Mass Appeals To Shoppers

Mass merchants in Canada are gaining ground on traditional record retailers.

National chains like Wal-Mart Canada, Zellers, Price Club and Costco accounted for 32% of music purchases in Canada for first-quarter 2006, according to Nielsen SoundScan.
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Industry insiders say that represents three times the merchants' estimated share 10 years ago. (Nielsen SoundScan did not start collecting data in Canada until 1997; mass merchants were added later.)

According to the IFPI, the Canadian music market tallied $732 million (U.S.) in sales in 2005.

The rise of the mass merchants has been achieved through aggressive marketing and an increase in the number of stores, plus improved product range. But competitors complain the chains simply cherry-pick best sellers.

"They're selling music to encourage people to come in and buy their refrigerators," says Tim Baker, buyer for 30-store Ontario-based music chain Sunrise Records. "How many CDs did the mass merchants sell of James Blunt's ["Back to Bedlam"] in the first six weeks of release?"

Canada's mass merchant sector was long perceived as a convenience model where buyers could pick up music while shopping for other goods, regardless of whether it cost a little more than traditional music retailers.

But the past decade has seen the sector become a preferred destination for music buyers. Despite selling new titles in line with music specialists' prices—$12.99-$14.99 Canadian ($11.33-$13.08)—mass merchants' market share has soared.

This is in stark contrast to the United States, where mass merchants often sell titles at much lower prices than traditional record retailers.

Insiders credit the tremendous growth partly to the emergence of mainstream pop, which appeals to family shoppers, as a major seller in Canada in the 1990s. The chains have also widened their product range beyond their traditional pop and country base.

"There's not much they don't sell anymore," Sony BMG Music Canada VP of sales Steve Simon says. "Country and pop are strongest, but they do decent shares on everything."

Handleman Entertainment Canada services Wal-Mart Canada's 280 stores and Zellers' 280 outlets nationally.

"The power of Wal-Mart to attract all shoppers—not just music buyers [in Canada]—is considerable," Handleman VP/GM Ned Talmey says. "We've paid attention to that consumer by stocking the product they want at a decent price, marketing it with ads, fliers and in-store [point-of-purchase advertising]. This has converted what normally would not be a music shopper into a music shopper."

Leading music specialists like HMV Canada, CDPlus, Archambault Musique and Sunrise Records, plus consumer electronics chains Future Shop and Best Buy, still take the lion's share of the remaining 68% of music sales.

"The Canadian music industry is very fortunate; we have sustained a very strong market balance between full line retail and mass merchants," Universal Music Canada president/CEO Randy Lennox says.

Even though Canada's mass merchants do not heavily discount top titles, Humphrey Kadaner, president of 107-store HMV Canada, suggests that by significantly featuring new titles in weekly advertising campaigns, "they are taking top titles people are looking for and using the category to drive traffic in their stores."

And, despite competitors' claims that the merchants cherry-pick, Talmey insists otherwise. "The labels recognize we perform a certain level of service in breaking artists," he says, "and that service has broadened in the past few years."

Talmey declines to provide sales figures but says Wal-Mart Canada and Zellers accounted for up to 32% of total Canadian sales for Michael Bublé's 143/Reprise album "It's Time" and at least 30% of Johnny Cash's "The Legend of Johnny Cash" and Tim McGraw's "Greatest Hits Vol. 2: Reflected."

"We were just shy of 20% on [the new] Rob Zombie [album "Educated Horses"] and had 25%-30% of James Blunt," he adds.

The mass marketers' progress also reflects changes in Canada's retail landscape over the past five years.

Notably, retail giant Sam the Record Man filed for bankruptcy in 2001. At its mid-1980s peak, the chain dominated Canada's music retail market with 106 stores, claiming 25% share, but the rise of HMV Canada and increasing mass merchant competition saw its prominence diminish in the 1990s.

Another key change came when U.S.-owned Wal-Mart entered Canada in 1994.

"Wal-Mart doesn't have a lot of penetration in the core of major cities," Kadaner says, "but they have gone into smaller towns which traditional music retailers once had to themselves. That has changed the dynamics of the marketplace." ••••