Best Buy To Open 85 MI Stores by Year’s End
First a trickle, Now a flood.
Richfield, Minn.-based electronics retailer Best Buy will open up to 85 of its music centers by the end of the year, and may add more locations in the future. The sealed off 2,500-square-foot departments will be called “Best Buy Musical Instruments,” and the move will make Best Buy the second largest MI retailer in number of units in the country, after Guitar Center.
“We’re not just extending the shelf space in the store, we’re creating a designated area specifically for this experience,” Kevin Balon, the company’s vice president of musical instruments, told the Associated Press. “And we’re trying to create an authentic and genuine musical instrument store look and feel inside of Best Buy.”
The retailer, already an industry leader in sales of everything from digital cameras to video games, has serious aspirations to carve a niche into the $8 billion spent yearly on musical instruments. The initiative is expected to counter the continual softening of CD and DVD sales experienced by the company.
|MMR Readers Sound Off|
|MMR received quite a few comments when news of the 85-store expansion first went out in the e-newsletter on August 3rd. Here are what some readers had to say:
“Customer feedback has been very positive. Best Buy management is smart, sophisticated, and visionary … this wasn’t on a whim. They will hurt Sam Ash and Guitar Center, and unfortunately some weaker independents too. The line between music and technology (electronics) is blurred more and more every day so this does make sense.”
“The industry’s fear of a giant like Best Buy entering the MI market is a little unfounded. Others have attempted the mass-market format and seen disaster. For those of you whom hope that it pains Guitar Center or Sam Ash and think it will benefit you, shame on you. Go clean up your store, train your staff, streamline your inventory, review your accounting practices, get involved with local schools, hire a professional to do your marketing, make your store environment more family friendly, stop whining, and become proactive rather that reactive.”
“It’s really sad to see the big boxes going into the MI business. It really hurts the Mom & Pop and smaller stores that work so hard to make a living. I hate to see it happen.”
“After many successful years in the MI field, I bid anyone luck on obtaining the sheer quantity of (quality) employees, educator support, and locating the skilled repair technicians needed to support the volume of sales imaginable. These three items pain any MI retailer, large or small. A massive marketing budget helps, but if you cannot back it up with service, word is quick to get around and customer will return to the stores that provide quality customer service. If my personal experiences with needed service and repairs at Best Buy is an indicator of the level of service that they will provide, we have absolutely nothing to worry about.”
Much speculation abounds. Many see Best Buy going directly after Guitar Center, but even the casual industry observer knows that Guitar Center has had it’s own challenges as of late. There’s been noticeable belt-tightening actions like ceasing to offer additional discounts to professional musicians and telling managers on the floor that there is no longer any wiggle room for haggling beyond the already razor-thin margin price on an instrument’s ticket. Then again, others point to the huge success of music-based video games like Guitar Hero and Rock Band and say that Best Buy’s executives felt that, in addition to their test market data, this recent trend would enable them to take the kids that come in for those games and successfully tempt them into picking up the real thing.
Those inside and outside the industry are skeptical.
According to retail analyst Brady Lemos of Morningstar, an investment fund research firm, this endeavor will take up a lot of real estate and notes that MI is generally a slow growth segment even during good economic times, making it a challenging proposition.
One manufacturer speaking off the record personally expressed some skepticism about musical products’ ability to sustain a presence in mass merchants, but then pointed out that Best Buy is a sophisticated company with extensive market research capacity, so it can be assumed that their market research is accurate and that the company will be at least somewhat successful in this endeavor.
Not surprisingly, some MI retailers aren’t enthused by the new development.
“I don’t think you could print my actual comments,” quipped Mick Faulhaber of Ward-Brodt Music when asked about Best Buy’s opening of one of these stores-within-a-store in his Madison market. He expressed some surprise that they would do so in such a relatively small town, though he’s already ready for it: “I am glad that we decided to scale back our [MI combo] presence last January, as I saw this coming. What kind of impact this will have on the market remains to be seen. Broader distribution and purchase polices have already taken its toll on many of us.
“Things started this way with MARS, and it’s been downhill ever since for independents, unless you are Sam Ash or a very focused entrepreneur.”
Companies working with Best Buy include Fender, Gibson, Marshall, Line 6, Yamaha, Roland, Korg, and Drum Workshop, among others.
“We are pleased to be part of Best Buy’s new entry into musical instrument retailing,” says Roland CEO Dennis Houlihan. “We look forward to working with them.”
Zildjian’s Bob DeLorenzo says he has faith that the mass merchant retailer will do a good job representing their cymbals and related products. “Best Buy stocks some of the best, well-known brand names in the world … Sony, Apple, etc.,” says the vice president of new business development. “We feel that they understand branding, the importance of product features, and will provide an educated staff. They know that representing MI brands well is the key to their growth in the category.”
He adds that the same representation that Best Buy will give all the MI brands it chooses to stock is what the best independent retailers provide including brand/product focus, strong merchandising, and an educated staff.
DeLorenzo is not unaware that this will cause some concern with Zildjian’s vast network of independent dealers, but this move certainly doesn’t “cancel” anything out. “First, we have and will continue to support all independent retailers to help them grow their business regardless whether Best Buy was in the MI business or not,” he says. “We will continue to provide new products and programs, strong customer service, merchandising, etc.
“Second, should the overall market grow by Best Buy’s presence, then all music retailers should benefit. We believe that this is the goal – that more and more people start getting actively involved in creating music regardless of age, gender, etc. The downstream benefits of that goal help everyone, especially the independents.”
|Yamaha: Best Buy ‘Intends to Deliver|
|Yamahas new senior vice president, Rick Young, sat down to discuss the latest development with Best Buys entrance into the MI segment.
MMR: Yamaha has long done some business, typically lower-end keyboards, with Best Buy. Do you feel they will do well with more of your products, particularly the higher-end ones?
MMR: Was Yamaha a part of the testing process?
MMR: Some independent retailers are concerned – need they be?
MMR: Does Yamaha think this is an opportunity to truly grow the market and create more music makers?
MMR: Best Buy attracts a much broader portion of the general population then the typically sited 5 percent of the population that makes it into a traditional MI store…
MMR: Thats a lot of customers – how many are potential music makers?
We have seen from polls that a high majority of the population would like to play a musical instrument. If we all want to tap into those people, we need to have our products in places that they can be seen and an impulse will occur, regardless of whether or not were talking about an independent music retailer, Best Buy, or Yamaha.
[For comments on the plan from Yamaha's Rick Young, see sidebar.]
Three Years in the Making
As first reported in MMR in January 2006, Best Buy quietly dipped its toe in the waters with a test market of six MI stores-within-a-store with a “test” in a Riverside, Calif. Best Buy location that first opened in the late fall of 2005. In that article, a spokesperson for Best Buy said that the tests were “scientific” in nature, with “a lot of direction and study” going into the project. Another spokesperson added that they “look at all the statistics we can find, studying publications that track sales of musical instruments. We also rely on our vendor partners to tell us what is hot, and we do have [music] vendors approaching us. And we pay attention to what others are doing.”
“Others” no doubt included competitors Target, Wal-Mart, and Circuit City. Today, those, along with Costco, seem to have mostly resigned themselves to dabbling in the category only a seasonal basis. They stock a few instruments for the “back to the school” season and then devote significantly more shelf space to the products at Christmas.
Even three years ago, Best Buy was more interested in this market segment than the other “big boxes.” It had 70 skus of musical instrument products, not counting karaoke and DJ categories. Best Buy said at the time that the Web site is a vital part of their overall sales strategy in music product. “We can offer a much larger assortment online, and if we don’t have space in the store, it’s a good place to attach [add-on] products. If you’re buying a guitar or keyboard there you might want a gig bag or a dust cover. It’s what someone may want but not something we have space in a store for.”
Today they have over 100 skus of just guitars online alone. The number of total skus cited by Best Buy’s release for the new department is going to be near 1,000.
As of now there are a total of 10 Best Buy Musical Instrument centers operating: five in California, two in Chicago, two in Minnesota, and one in Wisconsin. They are not rolling out quietly, either. Blues legend and Rock n’ Roll Hall of Fame inductee Buddy Guy performed at one of the Chicago openings, with Grammy winner Jim Peterik performing at the other Chicago opening last month.
The selection will include everything but acoustic pianos: Shoppers will find picks, sheet music, cases, up to $3,200 guitars and $5,000 drum kits. Best Buy says they are dedicated to hiring knowledgeable musicians to work these departments. They are also on record as saying they will offer group and individual music lessons, and repair services.
“The introduction of musical instruments is a natural progression for Best Buy,” explained Steve Hehir, senior vice president of musical instruments for Best Buy. “Consumers have always looked to us as a resource for music in a variety of formats. Now they’ll be able to rely on us for help with musical performance and creating too.”
Best Buy’s plans extend to across the pond. In related news, Intent Media UK-based PC Retail magazine reported that Carphone Warehouse had confirmed that its shareholders had approved a 50 percent purchase by the American firm and that the formation of the new company would mean Best Buy is now set to enter the UK market within the next six months. MI Pro, which covers the MI business for the UK, reported that Britain is slated for four Best Buys over there, though it remains unclear if those will include a Best Buy Musical Instrument” section.