Music Stores

Industry Overview

The music store industry includes about 4,000 stores with combined annual revenue of about $4 billion. Major companies include Trans World Entertainment Corporation (which operates FYE, For Your Entertainment; and Wherehouse) and CD Warehouse. The industry is highly concentrated: the top 50 companies have 80 percent of industry revenue.

Competitive Landscape

Consumer spending and entertainment trends drive demand. The profitability of individual companies depends on effective merchandising and competitive pricing. Large companies have advantages in purchasing, distribution, finance, and marketing. Small companies can compete effectively by stocking specialty products, providing superior customer service, or serving a local market. The industry is labor intensive: average annual revenue per employee is $115,000.

Traditional competition for music stores includes consumer electronics stores, mass merchandisers, warehouse clubs, Internet retailers, and mail order clubs. Internet sites facilitating or selling direct downloads of music are changing the dynamics of the entire industry, and have detrimentally affected music stores by replacing CD sales.

Products, Operations & Technology

Products sold by music stores include CDs, records, and tapes (60 percent of revenue) and DVDs, videotapes, and laserdiscs (20 percent). The vast majority of music products are CDs. Other products and services include books, toys, video games, and DVD rentals. Some stores sell used CDs or DVDs. Companies may offer digital music downloads through websites or in-store kiosks.

Music stores include national and regional chains, franchises, and independent retailers. Superstores are designed more as entertainment centers and can range from 15,000 to 25,000 square feet. A typical chain store may be located in a mall or be freestanding and about 6,000 square feet. CD Warehouse franchise stores are between 1,200 and 2,500 square feet. Companies target high traffic areas, and may enjoy category exclusivity in some leased locations, preventing other entertainment-oriented retailers from opening in the same shopping complex.

Interactive kiosks or listening stations allow customers to sample or download music or video. Stores often arrange music by genre, then alphabetically by artist. Companies can design store layouts to maximize cross-marketing opportunities. Special displays highlight new releases and special promotions. In-store cafés encourage customers to linger.

Large companies typically buy directly from major music studios or publishers, while small companies may rely on distributors. Large music studios (or labels) dominate the music production industry. Music stores may depend on distributors for music from independent artists (artists not affiliated with a major label) or specialty genres, such as religious or ethnic music. Most major music suppliers allow music stores to exchange or return unsold merchandise, but typically assess a penalty or fee for such transactions.

Because the music market is fragmented and differs by region, inventory size and selection can vary. Major categories include rock; rap/hip-hop; R&B (rhythm and blues)/urban; country; and pop. Music superstores may carry between 50,000 to 100,000 titles, and typically offer selections across a wide range of categories. Independent music stores may specialize in a genre, like punk or alternative music, and offer a deep selection within a limited number of categories.

By using computerized information systems, companies can analyze sales and historical data to help customize inventory for individual stores, allocate products for new releases, and forecast orders. Inventory management programs administer stock replenishment, balance merchandise across stores, and identify slow-moving items for return to suppliers. Point of sale (POS) systems typically use scanners, which record sales transactions. Sale analysis programs can aid in staff scheduling and loss prevention.

There's more: Quick insight to make your sales call count.