Originally Posted by Ken S
From The New York Times - May 31, 2010
By JOSEPH PLAMBECK
It’s no secret that the sales of CDs have plummeted in the last decade and are down about 50 percent from their peak. Retailers have been forced to adjust, often by devoting some shelf space to other products. But that has not always meant that retailers have left the music business.
In 2008, Best Buy, the national electronics retailer, began dipping its toe into the world of musical instruments. By late March of this year, the company had opened its 99th and 100th musical instrument departments, at its new stores in Upper Manhattan and in Flushing, Queens.
“We sell many ways to consume music. Why not create?” Justin Barber, a spokesman for the company, said. “It just seemed like a natural extension.”
At the store in Upper Manhattan, customers can select from 45 acoustic guitars, which are kept in a closed, climate-controlled room, ranging from a $99.99 Squier guitar to a $3,999.99, six-string Taylor. (And two ukuleles). Along the red wall facing the customers when they enter the department hang about 80 electric guitars and bass guitars, in a similar range of prices. DJ equipment lines another wall.
Instruments accounted for $5.9 billion in sales during 2009, according to a recent report by the National Association of Music Merchants, which represents instrument makers and retailers. Despite the size of the business, Guitar Center is the only chain with more than 100 stores.
So far, said Candace Hoyte, a supervisor at the Manhattan store, the instruments have drawn a steady stream of attention, especially from children. They skip past the video game stations and head straight for the instruments, banging away at Roland electronic drums or tapping on one of the dozen or so keyboards, she said.
Selling products beyond recorded music is nothing new for these retailers. Stores have routinely sold band T-shirts and stickers, for instance. But the decline of CD sales — and, more recently, of DVD sales — has forced the big-box retailers to find other ways to fill their space and tap into customers’ interest in music.
Best Buy’s shift into instruments is just one attempt at a solution. Other major music retailers, like Wal-Mart Stores, have simply shifted some of the space they used for CDs to other adjacent departments where sales remained brisk. At music specialty stores, though, diversification has become a matter of survival.
Jim Donio, president of the National Association of Recording Merchandisers, a trade group, said that specialized music retailers have diversified well beyond merely fiddling with their physical footprint. Many have altered the shape of their entire company and shifted into whole new areas of business. “These overarching strategic plans look at how a company can change the overall offering and still touch the music,” Mr. Donio said.
That is the case with Newbury Comics, a 28-store chain in the Boston area. Mike Dreese, a founder and the chief executive, said new music sales at his stores were down about 70 percent from six or seven years ago. At one store, those sales are down 82 percent.
But unlike retailers like Tower Records, his company has survived, he said, because it jumped into other categories.
The company, which started in 1978 as a comic book store but quickly focused on music, has in part moved back to its roots, selling comics, graphic novels and action figures. It also sells handbags and fad items, like Silly Bandz, elastic bracelets made in different shapes, including animals and musical instruments.
“We are simply in a different business now,” Mr. Dreese said.
There is still money to be made in recorded music, Mr. Dreese said, not just necessarily in new CDs. The company’s largest store, an 11,000-square-foot space that used to be a Kia car dealership, offers about 3,000 vinyl record albums.
Chains like Wal-Mart, Best Buy and Target do not offer that kind of vinyl selection — nor does Apple’s iTunes Store, the country’s largest music retailer, which sells digital downloads. “The selection makes it worth the drive for someone,” Mr. Dreese said.
To be sure, these stores are not getting out of the new CD business entirely — at least not yet. The new Best Buy store in Manhattan has several racks of discs, and whether an album can get into Wal-Mart’s brick-and-mortar stores can still be the difference between success and failure.
Record companies are not abandoning the CD business, either. Many of them, in an effort to maintain sales, are trying to cater to what they call the “superfan,” a dedicated follower of a band or genre who is more likely to buy a physical copy of an album. Labels have tried to move beyond the typical CD box set, offering DVD material or cards inside the packages that give discounts on concert tickets.
“We believe the industry still has the opportunity to preserve or even recover some of a major revenue stream, the physical CD,” Kevin Ball, vice president for marketing at Hastings Entertainment, which owns 154 stores, said in an e-mail message.
“Every week that we fail to put a CD into the hands of the millions of music fans is another missed opportunity to keep what we still have,” he wrote. “They’ve now gotten out of the habit of buying new CDs. However, there are still customers who will buy, and even experiment, with CDs if they perceive a value.”
Best Buy, meanwhile, has also hedged its bet on downloads. In September 2008, the company bought Napster, which provides streaming music and downloads, for $121 million.
Christopher Allen, Napster’s general manager, said the mix of music products offered by Best Buy — including MP3 players, CDs and musical instruments — could be used to reach people who are interested in both consuming and producing music.
“I think that music is something that’s woven into people’s daily lives,” he said. “We see that as a huge opportunity.”