Challenges and Opportunities in the Music Products Industry

2. Off-Key Performance • For the overall music products industry, 2015 was a year of almost no growth, as sales increased a mere 0.8% to a total of $7.1 billion, compared to 2014’s revenues increase of 3.3%, or a total of $7.0 billion. • The April 2016 issue of The Music Trades cited a number of reasons for poor 2015 sales: consumers’ general caution across the economy, significant decreases in retail selling prices, a broadening used market and retailers’ perennial whipping boy: the Internet. • The two categories that helped give the industry even a small boost were electronic music products, recording a 9.9% increase and, somewhat surprisingly, the school music market with a 6.3% increase in the retail value of instrument shipments.

3. Finding the Rhythm • Although 2015 will never be on the music industry’s “Top of the Pops” chart, the first half of 2016 has been filled with sweeter sounds, as Q1 revenues increased 4.1%, to $1.251 billion, and Q2 revenues increased 3.3%, to $1.341 billion. • Despite these upbeat results, revenues for brick-and-mortar retailers decreased 3.7% during Q2 2016, as online retailers enjoyed a revenue increase of 14.2%. • All 4 US regional markets recorded Q2 2016 revenues increases: East Coast, +4.5%; North Central, +4.2%; West Coast, +3.9%; and South, +3.7%.

4. Brick-and-Mortars’ Muffled Beat • As with many traditional retail sectors, the musical instruments industry faces a major challenge from the online sales channel; however, the competition is not the primary factor. It’s that consumers have access to more informational sources online. • This has resulted in a boon for musical instruments industry specialists compared to the brick-and-mortar store generalists. Although brick-and-mortar stores’ revenues increased during 2015, their share decreased, while the specialists’ share increased. • The top 10 North American music products retailers remained the same for 2015 as 2014; however, Sweetwater replaced Sam Ash Music as #2 on the list. Guitar Center retained its top position, although its 2015 revenues decreased 1.9% compared to 2014.

5. Productivity Propels Performance • Not unexpectedly, the top 200 musical instrument retailers as listed in the August 2016 issue of The Music Trades experienced a 2.9% increase in 2015 revenues, or $5.32 billion, compared to the total industry’s meager 0.08% increase. • To accomplish this increase, the top 200 retailers have become more productive. The number of storefronts remained the same, at 1,006, from 2014 to 2015. Guitar Center added 9 stores, so the other 199 retailers increased revenues with fewer storefronts. • Although Sweetwater’s 2015 sales/employee decreased 10.1%, it was still first on The Music Trades’ list of the top 10 “most productive” North American music product retailers. All of the top 10 retailers had just one location, except for American Musical Supply with 3.

6. Suppliers’ Sour Note • Mergers and acquisitions have been the strategy of many of the leading music and audio suppliers (manufacturers) to combat the industry’s slow growth; however, the top 100’s 2015 revenues of $9.8 billion, which include export sales, was 1% less than 2014. • Although 2015 revenues declined, the top 100 suppliers were able to generate their total with 15.0% fewer employees. To generate 2014’s slightly more revenue total of $9.9 billion, the top 100 suppliers had an additional 4,586 employees. • Audio suppliers in the top 100 captured approximately 30% of total revenues; followed by multi-line companies, 28% share; fretted instruments, 12% share; electronic music, 7.6% share; distributors, 6.8% share; accessories, 4.0% share.

7. The Internet Turns the Volume to “11” • According to data from the August 2016 issue of The Music Trades, the top 40 online musical products retailers increased 2015 revenues by 13.4%, compared to +2.8% for the top 200 retailers, +0.8% for the entire US market and -0.3% for the global market. • MusikhausThomann in Germany continued in its top spot in The Music Trades’ top 10 global online music products retailers for 2015, with a 26.9% increase in sales, to $787.0 million. • Four other online retailers on the list also achieved double-digit sales increases: Sweetwater, +22.1%; American Musical Supply, +11.6%; Bax-Shop. NL B.V., +17.5%; and Sound House, +11.1%.

8. Advertising Strategies • To combat the inroads of the Internet and retail musical products specialists, brick-and-mortar stores that have branded themselves as generalists must begin to promote one or more specialties, as they continue to offer consumers a full-line of products. • School music is one category in which brick-and-mortar retail generalists could possibly specialize. Retailers may want to offer a free, custom evaluation of students to determine which instrument is best for them. • During the holiday shopping season, music products stores could feature small ensembles of local school musicians inside or outside the store playing holiday music.

9. New Media Strategies • It’s clear that more musicians will turn to the Internet to purchase instruments, which makes it imperative for brick-and-mortar retailers to have a robust Website as well as a mobile version to reach younger musicians. • Because information is often what attracts musicians to Internet sites, retailers with years of experience in the business should use blogs, videos and podcasts to share their knowledge and create a more noticeable presence in social media. • During the holiday shopping season, invite customers and all musicians to record a video of them playing seasonal music for upload to the stores’ social media sites. Ask visitors to vote on their favorite performance. Provide a prize to the winner and coupons to all participants.

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