The First Part Of Our Independent Retailer Roundtable
By Dan Ferrisi
The Music & Sound Retailer offers several features on an annual basis: stories that we believe are worth revisiting yearly due to the ceaseless evolution that characterizes our industry. There is no story to which I more look forward, or in which I believe more strongly, than the Independent Retailer Roundtable, which, this year, we present for the seventh consecutive year. As has long been the trend, we drew on the expertise of members of the Independent Music Store Owners (iMSO) group. This year’s participants are Chris Basile, South Jersey Music (Sewell NJ); Allen McBroom, Backstage Music (Starkville MS); Don Tegeler, Tegeler Music (Clinton IA); Bryan Loy, Paradise Music (Franklin NC); and Lisa Kirkwood, Discount Music (Jacksonville FL).
Our wide-ranging conversation covered so much ground that we just cannot fit everything into a single issue. So, this year, we offer the Independent Retailer Roundtable in two parts, with the second half presented in next month’s issue. I hope you gain as much from our discussion as I did.
The Music & Sound Retailer: Provide a 10,000-foot overview of the market and your business as it currently exists. What can you say about 2012 so far? Do you have reasons to be optimistic and positive about the current state of business? Or, has the shaky economy taken its toll so far this year?
Chris Basile: We’ve been in business for more than eight years and in our new location now for three years. We spend a lot of money on advertising. We are in a shopping center with 20 other stores. It’s a highly visible strip center with a major supermarket and some nice restaurants, and the traffic in the shopping center itself is great. We have lots of foot traffic. As far as the effect of the economy, I’m really tired of blaming things on the economy. At this point, I have to blame it on myself and our business, although I’m probably not anywhere near 100 percent correct in assigning that blame. But, when we’re doing everything we can to get people into the store, and we have lots of foot traffic, and we can’t seem to convert that traffic into a sale, I’m not sure what the problem is. It probably just is that people are holding onto those dollars. And they’re just going to find the best price they possibly can to save money for their families. We have experienced some “showrooming” and try to fight that with smiles and great customer service, letting the customer know that our prices are as good as, if not better than, online and that we can match a price if not and give them immediate delivery. We’re maintaining. We’re paying the bills every month. But, there’s nothing left over at the end of the month to say, “We’d like to expand to another line” or make some changes in the store. We’re just maintaining. And how long can you maintain before you start to founder? So, I’m hoping that, in the future, the economy actually does turn around, and people start spending more dollars locally. In our strip center, in the past three months, I’ve watched three businesses go out…in just three months. One of them is having a retirement sale right now, and that’s the only one that didn’t go out of business for lack of business.
Don Tegeler: In our area, I’m seeing a very slow recovery. It’s better than it was last year. Is it gangbusters? No, not by any means. But, considering, we’ve been doing very well. We’ve had increases every year that we’ve been open, and we’ll have been open nine years in September. A couple of years ago, I started listening to Bob Negen because he addresses a lot of these issues we all face: Amazon.com, big-box stores, etc. He really gave me a different perspective on how to look at things, and how not to give away everything to the bottom dollar. The spin that we’ve been doing is to understand the lifetime value of customers and treat them all as VIPs, because that is really what they are.
Our city, like many others, is hurting financially. They can’t even afford to fix a lot of our streets, and that negative feeling echoes across the whole area, as far as the economy is concerned. But, for some reason, we’ve been doing OK. We’ve had a steady 10 percent or 20 percent increase every year we’ve been in business and, this year, we’re even doing better. We don’t do any Yellow Pages advertising anymore. I stopped a lot of radio ads. The traditional advertising just doesn’t work anymore, and we’re still getting new customers all the time. A lot of it is word-of-mouth. I’m also doing a lot of community-oriented things and using social media to get my name out there. It’s about building that warm and fuzzy feeling with the community.
Allen McBroom: One of the things I’m seeing, from a distance, is that so many independent retailers have dropped the big suppliers because, well, they just can’t afford to handle them. They can’t bear the weight. They can’t meet the stocking requirements. And some of the big manufacturers have appeared to sniff at us and said we’re more trouble than we’re worth and they’re not interested in us anymore. That’s the impression we’re left with. But what I’m seeing that’s encouraging, from that 10,000-foot view, is the increasing number of manufacturers that are only interested, it seems, in independents. Lines like Recording King and Crafter, and there are others, are coming forward. And they’re not only interested in us, but they’re actively courting the independent music store owners. They are where some of the bigger boys used to be, before they became a giant. And they’re looking around and saying, “We need these independents.” They’re coming to us. It’s very encouraging, and they’re turning out great product. That might be the next thing we see happening, say, in the next 10 years: The big change in the industry may be that we no longer have items that come from, or look like they come from, the giants. It may be that we have little independent brands coming forth and making their own place. They could say, “We don’t have to be like Brand X…the big guy. We can be just like Recording King. Or, we can be like Crafter. We can be like who we are, and we’re so valid that we can move products, and independents love us.” They wouldn’t cause us to drain our entire revenue stream just to keep products on the shelves.
The Retailer: How has floor traffic in your store been? Since the NAMM show in January, has floor traffic been strong, moderate or weak? Or, has it been variable, depending on the month?
McBroom: We’ve seen an increase in floor traffic this year over this time last year, simply as far as bodies in the store. As far as dollars left on the counter, it’s probably on par. But, I am seeing more people coming in. We’re in a little bit of a unique situation: Our nearest competitor is almost 60 miles away. So, our situation would be much different from, say, Chris’, where he’s probably got someone within a mile or two in every direction, because there are so many people there. We’re in a rural area… a 23,000-person town. So, it might be hard to compare us to others. But, as far as bodies coming through the door, I’ve seen a definite increase this year.
Tegeler: I learned recently that I’m not keeping track of my numbers like I should be. I use TriTech for my POS software and I can certainly see those numbers but I’m just not analyzing it on a regular basis like I should. I would say, just from a gut feeling, I am seeing an increase. One of the programs we started using is a six-box loyalty program. Instead of having a fancy card the customer has to keep track of, we have an index card file system that stays right here in the store. Every new customer gets signed up on one of these cards and so far it’s incredible the number of cards we’ve accumulated.
Bryan Loy: We are seeing a slight uptick in the foot traffic. Allen had made a statement on iMSO a while back that he considers himself to be a hardware store for the music business, because of the small-town location of his store. My store, Paradise Music, is much the same, and we have to carry a lot of little things—what we call “hardware items”—because we’re the only game around. We have to have all these things to keep everything working. Whereas others are blessed to be in a community large enough that they can niche-market specialize. But we spread ourselves pretty thin on that. So, it’s a plus in a way because, if we have the small goods that people want, we will get that steady flow, rather than the person driving to the next town 40 miles over where another store is. So, we do close a lot of sales. But, the negative side of that is, we’re not moving a lot of big-ticket, large-profit items. We’re doing a lot of strings, picks, capos and cables. We have all those little things that people seem to want. I think we’re doing a pretty good job of that. Most everybody who comes in leaves with something in their hand. But, again, I’m not seeing those big sales that we saw walking out a few years ago.
McBroom: He’s right. A lot of our foot traffic is coming in to get cymbal clutches and tom feet and things that are small-dollar items. They’re $5 or $10 items. We have a ton of money tied up in accessories and pieces and parts, because we are the hardware store. He’s exactly right. We have to stock all the stuff that everybody needs, because we’re the go-to place. So, a store that says, “I’m just going to carry acoustic guitars,” well, great for them. They’re not stocking all this extra stuff that ties up our money. They tie their money up only in the things they are marketing and pushing and selling. But part of our approach to the public is to be your go-to place…to be your end-all be-all store that has some of everything. We might not have the exact brand you wanted, but it’s still going to work. We’ll have something for you. And it’s not cheap being the go-to guy.
The Retailer: In terms of products being sold in your stores, are there particular categories of gear—or perhaps emerging market categories—that are selling better or worse than others are?
Basile: Acoustic guitars are still moving well and out-selling electric guitars. Maybe not as well as they were last year. Acoustic guitars remain our top category other than accessories. Accessories far outsell anything else right now. Our accessories whether it be picks right through into add-on drum hardware, are selling every day, all day long. And that’s good, because those are the items we’re making the most margin on and keeping us alive. Obviously, with the store full of inventory, from guitars to drums and keyboards and everything else, I would love to sell more of those. But, thank goodness, there are the accessories and people coming in to buy that stuff every day.
Lisa Kirkwood: The acoustics are still outselling the electrics. We’re also seeing a pickup in smaller instruments like the ukuleles. But, for us, like everyone else has been saying, it’s the accessories and the small things, but it’s also the used gear because we do buy, sell and trade. We also do consignments and we seem to be doing very well with consignments. So, for us, it isn’t the high-dollar, shiny new items that are selling right now. It’s the small accessories, the used and the consigned.
Loy: I would say that acoustics are still selling as well as they were last year for us. But the small goods—capos, picks, strings, straps—have been our bread and butter since day one, and they are still keeping us open. And if we show any money at the end of the day, it usually seems to be a good day of sales on the small items, which have good profit margins. That’s what’s keeping us open. Electric sales are increasing, but only slightly. We are catering a little bit more to the acoustic and bluegrass market here, because it seems to be where the interest lies at this particular point. I am not seeing the 14- through 17-year-old market coming in for electric guitars or amps anymore, like we were seeing just a few short years ago. This may be a national trend…I don’t know. It just seems like those teenagers aren’t buying much product here. They don’t seem like they’re playing music so much anymore. I get the little ones in lesson programs and I get adults who are either coming back to a guitar or have always played. Some of you guys may be different, but that’s the way our market is going. And, a few years ago, I was selling three electric guitars for every acoustic and everybody wanted a Floyd Rose with a whammy bar. Now, it seems to be swinging the other way.
The Retailer: How has the competitive landscape shaken out over the past several months? When you think about Internet retailing, or stores like Best Buy, or Guitar Center outlets, what do you view as your primary competition? How do you cope with the challenges that these competitors present?
McBroom: At one time, Guitar Center gave everything away: free shipping and free everything. They found out that that doesn’t generate profit. They’re backing off from that. I think a lot of these online competitors that have been killing us are learning that you can’t just give away, give away, give away and ever make a profit and stay in business. That’s gonna help us in the long run.
Loy: I agree with Allen on that, and I also think that what you have here is unrest in the ranks about Internet salespeople and Internet companies that are shipping all over the country without having to pay any sales tax, while we’re having to pay eight-and-three-quarter cents or something like that. A person would really have to be kind of stupid to buy a $1,000 guitar that he could get tax-free online when, if he went to the local store, he’d be paying an extra $100 for that product. And this is the thing. I feel that, if one of us has to collect it, then, in a sense of fairness, all of us should have to collect it, and that includes Amazon.com, which has fought tooth and nail not to collect state sales tax. They’re hurting everybody so badly with this that even Walmart is screaming, “Unfair, unfair!”
The sales tax issue is one that’s going to have to be addressed to level the playing field. A lot of states are finally realizing, looking at the revenues that they’re losing by not making Amazon and others collect and pay sales tax. If this situation doesn’t change, it really is going to cripple the brick-and-mortar independents out here that are collecting and paying state sales tax. That’s my number one beef with Amazon, and I really can’t blame them for not wanting to go to the trouble of collecting it. But, at the same time, they’re killing us.
Tegeler: An interesting thing I did the other day…. A manufacturer was requesting some numbers, so I went back in QuickBooks and looked through an expense report covering the nine years I’ve been in business. The number three item I spent the most money on was taxes: sales taxes, property taxes, everything. My top two vendors were my number one and two, but I was just completely blown away by how much in taxes I pay as a business owner.
But, to get back more specifically to the sales tax issue, I’ve had a number of conversations with my state representative here in Iowa about the sales tax issue. She agrees 100 percent that, yes, the states are losing huge money not collecting online sales tax. But, this is the problem that you’re going to face with all politicians: She said that no politician wants to support anything right now that looks like they’re raising taxes. And I said, “It’s not really raising taxes. It’s collecting the taxes that are supposed to be paid anyway.” And she said, “That doesn’t matter. To the average consumer, it’s going to look like I’m supporting something that’s raising taxes, and nobody out there wants to look like they’re doing that right now during this economy.”
McBroom: I had a conversation in the last several months with the Mississippi Secretary of State, Delbert Hosemann. One of his legislative initiatives for 2013 is to examine how to collect sales tax for items sold out of state to Mississippi residents. And Don’s correct: That’s money already owed. That money is supposed to be paid by the consumer. But that system, apparently, does not work. So, they’re going to be looking at collecting it from the reseller instead. His estimate was that Mississippi is losing—are you ready?—$200 million a year in sales tax revenue from items purchased online. Now that’s incredible.
I just experienced something here that made me envy another industry. I just purchased a brand new bicycle. It has nothing to do with this industry, except for this. It’s a brand called Specialized. We have a huge Specialized bicycle shop here in town. That’s the brand they chose. The reason they chose it? Specialized does not allow any of its vendors to sell online, period. Not on their personal Web sites, not on Amazon, not on eBay…anywhere. I tried to research this brand over and over, and could find hardly anything online about them, except they had a great, beautiful, informative Web site. But, I talked to local riders and found out that Specialized is “the bomb.” It’s a great value for the money, and it does a good job. They tell me, “I actually have one of those. I would buy another one.” So, I went and bought a brand new one from the local store for $700. And I thought to myself, “Wow. What if we had more manufacturers in our industry that would take that approach?” You can’t sell it online; you sell it in your store.
Eastman is the only company I can think of off the top of my head—I know there are others—that follows that same approach. You put anything under a 400-level violin online, and you will get a phone call the next day. And they’re very serious about it, and they back it up. Other manufacturers go, “Gee, we don’t know what to do about people who cut MAP. We just can’t control it.” Eastman controls it. Specialized controls it. Other manufacturers control it.
The fact is, many don’t want to control it, because they’re more interested in the quick, immediate dollar than they are in the long-term value of their product—the perceived value of their product.
Don’t forget to check out the second half of the Independent Retailer Roundtable in next month’s issue!