Brick-and-Mortar Music Retailers Struggle to Keep Up
STEVE INSKEEP, host:
On Mondays, the business report focuses on technology.
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INSKEEP: Online shopping, music downloading and CD sales by big stores have all been harmful to traditional music chains like Sam Goody's. That Minneapolis-based retailer now hopes to reverse its fortunes by encouraging people to just hang out. From Minnesota Public Radio, Jeff Horwich reports.
JEFF HORWICH reporting:
Sales of compact discs in the US have been falling since 1999 and Sam Goody's has felt it. Electronics retailer Best Buy unloaded the chain in 2003 after sales fell more than 20 percent in one year. The new owners have since closed more than a third of Sam Goody locations. Sam Goody's parent company, Musicland, is now privately held. Musicland's senior VP, Rob Willey, says the company has erased most of the red ink by improving advertising, floor layouts and other retailing basics, but that alone won't make Sam Goody a long-term player.
Mr. ROB WILLEY (Senior Vice President, Musicland): Well, with everybody carrying music now, everybody from Starbucks to Wal-Mart to Best Buy to Circuit City, there's not longer a special reason to take a trip to a music store.
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HORWICH: Musicland hopes the path to relevance and revenue is this trendy looking lounge built in the center of the Sam Goody at the Mall of America. Black leather couches are bathed in sound and light under images projected on a wall of glass panels. Customers choose the entertainment on the panels whether it's music videos, movie previews or even personal photos by text messaging commands from their cell phone. The lounge concept has been dubbed Graze. Willey says focus groups suggested the name to describe a place to roam and nibble on entertainment at your own pace.
Mr. WILLEY: Such inspired off the LA clubbing scene. You can see here the mesh is an example of something you would see in a club scene. I don't know if you can smell this or not, but there's actually a smelling machine here. It's pumping out a light chocolate smell as we speak. So part of the reason for doing that is we want to elevate the consumer to a creative high.
HORWICH: The trick is to channel that creative high into actual spending. Eight touch screens around the lounge equipped with credit card slots allow consumers to create and burn their own CDs from a library of about 400,000 songs. A 12-song CD costs about $15. A second set of touch screens hints at the real target demographic for Sam Goody, the teens who roam malls across the country. From these terminals, thousands of cell phone games and ringtones are available for download. Cell phone ringers have become a $300 million annual business in the US. Willey demonstrates some of what's available for cell-toting teens eager to express themselves.
Woman's Ringtone Voice #1: Hey you, pick up your cell phone.
Woman's Ringtone Voice #2: It's really hot here.
Woman's Ringtone Voice #1: You'll cool off till you pick us up.
Mr. WILLEY: You can imagine that, you know, the 14-year-old boy coming in here.
HORWICH: And that's $1.99 right there, right?
Mr. WILLEY: $1.99. It's fun. You can come back in. You can change it out every week if you want to.
HORWICH: There are clear challenges ahead for Graze, aside from the reaction of parents to their kids new ringtones. Teens and other customers could show up for the free fun, but not necessarily buy anything. And while the Graze lounge is ringed with digital music players for sale, Willey says the music industry is not yet ready to allow downloading digital music in the store.
Then there's the basic challenge of attracting music consumers like Liz Schuster(ph), an iPod-owning mall employee who dropped by to check out Graze, but who hasn't bought a CD from a music store in quite a well.
Ms. LIZ SCHUSTER (Mall Employee): Probably five years at least. I'll be honest. But, I mean, now with computers and technology you can make your own CD at home, too.
HORWICH: Jupiter Research analyst David Card says surveys by his company show strong consumer demand for in-store CD burning, and he credits Musicland for charging into the one area iTunes and amazon.com will have a hard time copying, the in-store entertainment experience.
Mr. DAVID CARD (Jupiter Research Analyst): It sounds like they're doing good stuff, but it's going to be really, really hard. Music retails a tough, tough, tough business.
HORWICH: Card says the range of competitors, from Starbucks to Apple, makes success in music retailing an uphill fight. Sam Goody will field test the Graze concept next in the Philadelphia area and elsewhere in the country next year if it seems to be working.
For NPR News, I'm Jeff Horwich in Minneapolis.
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