Because all music retailers are now privately held (Guitar Center was taken private by Bain Capital and delisted), we don’t really know how tough it is out there except for anecdotal quotes that pop up here and there from music dealers and reps.
However, thanks to a chart published by The Wall Street Journal we can get some idea.
If the store is a discounter, sales are edging up, slightly. No one is booming. If you’re high end, sales are going down. Pawn shops, even in Beverly Hills, are doing big business right now.
Circuit City is on the verge of collapse. And the Borders Group has been given 30 days to get its stock up to $1 a share or the company will be delisted.
The Sonic Control Music Tech 21 tracking daily all U.S. Music publicly traded stocks tells us something about products sold at retail. Mackie (LTEC), is trading well below $1 a share. Harmon is down $100 per share. Apple is off over $90 per share. AMD, Primedia, Make Music (Finale), and Sonic Solutions are all trading below $4 per share.
Today, January 9, 2009, the U.S. Government announced that the jobless rate has now risen to 7.2%. Of course, the good side of that statistic is that 92.8% of Americans are employed.
Now that’s a number to cling to.
But latch to it a recent study, also reported in the Wall Street Journal, citing that in January 2009, 90% of American consumers refuse to buy anything at list price. And that figure is up from 75% in December 2008.
It should also be noted that Apple, while maintaining the price on its computers and software, devalued the work of songwriters and composers on iTunes a little more by dropping the price of some songs to a low of 69 cents.
Consequently, going to NAMM, retailers the world over are going to have answer some tough sales/marketing questions:
- Why should a customer buy from you?
- What makes you special over another company: brick and mortar or online?
- What is the role of music technology software in your product mix as more developers go direct-to-customer with digital download sales and prices at or below dealer cost?
If music retail owners think the answer to differentiating themselves from other dealers is, “We’ll beat any deal!” they should ponder the question, “Does anyone remember SoundChaser?”
They beat lots of deals. And they’re gone. And ultimately, so will many merchants disappear who maintain that stance because without profit margins and volume purchasing, retailers cannot sustain slashed pricing and make it. That’s as true for OEMs as it is for barbecue joints.
We don’t talk too much about chicken in music technology, but maybe we should since Pilgrim’s Pride, the nation’s second largest chicken provider, is in bankruptcy, and Tyson may not be far behind.
Everybody has to eat. And at $4 or less per chicken, you’d think Tyson and Pilgrim’s Pride would be swimming in moolah. But they’re not, and they’re genuine mass merchandisers.
Almost nothing in a music store is a mass merchandised item unless they’re selling Holy Donuts on the side.
It’s all, nearly 100% of it, specialty retailing. Most everything in a music store, excluding t-shirts, possibly guitar picks, and items like that, requires instruction and training.
So where are the guitar lessons? Where are the keyboard lessons? Where’s the MIDI school? Where’s the recording school?
Where’s the service?
Now that the industry has successfully turned speciality retailing into a commodity marketing environment, where is it going?
IBM had to answer a similar question. When they decided to release IBM PCs to retailers, they were shocked to discover that retailers cut the prices so low that their machine was now being sold like pork chops. So the guys in the backroom who could work both a calculator and a spreadhseet began doing some serious financial analysis.
IBM discovered that once a product hits commodity pricing, you can’t make money on it any more.
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I have several comments to your discussion….
Your comment about Apple maintaining hardware pricing while “devaluing” itunes music prices is the key model of the current music business paradigm. Sacrifice software for the hardware.
I am a film composer for the last 25 years, but my first real job was the product specialist of a pioneer computer music instrument company, presenting this instrument for the first time at the NAMM show in January of 1980.
NAMM is really a history of brick and mortor businesses selling hardware – instruments that many times lasted for generations. Then these shops would provide “support” (like IBM) for the instrument – lessons, repairs, etc.
Now, NAMM is dominated by giants like Apple Computer (who once boasted that their gross receipts exceeded the entire rest of NAMM put together) – hardware is now short-lived and generic, scheduled to be superceded, which then, of course, antiquates many of the paripherals – interfaces, software, etc.
I sometimes joke in saying that we are only renting our instruments now – who knows, if everyone doesn’t pay for upgrades, the software might be discontinued (as in the case of Tascam’s Gigastudio, a professional favorite that has recently been sacked).
Of course, the short lives of software versions is contradictory to the classic musical paradigm, where a musician would spend his/her entire life playing a particular instrument. Not possible in the new world – these new technology instruments don’t last but a few years.
Of course, as a composer, I resent Apple’s exploitation of music for the sake of selling their hardware – in order for Apple to profit $50-$200 on an ipod, they say that they are forced to lower the price of music.
This idea of discounting software for the sake of selling hardware happens at the pro audio level also. Companies like the Danish TC electronics internationally control their software after they found that some distributors were too steeply discounting the licenses as a sweetener to getting a customer to buy the hardware.
I was involved with one of the very first commercially offerred MIDI sequencers in the early 80′S – we used to show this at NAMM. In the end, due to piracy, no one was making any money from software sales. It is only now, since everyone spent the money to buy a computer, that we see actually interest in software. But piracy, either from educational institutions (which is the classic source of “cracked” software) or copies of the retailer’s “unlocked” demonstration version eventually leek out into the market, severely watering down sales (which you so appropriately called “specalty” items).
From a software point of view, direct sales is the best way of protecting your software. Most software bought at a music store is an empty box with a number that enables the purchaser to download the software from the home web site. And, frankly, it is even difficult to acquire music hardware without the manufacturer in play – they answer the tech questions and do the warranty repairs – so what does the store do?
in conclusion, the music store is not a showroom of soon-to-be-family-heirlooms anymore – it now must rival Fry’s or the Apple store, selling generic hardware and licensing (renting) music software. What kind of store is that? Certainly not the friendly little music store that was mostly practice rooms and sheet music. I am afraid, that like the US auto industry, NAMM is heading for some pretty big changes in the future…..