivals have benefited from more sophisticated search techniques and greater market penetration.

Sainsbury’s said yesterday that the website had attracted only a “very small number” of customers and accounted for a “very small” proportion of the group’s total internet sales. It denied that the online store was loss-making.

Figures from Hitwise, which monitors internet traffic, shows that Sainsbury’s captured only 0.17 per cent of the online video and games market share for the week ending May 19, against Tesco’s 3.13 per cent and Asda’s 1.25 per cent.

The retailer fared even less well in the online music market, with a share of 0.16 per cent, compared with Tesco’s 2.92 per cent and Asda’s 1.17 per cent.

Heather Hopkins, an analyst at Hitwise, said that while the Sainsbury’s entertainment website relied solely on traffic from its parent website, Tesco and Asda paid search vehicles such as Google to direct customers its way.

Sainsbury’s has also struggled against the discounts offered by its rivals, which historically have profited from a tax loophole that exempts them from VAT on CDs if they are imported from outside the European Union.

Sainsbury’s decision comes amid a structural change in the music market as the growing popularity of digital downloads eats into sales of CDs. Retailers’ sales also have been hit by price deflation, internet piracy and competition from online specialists such as Amazon.

One retail insider said: “It is more trouble than it is worth unless they had an online operation and entertainment is just one category among many. Going online to buy a piece of plastic seems a bit odd when you can get instant gratification by downloading music.”

A spokeswoman for Sainsbury’s, who would not be drawn on sales figures and customer numbers for the website, said: “The decision is part of our current plan to focus on instore entertainment.”

She added that the retailer was “absolutely not” planning a shift away from the internet in any of its other product categories.

The supermarket group has said that it will shift its focus to expanding the ranges of nonfood products, such as clothing and music, that is sold in its stores at present.

It is targeting an increase of 20 per cent, or £1.17 billion, for instore sales of nonfood products over the next three years.

James Roper, of IMRG, the internet research group, said: “The market has changed so fast. The internet is universal by nature and when one operator pulls off a superb performance, it is hard to compete.

Richard Hyman, of Verdict Research, said: “You have to shift a lot of product to make any money. The profit margins are very thin and competition is very fierce.” Goodwill, page 68

Retailer boost

Woolworths gave its beleaguered investors a boost as the high street retailer unveiled a contract win to supply Asda with CDs, DVDs and video games. EUK, the company’s entertainment wholesale division, said that it had agreed to supply a range of entertainment products to Asda starting from August in a deal that will add about £200 million, or 15 per cent, to the division’s turnover. Shares in Woolworths climbed by more than 3 per cent to 28.6p yesterday, on investor relief that the retailer had recovered ground after the loss of a wholesale contract with Tesco, which ran out earlier this year. (Neelam Verjee)

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