Fopp Targets Sales Growth

Despite a tough economic climate and falling record shipments here, independent U.K. retailer Fopp is targeting a sales growth of 61% for 2003—rising to £28 million ($45 million) from £17 million ($27.4 million) in 2002.

The company says that growth will be achieved though a pricing policy that frequently undercuts its major competitors by around 20% on new CD-album releases. Fopp was established in 1981 as a one-man record stall in Glasgow, Scotland, by former HMV U.K. sales assistant Gordon Montgomery. It now has 14 stores across the U.K.

"Our view is [that] the customer knows the value of the product, not the supplier," says Montgomery, who is now Fopp's chairman.

He also remains executive buyer "because I like it. The business is built on purchases. You can't afford non-movers."

Montgomery adds that Fopp's policy is to "negotiate hard and buy in bulk. We spend almost nothing on advertising; we had to build our reputation by word-of-mouth."

Fopp's pricing policy means customers can pick up a current chart album, such as Elephant (XL) by the White Stripes, for £10 ($16.10)—around £2 ($3.22) cheaper than most rival music specialists.

"These are the prices the products sell at—we have to reflect demand," Fopp managing director Peter Ellen says.

A pricing structure for new and catalog CD albums enables many of the former to retail at £10 and the latter at £5 ($8.05). That encourages the public to buy in bulk, Ellen says. "It's what enjoying music's all about—you need more of it and depth of range."

While major U.K. music specialists tend to negotiate file discounts with distributors for products across the board, "we prefer to construct discounts around [specific] products we want and then negotiate the best possible price," Montgomery says, "so we still make a profit and don't have anything left [in stock]."

The question asked by many in the music retail market is how Fopp manages to get its purchasing right. Ellen denies the company brings in product cheaply from Continental Europe: "It is Fopp's policy to purchase all new release albums from U.K. suppliers."

Major labels contacted by Billboard either declined to comment on their relationship with Fopp or did not return calls.

But Peter Thompson, managing director of independent Vital Distribution—which distributes XL in the U.K.—says, "We've seen very good results with them. They've sent a clear message [to shoppers]—it's £5 or £7 [$11.30] or £10. They knew where to pitch it, price-wise. They've always got their eye on a deal, but they're not hard negotiators because they give you something back—they tend to deliver and not ask for discounts for the sake of it."

Thompson concedes that Fopp is "making slightly greater demands than previously, but that's because they're probably pushing harder. There are worse people out there."

Bob Lewis, director general of U.K. retail trade body the British Assn. of Record Dealers—of which Fopp is not currently a member—says the organization is "delighted to see any retailer achieving success in this tough economic climate and new technological age, whereby some record companies seem not to wish to release physical product to consumers who want them but seem to be driven toward downloads."

A characteristic of Fopp's expansion is its careful store rollout. "Size isn't an issue—it's the quality of the sites that matter," Montgomery says. "We're in no rush to expand so long as it turns a profit in its second month. We're not going for market share—we're trying to build a profitable business."

A formulaic approach to running the Fopp empire keeps development simple. "If the [local area] population is a quarter of a million," Montgomery says, "then we need a 3,000-square-foot floor size. If it's a half a million population, then we need 6,000 square feet. We look for a good property deal, and we pay our staff better rates than most of the independents—but we 'bleed' them."

Montgomery says Fopp is experiencing increasing success in its sale of paperback books and DVDs. Currently, he says, "DVDs are worth 15% of our business and books 10%."

One new development that Montgomery speculates could have real implications for the U.K. retail industry is a CD vending machine that works like a cigarette dispenser and accepts both cash and credit cards.

"It has 400 different CD titles holding 1,000 units," adds Ellen, who originated the concept. "We don't know what the key products are just yet."