The Hindu Business Line : The strains of music

Changing tastes of consumers, falling margins, stagnant stocks, newer formats, piracy... music retailers need to overcome a host of obstacles and look for growth to reach a crescendo.

A MusicWorld store

HARISH Samtani doesn't believe in the theory of core-competency. From being a major music retailer on Chennai's busy Mount Road in the pre-liberalisation days when "the music business was the domain of a few," Samtani's Stereovision group's core business is losing ground. Liberalisation made music more accessible and spread the business completely thin. Margins went ludicrously low, from as high as 40 per cent to 5 per cent. "At one point of time, we were selling about 500 CDs and 1,200 cassettes a day," a figure that has dwindled to five CDs and 10 cassettes today.

"You've got to move with the times," he says. He sure did. Over the past ten years, his group has slowly diversified into selling film production equipment and consumer electronics. Samtani's predicament is a reflection of the slow but significant shift in the way music is being retailed in the country over the past decade. Medium-sized stores such as Samtani's have struggled to stay in business while small neighbourhood stores, which may not have a wide range of products but are in tune with the times, still seem to matter. But the focus now clearly is on chain stores, promoted by large corporate groups, which see a huge potential in the coming years.

MusicWorld, the RPG group's music retail chain, which presently has over 200 stores in the country, a bulk of it shop-in-shops, reckons the market is good enough to sustain 100 more of its own stores in the next year, and a further 200 two years hence. The Times group-promoted Planet M, likewise, hopes to add 30 more to its currently tally of 48 outlets in about six months, according to Ajay Mehra, COO, Times Retail.

A majority of MusicWorld's new stores will be shop-in-shops — it calls them `Unplugged stores' while Planet M refers to them as `satellites' — in a conscious attempt to reach out to customers, become more visible and benefit from impulse purchases. For instance, out of the 100 new outlets that MusicWorld plans this coming year, only one will be a full-fledged store while the rest will be shop-in-shops and small neighbourhood stores, says its Vice-President & Business Head S. K. Chowdhury.

The bullishness apart, not all is well with the music retail scene. In addition to dealing with the changing tastes of consumers, falling margins, stagnant stocks and newer formats, the retailers inherit a host of problems from the industry itself. Some of these are: piracy, music that hardly creates a ripple — partly because of the limitations of the music genre or the artists, as Samtani puts it, and most times the irrational way in which the industry functions.

Piracy levels haven't been curtailed, says Indian Music Industry's Secretary General Savio D'souza, but it has "been a much better year for the industry" because, unlike previous years, music companies have desisted from paying princely sums for procuring rights, and have become tough negotiators. "When the going gets tough, everybody becomes rational," he adds.

In fact, retail chains seem to have a major anti-piracy role. "The key to fighting piracy is to make available the product," says MusicWorld's Chowdhury, which the retail chains do. D'souza too reckons that the expansion of retail chains will induce customers to buy only original titles.

Otherwise, there has been plenty on the plate for the legitimate market itself.

A Planet M outlet

Music chains MusicWorld and Planet M have seen an explosive increase in their non-music business — VCDs, books and accessories — which now contributes about one-fourth of sales, and is growing at a fast clip. Chowdhury expects the music CD format to grow around 10 per cent next year, VCDs and DVDs (with comparatively smaller bases) by 20-25 per cent and 100 per cent, respectively, helped by their falling prices as also of music systems. And although there is a growing trend toward home entertainment, the non-music segment will stabilise around 35-40 per cent in the next couple of years, feels Planet M's Mehra.

An organisation that need not get unduly perturbed by the changing mix is Landmark, the books and music chain headquartered in Chennai. Music along with home entertainment software contributes one-fourth of the sales in value but more than a third volume-wise, says Landmark's Jai Subramaniam. That's what falling margins have done to the segment.

Falling prices of music products, which in a major way has contributed to tighter margins, has, however, benefited the retailers, says Mehra. "It has helped in higher offtake."

There are no easy solutions, though, for the problem of stagnant stocks, particularly when the shelf life of most products is short. Landmark's Subramaniam says the cost of maintaining non-moving stocks is higher than other items like rent and electricity. "It's a constant conflict, and the conflict never changes." It also represents what Subramaniam calls the "music industry equivalent of Grisham's law of money," according to which `Bad money drives out good money from circulation'; similarly, bad products drive out good products. "A lot of our quality time is spent searching for good products," he says.

The retailers have adjusted their product mix from time to time. In just a few years, the ratio of cassettes to CDs sold has been brought down from 7:1 to 2:1. MusicWorld is looking at 1.4:1 now.

After FM radio, it's now the turn of online download formats to challenge the brick-and-mortar set-ups. For once, the retail chains are not ruffled, and are quite ready to take up the challenge. Indians may still be a long way from embracing the download format but there are indications that youngsters would be more willing to do so. MusicWorld is ready to host a site at short notice should the need arise. The inputs for the site, musicworld4u.com, are being fed on a continuous basis, Chowdhury says. Planet M's Mehra also hints at something similar: "Once downloading becomes big, we will promote it." He feels both formats will co-exist in the future.

IMI's D'souza says one of the challenges would be to create a viable pricing model for online music. The online format will take off without the pricing model but then the pirates will exploit the situation, he says.

Driving on the strength of the group's portal, Planet M also has a significant online presence but Mehra wouldn't disclose what percentage of total sales come from its online format. But Landmark's Subramaniam feels there are problems in selling music online. There are supply chain inefficiencies, which aren't present, say, in the case of books. But, he says, whenever a different format becomes popular, Landmark will bring in cutting-edge technology.

The ambience of the stores and the catalogues may attract the customers but the retail chains still need to do something to hold on to their customers. After having run temporary promotion schemes, MusicWorld will bring on a comprehensive loyalty programme within a year, says Chowdhury. Planet M already has a customer CRM format with about one lakh members on its rolls.

The chains also have tie-ups with music channels, which draw in the youth. Subramaniam, however, says the opportunity lies in focussing on the over-35-year-olds who form nearly two-thirds of the total customers. "The relatively older people buy more music (the traditional way). But the marketing focus is on the youth," he says.

The retail chains have, however, done reasonably well this year. MusicWorld has clocked over Rs 60 crore in sales, about 20 per cent higher than last year's figure. In the process, it has also broken even and expects to clock a "reasonable profit-before-tax" the coming year. Among its new strategies is to sell to a focussed customer base. It plans two shop-in-shops in the temple town of Guruvayur, and Chowdhury says there's more to come.

Planet M's Mehra also says his chain has done well and has gained more visibility.

Growing in a dynamic industry, the retailers are all ready to adopt newer formats to reach out to customers. And as MusicWorld's Chowdhury puts it: "Be it cassettes or CDs or going online, ultimately we are in the business of selling music." How is that for core competency!

Picture by Shaju John

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