The State Of The MI Market For 2012


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| February 15, 2012 | 0 Comments
Retailers Are Optimistic, Despite Lingering Challenges

Retailers Are Optimistic, Despite Lingering Challenges

Retailers Are Optimistic, Despite Lingering Challenges

By Brian Berk

On a scale of “Sad Songs (Say So Much)” on the negative end to “Shiny Happy People” on the euphoric side, the pendulum for MI retailers is leaning toward the latter. We are happy to report that the horrific years of 2008 and 2009 are clearly in MI retailers’ rearview mirrors. However, that doesn’t mean dealers are quite ready to start “Dancing in the Street.” Overall, sales in 2011 were not a bright spot for most of the retailers to whom we spoke. However, profit margins increased for most.

Joining us to look back on 2011, predict what might happen the rest of this year and provide much more information are five prominent retailers who also happen to be members of the Independent Music Store Owners (iMSO) group: Gordy Wilcher, Owner of Owensboro Music Center in Owensboro KY; Lisa Kirkwood, Co-Owner of Discount Music of Jacksonville FL; Allen McBroom, Owner of Backstage Music in Starkville MS; Donovan Bankhead, Owner of Springfield Music in Springfield MO; and Chris Basile, Owner of South Jersey Music in Sewell NJ.

Let’s start with a retailer who had his best year ever in 2011. And that’s saying something, considering he’s been around for 33 years. Last year was fantastic for Backstage Music. “2010 had been our best year,” said McBroom. “Sales were up 12 percent then. 2011 was even better. Sales were up 15 percent.”

McBroom attributes the success to taking a different approach from that of competitors. “We hear it said often to find what you do well and just do that,” he said. “We think those recommendations are too broad. Those suggestions may be true in a large suburban area, but our store is in a rural setting. We have decided to be all things to all people. We added band instruments and band instrument rentals in 2011. We added keyboards for the first time since the 1980s. We added new vendors and new lines. In the last two years, we have computerized our inventory. We are buying smarter instead of buying by the seat of our pants. And, we’ve made a big push into social media and are seeking online sales. When the economy went upside down in 2008, we said, ‘Great. Let’s re-merchandise the store.’ For us, we’re blessed that the path we’ve taken is working. A lot of what we do as business owners is educated guesswork. So far, we’ve been guessing right.”
More specifically, McBroom told The Retailer that his store does not sell any high-end guitars. Most of the guitars he sells sport a price tag between $100 and $500. Some of those are manufactured in China. “We quit sticking our nose up at Chinese guitars and decided to look into purchasing high-quality Chinese guitars. Recording King is one great example. Its sales have been great for us,” he said.
Kirkwood said sales at her store were similar when comparing 2011 to 2010. “It was about what we expected,” she said. “We increased the number of lessons we provide, the number of repairs we provide and the number of consignments. So, in that way, we did a little better in 2011 as compared to 2010.”

At Springfield Music, overall sales declined in 2011. However, there’s a definite silver lining. “Profits are up,” said Bankhead. “That comes from trying to find higher-margin products that will [sell] quickly and are of good quality that we can stand behind. We’ve also tried to make our services more of a profit center regarding lessons, repairs and rentals. So, we had a good overall year in a tough economy.”
The results were similar at South Jersey Music. Overall sales were down nearly 10 percent during 2011, but gross profit margins rose five percent and merchandise sales rocketed 12 percent. “What took us down was our lesson program,” said Basile. “For some reason, it was down 33 percent. I was floored when I saw that figure. We’re still trying figure out why that is. We have attempted to offer more services for the money we charge. We think it could be the economy. Parents may not want to pay the monthly lesson charge. But we did see our lesson business pick up in December, and we expect it to be better in 2012.”

According to Wilcher, 2011 was an interesting year, to say the least. His overall sales also declined about 10 percent, but for a different reason from that for Basile. House of worship sales were Owensboro Music’s bugaboo. “We came to rely on those sales a lot,” said Wilcher. “They’ve been hugely successful for us. For some reason, that segment of our business really dropped off in 2011, especially in the second half of the year.”

Wilcher did report that, like the other panelists, his profit margins did rise in 2011, which is certainly one positive development at his store. Another positive sign is the attitude of customers has changed. “I was discouraged in the first half of the year,” he said. “I was a little more encouraged by customers’ attitudes during the last quarter of [2011]. It just feels to me like the customer has a little more confidence lately.”

Understanding The Economy
Many of the comments delivered by Basile and Wilcher tie directly into the economy. Although the economic situation is clearly not as bad as it was in 2008 and 2009, it’s difficult to put a finger on where it’s going. The stock market seems to rise and fall from day to day as does a roller coaster. Talk in the past several months of a collapse of several European economies certainly doesn’t help. If anyone should have his or her finger on the pulse of the economy, it’s the retailer. They are on the front lines. Dealers are directly affected by the consumer. So, then, are our panelists optimistic or pessimistic about the remainder of 2012?

“We’re cautiously optimistic about 2012 because of our size,” said McBroom. “We’re a large fish in a small pond. We can be more flexible than big-box stores can be. It takes them a lot longer to implement something new.”

“I’m optimistic,” said Kirkwood. “We’re seeing customers shopping with more confidence [lately].”
However, there is one fly in the ointment…and it has nothing to do with the consumer. “It’s our expenses,” Kirkwood said. “It’s the overhead and the taxes—the things we can’t control immediately—that cost us money. We opened our store four years ago. Our taxes have tripled. I can work with iMSO through the iBuy [dealer purchasing] program and look for better purchasing power for better products with better margins. It’s hard for me to go to my government and complain about the expenses. Things I don’t have control over are eating away at my margins.”
Wilcher agreed, adding that insurance payments are his number one expense. “We’re at the point where I don’t know if we can absorb another raise [in premiums],” he said. “They go up about 33 or 34 percent a year. Taxes and utilities go up, as well.”

Blaming the economy is a weak excuse for declining sales, Bankhead remarked, although he joked that he still has used the excuse from time to time. “I can’t fix the economy. I have to figure out how to do something better. Despite the economy, a lot of businesses are doing exceedingly well.”
Internet sales are certainly nothing new. However, Bankhead added that they continue to change brick-and-mortar MI retailers. Internet sales are robust at his store. “As much as we may hate the Internet, we are not going to change it,” he said. “A little bit of change is inevitable. You have to find a way to embrace the Internet and exist with it.”
“We are all against Internet sales,” added Basile. “But, I have to admit, our Internet sales for the holiday season were way above where they had ever been. The overall traffic on our Web site was way up.”

“We have to stop looking at the Internet as some new, strange, foreign creature that’s hurting us,” noted McBroom. “Whether we like it or not, we have to look at the Internet as one more avenue we can use to sell products. All small retailers [in every industry] hate the Internet, unless they sell on the Internet. Every time I make a sale on eBay or my Web site, or through a Facebook promotion, I say, ‘Yea, Internet!’ When I see someone selling a product on Amazon for 25 percent less than MAP, I say, ‘Boo, Internet!’ We need to learn it’s just one more aspect of the world we live in and manipulate it to our benefit.”

Kirkwood offered a different opinion. “I not only made an attempt to avoid the Internet when making my holiday sales,” she said, “but I also went further by purchasing from local stores. It may have cost more. But, I walked out of that store knowing it made an impact on the local economy.”

NAMM Approach
The retailers participating in this story all agreed that their approach to attending NAMM has shifted during the past few years. Gone are the days of it being a buying show for them. At the just-concluded show, the four who attended (McBroom did not) focused on NAMM University sessions first and foremost. In fact, they waited until the NAMM U schedule came out before making show floor appointments with manufacturers.

“NAMM University has become super powerful and super influential,” said Wilcher. “It’s something we need to concentrate on. In fact, I don’t think I bought anything [at Summer NAMM] in Nashville [last year]. My goal at NAMM this year was to look for 10 new, niche accessory products I could add to the store.”

Wilcher added that NAMM does a tremendous job with its educational sessions and every show he attends is better than the last one was. “I used to look at every shiny guitar on the show floor and buy six of them,” he said. “Today, that’s an afterthought. Also, I can receive many of the NAMM specials before the show, so it’s less important to make deals there.”
According to Bankhead, more than 70 percent of his time was spent at NAMM U sessions last month, owing to the wealth of information available. “I don’t need more guitars. I have tons of them,” he said. “The key to my business is not finding more products. Some dealers want to do the same things and get a different result. It doesn’t work. The only way to change your business is to get new and fresh ideas. We only meet with a handful of vendors and a group of new vendors at NAMM.”

“There is a ton of information you can learn at the NAMM University sessions,” Kirkwood said. “It would cost you a lot of money to get that information on your own. I do search for products, but I look for indie-friendly manufacturers first. The problem with buying products at NAMM is it’s such a loud show. There are so many visitors in every booth. There were times in the past that my husband and I had a booth appointment, and we couldn’t get in the booth because of the number of yellow [visitor] badges that were circling the area.”

McBroom doesn’t attend Winter NAMM because he can drive to Nashville and attend the summer show. “The whole notion that the music industry in America is focused in California vanished a long time ago,” he said. “There’s as much music in the eastern half of the country. In Nashville, we look for products that complement what we’re doing. We also look for the next iteration of what we’ve already got as products.”

iMSO Looks Ahead
2011 was another year of growth, change and discovery for iMSO, said Wilcher, who also serves as the group’s President. In fact, the growth was so rapid that he said it was hard for the group to keep up. iMSO had 642 registered dealers as of the end of 2011. “What I’m most proud of in 2011 was that we took steps to improve communications with our members and board members,” he said.
The only disappointment was the lack of participation from many members, he continued. “We have a great group of people who are very involved,” Wilcher said. “But, I struggle to grasp why more aren’t involved. My big hope for [this year] is to improve our communication process, function better as a group and board, and also that our members become more exposed to our iBuy program and realize how good a tool it is.”

Basile agreed, adding that about 30 percent of iMSO members are active participants in the group. “We have about 180 to 200 dealers who participate in our forums,” he said. “We have 196 dealers who are registered for the iBuy program. But, only 20 to 30 percent use that program. One thing we need to do is improve technology so it’s easier for dealers to search for vendors on the iBuy site. That’s a major goal I have for 2012. I do hope to see more growth in our dealer base. But that’s not my main goal for 2012. My top goal is for our current members to become more involved.”

“My goal for iMSO for 2012 is to continue to provide great content so that we can be a wonderful resource for successful retailers,” said Bankhead. “We don’t have as many active people as we would like to have. But, if you look at overall statistics for Internet forum participation, I think we have good participation. I think we are very successful considering nobody here had knowledge [about how to form a retailer group when we began]. iMSO truly is a labor of love for all of us.”

“I’m not sure our store would still be in business if not for the iMSO group,” concluded Kirkwood. “We can go on the forum, ask any question and, within an hour, we get two or three responses. And these people want us to be successful. If we’re going to compete with big-box retailers, we need to know someone has our backs. I truly believe in this group.”