Just as Virgin Megastores launched a £7m branding campaign last week, its rivals at supermarket chain Asda were preparing to offer two of this year’s most eagerly awaited albums, “Forever” by the Spice Girls and “Coast to Coast” from Westlife, for £9.87.
Asda already sells Ronan Keating’s “Ronan”, Texas’s “Greatest Hits” and All Saints’ “Saint and Sinners” at £9.87. And last week Tesco announced it is to cut chart CD prices permanently to under £10.
High street music retailers, unable to compete with these low prices, are fighting back in the only way they can – by establishing their brands as a complete shopping experience. Virgin’s new campaign, created by TBWA London, features various eccentric fans salivating over their favourite music (MW November 2).
Experience the brand
Virgin Megastores head of marketing Andy Kendrick says Virgin’s new campaign aims to balance the emotional warmth people feel for their favourite music with good value for money.
He also points out that high street music retailers have staff with a wide knowledge of music to help customers, and they stock a better range of entertainment products.
While many believe supermarkets are destroying music specialists through their cut-throat competition on CDs in the top 20, Virgin has accused the grocers of threatening the future of the music industry itself.
Kendrick says supermarkets are a threat to the industry as a whole because they cream off the 20 top-selling albums, which account for about 50 per cent of the stores music sales, and sell at the same price as an album that has been around for five years.
“This means record companies do not make the money they would expect to and therefore do not have the financial reserves to put back into new music. The more volume that is sold through supermarkets the less money there will be for new acts,” he warns.
He fears that the UK’s music industry will go the way of that in France. There the music industry has few new artists coming through because the supermarkets sell most of the music and little money goes back into developing new performers. Not only are cheap sales a problem but music is being treated as a commodity, he says.
“Magazines give CDs away free, newspapers do free samples – CDs are being undersold,” says Kendrick.
He insists Virgin’s latest push is trying to put entertainment values back into music buying, as opposed to mere price cuts. “It was not long ago that people said the retail experience should be exciting, which is what Virgin Megastores is trying to bring back with this new campaign,” he says.
Asda general manager for entertainment David Inglis denies the supermarkets are funding their price cuts through forcing the record companies to give them discounts. He insists the supermarkets pay the same amount as high street retailers for CDs.
Inglis says Asda has a clear music strategy – to be the cheapest. Discussions, he says, on reducing record company charges are continuing, and could result in all retailers being able to sell at cheaper prices.
He denies Asda’s aim is to reduce the number of releases from record companies. Without music we would be out of job, he says. “That is not what we are about.”
The downward spiral in pricing does not come from the record companies, he says, but from the retailers. A Tesco spokesman says all its price reductions were taken on by the retailer.
With supermarkets suffering lower returns on food they are moving into non-food sales to claw back profits. And music is an obvious choice. Verdict Research analyst Mike Godliman says grocers have a captive audience which allows them to devote a small space to the chart albums and cream off higher selling items.
High street carve-up
In 1998, supermarkets held 11.5 per cent of the music and video market, according to Verdict Research. Woolworths held 13.7 per cent. HMV and Virgin took a 12 per cent and 11.1 per cent share respectively. Our Price, which is undergoing a £20m-£30m rebranding to Virgin V.shop, and will move away from broader music sales to concentrate on chart sales, DVDs and mobile phone products, had a 6.4 per cent share.
But supermarkets’ undercutting tactics are not the only concern afflicting high street retailers. City analysts predict online music sales, said to be worth about 1.2 per cent of the market in 1999 (Verdict), are set to rise to between 20 and 25 per cent by 2005.
According to Godliman, high street retailers need an online retailing presence so as not to lose ground to the growing number of music e-tailers.
And the fact that these high street brands are well-established does not mean that consumers will necessarily choose them over new online companies such as Amazon, he says.
But music retailers have been slow off the mark in combatting the online competition.
“Bookstores, not known for their innovation, responded to the online threat by giving customers a more enjoyable environment to shop in. They have provided coffee shops, for example, where people can sit down and sample a book before they buy it,” says Godliman.
Book retailers have grasped the idea that the high street must be a fun place to shop. Music retailers are faced with a similar revelation, and high street shops must now offer the whole entertainment package, from music CDs and books to games software and hardware.
“They will be a shop you go to to have fun,” says Godliman.
“Customers should be able to pick out five CDs, for example, and sit down to listen to them on headphones before purchasing. At the moment, HMV’s initiative allowing customers to create their own CD from a catalogue is the most interactive thing in music retailing,” he says.
Godliman believes more retailers will acquire their e-tail counterparts in the same way that Great Universal Stores bought music and games e-tailer Jungle.com. GUS bought Jungle.com for only £37m in September, agreeing to absorb its £12m debt.
But a HMV spokesman believes that shopping on the high street is still the favourite leisure activity in the UK. Although he agrees retailers have to offer a variety of ways for the customers to buy, online sales account for only one per cent of music sales and, he believes, that is set to rise to only 5 per cent over the next five years.
Woolworths still holds first place in the pop music market – thanks to a combination of buying the right music for its customers and a high footfall in its 800-plus stores, says a Woolworths spokesman. All Woolworths stores sell music, and many of them are the only music retailers in the area.
“Our customers know exactly what we sell. We don’t pretend to be Virgin. We are not specialists, but we have a very good range,” he says. Woolworths sells its top CDs for between £9.99 and £12.99.
The sheer volume of sales through Woolworths has helped the likes of B*Witched, S-Club 7 and Westlife make their name in the industry, says the spokesman.
With Christmas just around the corner, all eyes are swivelling onto the major music retailers’ performance during the most important trading season of the year. Music sales in the run-up to Christmas last year were valued at £878m, so Virgin’s drooling music fans will have to spend a lot of money on their favourite classics to make up for the damage being inflicted by the supermarkets.