Mass retailers beating path to music business

Discount Store News, May 16, 1994

NATIONWIDE DSN REPORT

Mass merchants are targeting the music business as a growth category, which could be very bad news for all but the largest of music specialty stores. Discounters now control 25% of the industry and that percentage has been growing rapidly.

Meanwhile, major consumer electronics megastore concepts, like Best Buy's 45,000-sq.-ft. megastore and The Incredible Universe's 185,000-sq.-ft. gigastore, now stock CD, cassette and video selections that rival those of the larger music specialists. Full-line discounters like Target are rapidly expanding their sku counts as well. Montgomery Ward plans to debut a megastore version of its Electric Avenue concept later this year that could stock as many as 50,000 music skus.

Musicland, the mall-based chain, has seen the writing on the wall and diverted its resources to its new Media Play megastore concept. Operators of smaller CE superstore concepts, like Circuit City and YES! are attempting to fit music into their units without disrupting their core businesses.

Mass merchants are taking advantage of a fortuitous confluence of events. The rise of the CD, the death of the hated longbox, the predisposition of baby boomers to continue to purchase large quantities of music well into middle age advances in security technology, and changing shopping patterns have all played into discounters' hands.

Marc Schwartz, vp of marketing for Handleman, the music and entertainment software distributor, noted that his major customers, which include national and regional discounters, have increased square footage devoted to music by 50% to 100% over the past year.

"While the music industry as a whole grew by 11% last year, our least successful customers grew at least that much. Most increased sales by 25% to 30%," he said.

Schwartz credits several factors, including vastly improved merchandising, better spread in the product mix, deeper catalogs and the growing appeal of music to "a customer base that at this age in the past simply didn't buy music. There are more kinds of music available and more people want to listen."

Most discounters stock about 10,000 skus in music and video, and the growth is coming in the areas of classical, jazz and country, which appeal to older shoppers, Schwartz said. Handleman will introduce a big band promotion timed to coincide with the 50th anniversary of D-Day to appeal to that older shopping segment.

"With the growth of the megastore, discounters really had to be proactive to survive," Schwartz said. "I foresee a very strong year for them in 1994."

Jeff Abrams, vp in charge of the category at Best Buy, noted that the category has been "very successful for us. It's one of the most profitable categories in the store." The chain first introduced music software in 1990, starting with about 7,000 skus, but quickly worked its way up to the present level, 58,000, close to what the best music specialists carry.

And while Best Buy and its mass market competitors have driven the going price down somewhat, the company isn't giving anything away. "Tower has proven that a terrific selection commands premium prices," Abrams said.

While the chain has pushed everyday prices as low as $11.99 per disc in selected markets, "we're at $12.99 everyday in most locations." Even in Chicago, where competitor Circuit City, which stocks a far smaller selection, has blitzed the market with a $10.99 everyday price on single discs, Best Buy has chosen to remain at $12.99, Abrams said.

Security, Abrams said, is no longer a major concern. "We felt we had a secure enough environment last year to move to the jewel box," he said. "We use the same security system that we used on the longbox and shrinkage has not been a major problem." The company uses an acoustic vibration system with monitors at all exists.

Security technology is improving. Suppliers like Sensormatic are now providing a security filament that can be taped into the inside of the jewel box during manufacture, making it virtually foolproof. (Best Buy's sensors are glued to the outside of the jewel box or underneath the shrinkwrap; a determined shoplifter could remove them.)

A recent study of three major record stores indicates that shopping behavior is changing rapidly. In an industry generally considered to be dominated by teenagers, the largest portion of shoppers were found to be between 25 and 40 years of age (37.5%), followed by Gen-Xers 19-25 (33%), according to research conducted by New York-based Envirosell Inc. Music shoppers buy frequently, with 20% of respondents buying something every week and 40% every two to three weeks.

Selection had a direct relationship to sales; the larger the store (and hence selection), the more likely the consumer was to purchase more than one item. At Tower Records in Boston, the largest of the three stores studied, the average purchase was 2.13 items; at the much smaller Hastings store in Arkansas, average purchase barely topped one item, 1.16.

Adults are heavily skewed to CD purchases, while younger consumers still buy cassettes and particularly cassette singles. Only 20% of CD purchasers were under 18 years old.