Minneapolis Star Tribune 1/6/08

CD sales plummet, leaving retailers spinning

The iPod generation is addicted to downloading, so stores scramble for other cash streams.

By JON BREAM, Star Tribune


Like Britney Spears' reputation, CD sales declined dramatically in 2007 -- 19 percent, to be exact.

That news hits especially hard in the Twin Cities, a national hub for record distribution for a half-century. It is home to two of the industry's biggest players -- Best Buy and Target, which together account for 3 of every 10 discs sold in the United States -- but even smaller stores are singing the post-holiday CD blues.

To fight back, Best Buy and longtime local independents such as the Electric Fetus and Cheapo Discs are diversifying, adding everything from coffee shops and digital downloads to -- gasp! -- vinyl albums.

Although Best Buy did not suffer as sharp a downturn in CD sales, "We're not happy about the decline," said Jennifer Schaidler, vice president of music. "But we're going to go where the customers go."

That means Best Buy is now custom-tailoring its CD selection for each store.

"In Chicago, we have Polish and Arabic music," Schaidler said. "Latin music is a big initiative. The shopper is not going away. We also will be expanding our digital [download] initiative," a partnership with Rhapsody.com.

You don't need to know your way around an iPod to understand that digital downloads (legal or otherwise) are becoming the preferred medium for recorded music. Since 2004, digital song sales have more than quintupled while CD sales are down by one-third.

Although Best Buy is devoting more store space and advertising dollars to other products, it still carries a similar number of CDs -- at least 10,000 per store, according to Billboard -- and aggressively courts superstars for Best Buy-only discs, such as live DVDs by the Rolling Stones and Mariah Carey, or a Tom Petty documentary by Peter Bogdanovich.

Target takes a similar approach with tailored inventory and exclusives, including recent Christmas discs by young stars Taylor Swift, KT Tunstall and Elliott Yamin.

"We recognize that overall sales will likely continue to decline as digital options become more widespread, but remain committed to the business and to doing everything we can to encourage our guests to buy physical CDs," said Target spokesperson Amy von Walter. Its stores typically carry one-tenth as many CDs as a Best Buy.

Both Target and Best Buy "have done as well as expected, given the music environment," said Patricia Edwards, a retail analyst with Wentworth Hauser and Violich in Seattle. She thinks Best Buy's strategy to localize its inventory reflects a growing trend that "consumers want more and more customization."

Indie stores diversify

The decline of the CD has been tougher for stores that, unlike Target or Best Buy, focus primarily on music. Three local indie chains -- each in business since the hippie era -- are transforming themselves to make up for lost revenue.

The Electric Fetus, the granddaddy of them all, figures if you can't beat 'em, join 'em. It's adding digital downloads to its mail-order website.

Down in the Valley has expanded its non-CD merchandise (T-shirts, collectibles) by 30 percent.

Cheapo Discs is adding coffee shops to some stores. Buzz, a 1,000-square-foot coffee joint with a separate door, will take up about 9 percent of the St. Paul Cheapo and 5 percent of the Uptown Minneapolis location.

"I wish I had a crystal ball," said Cheapo owner Al Brown, who founded the three-store chain in 1972, and co-owns similar stores in six other states and Toronto. "I've got some ideas no one else is doing, [but] my ideas would have been great five years ago." His stores have always revolved around recordings -- the Uptown store has more than 100,000 -- but for the first time he will attend a national gift show this year to shop for other products.

Music store morphs into gifts

At Down in the Valley, "I'm trying to get my store known as a gift store, not a record store," said Steve Hyland, owner of the four-store chain, which has shopping-mall locations in Golden Valley, Wayzata, Maple Grove and Crystal. "Gift is what I'm going to survive on."

That might be a Led Zeppelin T-shirt, a ceramic Marilyn Monroe cookie jar or a Rocky key chain that screams "Yo, Adrienne!" CDs occupy less than half of the floor space now.

"Every month my business goes down, down, down," said Hyland, who opened his first shop in 1972. He estimates his CD sales dropped 18 percent from 2006 to 2007 and, to his surprise, DVD sales declined 10 percent.

Nationally, digital-download sales were up 45 percent in 2007. Those numbers are tough for even a diehard like Electric Fetus owner Keith Covart to ignore.

"We're working on a downloading site," said Covart, who has stores in south Minneapolis, St. Cloud and Duluth. "My heart is not in it. They still haven't beat the CD for [audio] quality."

But with his 2007 CD sales down about 18 percent in both retail and wholesale -- the Fetus also distributes CDs to about 200 indie and gift stores around the country -- Covart realizes "you've got to carry music in several formats: digital, vinyl, CD, new and used. Sales of vinyl is 10 times more than [the previous] year. High schoolers and college students are looking at vinyl more than CDs."

The Fetus, like the big-box stores, also tries to lure customers with exclusive titles -- 200 of them, such as "Ben Harper Live at the Twist and Shout," via the Coalition of Independent Music Stores.

Although Cheapo shuttered a 6-year-old store in Moorhead in November because of slow sales, none of the local indie merchants are talking about closing shop. Hyland would like to hand over his stores to his children even though he knows the future is "not good. In a few years -- maybe 10 years -- I don't think they'll have a CD or DVD product that you put in your hands."

That's because the under-25 crowd -- the iPod generation -- is hooked on downloading, not owning discs.

"My kid's got 1,000 songs in his MP3 [player]," Hyland said, "and he didn't buy any of them from me."

Jon Bream • 612-673-1719