Tuning the way forward? A music retailer’s recipe for survival.

Falling CD sales

Music fans are continuing to abandon buying CDs and records. Sales have fallen by 46% in the first quarter of 2007 alone in comparison to the same quarter last year; and Warner Music the world’s fourth largest record company has reported a crippling 74% fall in profits for the final three months of 2006, a drop to $18m for the quarter in comparison to $69m for the same period in 2005. Indeed the report by Enders Analysis says overall global music sales in 2009 are expected to generate $23 billion, roughly half the level a decade earlier.

Merely 18 months after sales reached a seven year peak thanks to a new generation of artists such as Arctic Monkeys and James Blunt, CD sales in shops have fallen. Thanks to piracy and downloads music retail chains have been forced to close down stores or exit all together, such as Fopp; the latest victim of the slump of CD sales. Meanwhile as chain stores watch their business literally crumble around them, the digital market continues to grow extensively. Yet with Apple iTunes accounting for 70% of online legal downloads it seems that there is little of the download niche left to accommodate change for the real face-to-face retail sellers.

Is there hope?

According to the IFPI, whilst legal downloads is seen to have recently topped the $3 billion mark, 2005 was the first year to witness a revival in sales of seven-inch vinyl singles. Fans of UK indie and rock music have been given the 7 inch format a 5 fold increase since 2000, according to data compiled by BPI, and the best-selling CD single in the year to March 2005 was a limited edition reissue of Iron Maiden’s Number of the Beast. Elsewhere the format is dominated by the new generation of acts including Babyshambles, The Arctic Monkeys, The White Stripes and the Kaiser Chiefs. This reiterates BMI’s claim that “there is still a huge demand for the collectible physical formats”. Indeed what can beat a shiny new object that you can hold in your hand? You can see exactly what your money has been exchanged for. Furthermore it is important to note a lag in acquiring technology between generations of people. It could be many years before some groups who have just become accustomed to the CD format will take time to upgrade to the digital. Some may not be able to afford the change, or see no point in changing while records and their corresponding players are still owned and available to buy in shops? It is true that the market for CDs is not yet deceased, so there is little point in abandoning it just yet. Maybe music might remain roughly physical but in an alternative format such as the latest success of The Fratellis’ USB single. However music retailers still cannot ignore the decline in volume of sales, but at the same time they must cater for the interests of the consumers still dedicated to buying real records.

How to adapt

HMV, the high street record giant has taken a number of precautions in protecting themselves against weakening music sales. In summer 2006, after reporting a 20% fall in annual profits to £98.2m- due to people buying products online and in supermarkets, the firm announced plans to merge its Waterstone’s and recently purchased Ottaker’s bookseller chains. The firm also closed a number of record stores and is also cutting prices on CDs and DVDs to bring them in line with those sold in supermarket chains such as Tesco in effort to sell more but at a narrower profit margin. But how will smaller retail sellers adapt? We can’t all go out and expand sales by purchasing other companies. At present the best option is perhaps the simplest one. Increase the number of sales in a market that is still important, albeit shrinking, by using the powerful tool of selling on the internet.

Selling online

Ironically, the rampant growth in downloading music without paying for it has proved one thing to record companies- music lovers are willing to get their music online. However, personal ecommerce sites are notoriously difficult to get the exposure they need to attract enough customers to keep them running.
Channelling sales through popular marketplace which dominate online music purchases, such as eBay, Amazon and Play, can help generate revenue immediately, and additionally divert traffic through to your ecommerce site and use the trusted eBay and Amazon brands to leverage your own.
Amongst hundreds of others, Amazon is the number one on-line retail destination worldwide. It has access to 57 million active customers and selling is not restricted with the application of listing fees.  Commission instead, is simply based on selling fees which means final costs are predictable. Taking advantage of Amazon means the ability to tap into a vastly larger market.

eBay now boasts 157 million users worldwide. The explosion of sales and growth of companies who actively sell on eBay show that it is a powerful selling tool worth investment.  Certain facilities can maximise your eBay selling, for instance offering second chance offers, discounts and cross selling.
Play.com is perhaps a less known selling portal, but its lack of intensive seller competition means that a retailer can sell more of their inventory and at a higher price than they could on Amazon.

Multichannel selling

Why sell on just one marketplace portal when you can sell on many, simultaneously? This gives the advantage of maximising product and company brand exposure, and increases volume of sales. Unfortunately it takes little time to discover how problematic and time consuming straightforward processes in online selling can become. Amanda Jones, a shoe shop owner who has just started experimenting with manual listing on eBay comments; “I am constantly surprised by the success of auctions I put up, but at the same time I find difficulties, for example it might take me up to half an hour to list one item. There’s got to be an easier way”. Could this approach, despite its impressive market reach, be seriously flawed for a large scale seller?

A new generation of ecommerce solution software packages have solved these fundamental problems. Leading suppliers like Giant Systems sell the means to automate and streamline the whole process. You can upload tens of thousands of products in a very short space of time, and manage all your listings, product inventory, shipping, customer relations and payments from one single interface. Exclusively for Amazon and Play, we offer a re-pricing feature which automatically checks the price of your products against other competitor products, and lowers the price within the range of a determined threshold so it is always competitively priced ensuring there is a high chance of being bought.

Better still, you can be selling from your inventory on multiple marketplace sites and through your own ecommerce site at the same time, increasing your chance of making sales and maximising your profit margins.
For a music seller this kind of software is a tool that could save the CD in a battle of the Real vs. the Virtual. Moreover like HMV, absolutely any seller can branch out to support their record sales by selling alternative products, whether it is garden furniture or ladies jewellery; it can boost sales and revenue, and present the opportunity to reach out to a bigger market base. This could enable music sellers to adapt and gradually evolve, if desired, into a completely different business altogether, one that does not sell music at all. With over 230 million customers on eBay, Amazon and Play, and personal ecommerce sites becoming ever more popular it would seems that with online selling, the sky’s the limit.

Davin Fowler
www.giant-systems.co.uk