Talkin' about a revolution in music sales: superstores and CE chains record gains, while small stores are scratched off consumers' playlists

Discount Store News, March 18, 1996 by Pete Hisey

Long-term, MediaPlay's fate is probably tied to that of its parent, which is gushing red ink. Musicland's core mall stores, which stock only about 10,000 skus (compared to 65,000 at MediaPlay) are collapsing. In late 1994, these stores attempted to lower their prices dramatically in a supposedly permanent move, but were forced to raise them again in early 1995.

With an extremely high cost of doing business, Musicland is at an enormous disadvantage. (Mall real estate costs are a minimum of double those of stand-alone big box sites; a recent mall/stand-alone combination in El Paso quoted prices of about $27 to $30 per square foot for mall sites, versus $14 to $18 for big box sites, one of which is occupied by Best Buy.) Musicland's selling, general and administrative costs run about 30% compared to Best Buy's costs of well under 15% of sales.

Incredible Universe

With only 20 units in operation, Tandy's IU is still a few years away from dominance in the music industry, but its selection rivals that of Best Buy and MediaPlay. It's pricing, however, does not, with most CDs selling in the $13.99 and up range.

Part of IU's problem is that, unlike most of the rest of its departments, the company relies on distributor to manage its music business. That adds cost and a delay in getting the product, since an extra step is added to the distribution process.

Blockbuster Music

Formed by the acquisition of several regional chains by parent Blockbuster Video, Blockbuster Music has attempted to differentiate itself by building mini-big boxes, stores in the 15,000- to 20,000-sq.-ft. range. It has added many of the appointments of more luxurious competitors, like WOW!, and maintains a highly promotional, Tower-like pricing strategy, with most titles priced at about $15, and selected new releases and top hits sold at $11.99 and $12.99. Listening posts are perhaps the best thought-out in the industry, with comfortable seating surrounding a service center.

The chain lacks the inventory depth of Best Buy and Tower, but includes several merchandise categories that most national chains don't offer, including sell-through video, a limited book department, MTV and other music-oriented general merchandise, T-shirts and even a cold beverage center.

Blockbuster's most recent move is an alliance with Sears. Blockbuster will begin supplying a turnkey music and video department next to Sears' Brand Central CE departments in several Florida markets. Sears has traditionally added music and video only during holiday, so it's not known if consumers will be enticed by a music department.

However, with many mall music stores closing down, Sears, as a primarily mall-based retailer, may capture at least some of those stores' shoppers.

Tower/The Good Guys

The two companies operate one store as a joint venture, with more on the way, and also cooperate in other markets by building side-by-side stores that share an entrance.

At about $1 billion in sales, Tower is the most successful of the national music chains, in large part because of its location in tourist destinations around the United States. Unlike most of its competitors, the chain is primarily an urban retailer, with the bulk of its units located in the downtown areas of major cities.