Best Buy's earful of music is pocketful of gold - Company Profile

Discount Store News, Jan 16, 1995 by Pete Hisey

EDEN PRAIRIE, MINN. -- There has been enormous press coverage of Best Buy arcing past Circuit City to become the nation's leading consumer electronics retailer in 1995. But much more quietly, the chain is also on a path to become the country's leading seller of recorded music.

At about 11% to 12% of sales, Best Buy's music and video departments will account for a little less than $600 million in sales for the year ending in February. That figure should accelerate rapidly as major market invasions (Los Angeles, Washington/ Baltimore, Cleveland and soon, rumor has it, New York) come on line and /or mature.

If all goes well, "well become the national leader in about two years," head record merchant Jeff Abrams noted. According to vendor records, which list purchases at wholesale, not retail, Best Buy is either second or third in the industry, with share rising consistently. Its lower retail price forces dollar volume to lag unit volume.

Musicland, with 1,200 stores and about $1.4 billion in annual sales, continues to lead the pack, but the rising fortunes of Best Buy are taking a toll on the company's primarily mall-based, low-sku stores. Musicland has shifted its investment to standalone Media Play music and book megastores, which consider Best Buy their primary competitor. The company announced in early December that it would reduce prices (which average about $15.99 per disc) at its existing mall stores to Best Buy and Circuit City levels, about $10 to $12.99 per disc from as much as $16.99. Media Play already prices against Best Buy.

This is Best Buy's second attempt at the music business, said chain president Brad Anderson. At Sound of Music, the predecessor company that changed its name to Best Buy in the early '80's "we were the worst record merchants ever," he laughed. Hard lines specialists who plan programs up to a year in advance have a tough tine adapting to the ultra-trendy world of recorded music, he noted.

It was therefore with a great deal of trepidation that Best Buy re-entered the music business shortly before launching its first Concept II stores in 1989. Once burned, Anderson moved very slowly, starting with a tiny 7,000-sku assortment of new releases and proven catalog titles. A year later, the chain moved to almost 20,000 skus, then in increments continued to build selection until it reached its present level of 65,000 skus, with more undoubtedly on the way. Best Buy's selection occupies a quarter of a mile of fixtures and dominates the center of its 58,000-sq.-ft. Concept III.

But this time around, Best Buy brought in a young but experienced cadre of buyers, led by senior vice president, merchandising Abrams, who joined the company after several years with major music retailers such as Musicland and Discount Records. He has since hired buyers specializing in various categories, like alternative, hip hop and folk music.

Abrams fought to increase selection, particularly in areas that most competitors leave alone or gloss over ... areas like blues, jazz, alternative rock, reggae, Cajun, classical and soundtracks. He also gave store managers some flexibility to promote local musicians (and purchase nonlabel tapes and CDs) and to tie in with acts playing live in their markets. Of the 12 music endcaps in full-size stores, 10 are set at the corporate level and two by regional and local managers.

The introduction of 100 listening posts in newer Best Buy stores has allowed Abrams to increase the merchandising clout of his buyers. "There's really very little played on the radio anymore," he noted. With 100 posts to play with, Best Buy now has the capability to break new artists it believes should be heard, both by simply selecting a given CD and by giving customers additional information (written by Best Buy) about the artists to read while listening. "But, we have to be very careful about what we put on the posts," Abrams noted. "We make sure that it's a product that will appeal to shoppers in that category; you don't need to plug the hits, but we make sure that everything on the posts is a quality release that isn't getting a fair shot on the radio." He noted that the Crash Test Dummies release a year ago is a perfect example of the type of music Best Buy wants on its posts: strong releases by relatively unknown or underappreciated musicians. The Crash Test Dummies are now a top-selling act with their latest release, "God Shuffled His Feet."

Concept III also saw a blending of the classical department with popular. Until now, according to senior buyer Bill Parker, radio host and author turned merchandiser, classical had been kept in its own soundproofed room.

Senior management felt that the room could be more profitably employed for other uses (a video room, as it turned out), and that despite classical customers' notorious dislike of popular music, price and selection would win out in the end. So far, Parker said, sales are only down 1% or less, but given the smaller space dedicated to the category, Best Buy is actually considerably more productive on a per-square-foot basis. "And if it is a mistake, they'll fix it," Parker noted, "tomorrow." Best Buy's focus groups indicated that apart from hardcore classical buffs, customers didn't like to go into the classical room. comparing it to a tomb. Additionally, upkeep was expensive and the department wasted enormous amounts of selling space.