Sour financial notes prompt Musicland closures - Best Buy has been closing Musicland stores, as retailers are being hurt by dropping CD sales

DSN Retailing Today, Feb 10, 2003

NATIONWIDE DSNRT REPORT -- Retailers of prerecorded music have been seeing sales decline for several years, so the announcement that a group is forming a consortium, called Echo, to promote and sell digital music services comes as no surprise.

CD sales dropped approximately 10% last year overall and music retailers everywhere are feeling the pain. Best Buy in particular has been hit hard. Sales of prerecorded music at its titular CE stores were among the company's largest declines during the month of December. Its Musicland division saw overall sales decline 15% and comp store sales slip 14.7% from the same period the prior year, thanks largely to double-digit declines in sales of prerecorded music, which represents approximately one-third of Musicland's total sales according to Best Buy president and coo, Allen Lenzmeier.

In an effort to stem loses from this division, Best Buy closed 110 Musicland stores in early January and began integrating the unit into the company's U.S. retail division. Former Musicland president Kevin Easton's position was eliminated and all positions now report up through the Best Buy retail group. A complete review of all Musicland stores is now underway.

Other Echo member Hastings Entertainment announced a 9.1% decline in new music sales for the nine-month period ended Oct. 31, 2002, and Wherehouse Entertainment filed for Chapter 11 bankruptcy protection on Jan. 21--the second time it has done so since 1998.

Not all the industry's woes can be blamed on the consumer trend of downloading digital music files. The economy, fickle music tastes and increased pressure from a competitive retailer Wal-Mart are all contributing factors. Nor will Echo members be the only retail outlets investing in building a business model for digital downloads. On Jan. 24, music distributor Andersen Merchandisers purchased the streaming media technology of Liquid Audio with plans to sell downloads at the Web sites of its retailers. Andersen's biggest retail is Wal-Mart Stores.