Seductive siren song lures music fans to mass

Discount Store News, March 22, 1999 by Robert Scally

LAS VEGAS -- Despite the fact that music sales have risen dramatically in the past year, music retailers are losing ground to mass merchants that often sell CDs at discount prices, according to music industry experts attending the National Association of Recording Merchandisers convention which took place here this month.

For many Americans, Wal-Mart is the record store.

Thirty-one percent of consumers responding to a survey conducted in July by market research firm Soundscan said they had gone into a Wal-Mart in the past 90 days with the intention of buying music, up from 29% in a similar Soundscan survey conducted in 1997.

Best Buy rated second in the survey, with 25% of consumers saying they had visited the chain's stores in the past 90 days to buy music, followed by the Musicland/Sam Goody group at 20%. Kmart and Target were each mentioned by 18% of respondents.

Overall, mass merchants and consumer electronics chains such as Best Buy and Circuit City also gained ground among consumers in the Soundscan study, as did Kmart and Target.

Slightly more than 40% of consumers surveyed by Soundscan said they had purchased music in a mass market store in the past six months. Survey respondents said that during that six-month period, they purchased music at mass market outlets three times.

The mass merchants and CE superstores took customers away from traditional music specialty stores such as Camelot and Tower, the survey determined.

Why are more music buyers turning to discounters to buy music?

"What's been driving people to change [where they shop for music] in the last few years has been price," said Mike Shalett, coo of Soundscan and co-founder of the Soundata National Music Consumer Panel.

Mass merchants benefit from selling music in several ways.

More than 90% of the consumers surveyed by Soundscan who said they had purchased music in a mass merchant store in the past six months said they also purchased something other than music. About 50% of those shoppers who bought music also purchased apparel items; 49% said they bought a housewares items; and 25% said they purchased home video titles.

To combat these trends, music retailers are going to have to become more creative, said Russ Solomon, chairman and founder of the Tower Records/Video chain, during a special videotaped interview with Billboard magazine charts editor Geoff Mayfield. The tape was done in conjunction with a special career achievement award given to Solomon in honor of his 58 years in retailing.

Solomon noted that Tower is planning to begin selling small electronics products such as DVD players and CD recorders to help diversify its product base.

The music industry is concerned about the small but growing influence of Web shopping and the more recent trend toward consumers downloading digital copies of music singles directly from the Internet.

About 12% of the consumers surveyed by Soundscan said they purchased music on the Internet in the past three months, compared with about 6% in last year's survey.

Solomon said he is concerned about the effect that downloading singles from the Internet could have on retail stores, especially in light of the fact that the major record companies are placing less emphasis on singles that appeal to young music buyers.

"The record business has not done a good job of providing us with product for young people," Solomon said. "We need more and better singles."

The music business is also on the cusp of launching a new audio format, DVD audio, said Hilary Rosen, president and ceo of the Recording Industry Association of America.

A "modest launch" for DVD audio should take place before the end of 1999 with product from all live of the major record labels, Rosen said. She acknowledged, however, that there are still two competing DVD audio formats being debated.

Rosen pointed out that a DVD audio format war ultimately would lead to the new format's failure and said that she hoped that "at the very least the equipment will seamlessly play" titles created in either format.

Overall, the past year has seen rapid consolidation amoung music retailers, a factor that was reflected in lower attendance numbers for the NARM show.

Attendance during the first day of the convention was 2,850, according to NARM officials, down from last year's 3,100.

Although attendance was lower, traffic on the show floor was more vibrant than last year's show, which took place in San Francisco. About 40 more exhibitors took part in this year's trade show compared with last year.

                              February sales

                          Feb. '99   Feb. '98   % Chg.  Comp-Store
Chain                   (in $mil.) (in $mil.) from '98      % Chg.

Wal-Mart [1]              $9,004.0   $7,556.0     19.2%       10.8%
Kmart                      2,306.0    2,146.0      7.4         5.8
Sears [2]                  1,890.0    1,980.0     (4.6)        0.8
Target [3]                    NA         NA       16.8         9.7
Costco                     1,880.0    1,650.0     14.0        10.0
Sam's Club                 1,699.0    1,541.0     10.3         8.1
JCPenney [4]                 948.0      963.0     (1.6)       (0.4)
Circuit City [5]             769.8      625.2     23.0        12.0
TJX                          542.0      475.0     14.0         9.0
Radio Shack                  283.2      250.6     13.0        11.0
Consolidated Stores [6]      260.9      236.9     10.1         3.4
Dollar General               252.7      214.3     17.9         4.0
BJ's Wholesale Club          251.8      221.3     13.7         4.4
Ames [7]                     236.4      136.5     73.2         9.7
Kohl's                       209.6      168.1     24.7        11.2
Family Dollar                201.9      173.5     16.4         8.4
ShopKo [8]                   159.8      151.6      5.5         6.0
Ross                         146.0      126.0     16.0         9.0
Musicland [9]                131.5      129.1      1.8         2.5
Value City                    88.0       85.9      2.5        (0.5)
Goody,s Family Clothing       62.1       54.0     15.0         0.4
Men's Wearhouse [10]          58.8       53.0     10.9         2.7
Edison Brothers               51.8       58.2    (11.0)       (6.5)
Freds                         48.3       44.4      8.8         4.0
Filene's Basement             34.4       34.1     (0.9)       (7.0)
Lechter's                     25.5       27.3     (6.6)       (7.1)
Factory 2-U [11]              22.7       17.3     31.2        26.7
Cost Plus                     21.2       16.7     26.9         9.0
S&K Famous Brands             11.2       10.3      8.7         1.0
Perfumania                     8.8        7.9     11.8         1.0
Garden Botanika                5.5        6.5    (15.0)      (16.0)