Music Gear: Gear Market Faces New Hurdles

Music instrument retailers today must go the extra mile to generate business.

Billboard recently surveyed several industry executives to find out how they were handling the market and its trends, and to see what they will watch for at the International Music Products Assn.'s winter NAMM Show, taking place Jan. 15-18 in Anaheim, Calif.

Here are comments from Chuck Surack, president and founder, Sweetwater; David Angress, executive VP, general merchandise manager, Guitar Center; Wayne Dolnick, director of sales and marketing, Sam Ash Professional Audio Group; and Jim Hovey, president, American Music Supply.



How is business?

Chuck Surack: The state of Sweetwater's business is great. We are up over last year—not as much as we had planned, but still respectable growth. Business is still strong for us, particularly with computer-based products.

David Angress: Guitar Center continues to grow according to plan and now has 120 stores nationwide. We recently opened our first store in Manhattan—a 30,000-square-foot flagship location near Union Square—and the New York market has responded enthusiastically. And our first store in Nashville [opened] in mid-December.

Even in difficult economic times, Guitar Center has found that continuing to offer musicians and production professionals great prod-

ucts, great prices and an exciting environment drives our business forward. As a publicly traded company, Guitar Center's financial performance is published quarterly.

Wayne Dolnick: Sam Ash Professional has been in the business of supporting and supplying the recording industry for about 20 years, during which time the industry has ebbed and flowed. Currently, the Professional Audio Group of Sam Ash Music is going through an expansion process, in addition to myself coming onboard as the new head of sales and marketing.

Sales have been extremely strong for the past two quarters, with a trend pointing toward expansion in the home studio market with the "desktop musician/mix engineer" leading the charge. In the realm of the production houses—post and pre—sales are growing exponentially. That's based on the studios' current assortment of analog gear moving over to a digital world, and Pro Tools rooms being upgraded to the latest Accel cards and the new G5s from Apple.

Jim Hovey: Catalog and e-commerce have been very strong [for American Music Supply]. Brick-and-mortar retail has been, and continues to be, more difficult. There are more retail stores in a smaller geographic area, so some of the difficulties may be attributed to that. We've been trying different approaches to address that issue, including the most comprehensive mailing the store has ever done. So far, results are good.



What challenges do you face in this market?

Surack: I believe the biggest challenge we have [is inexpensively made] imported products from China. We have to sell a lot more of them to make the same money. I believe [the Chinese market] is "at war" with us and winning, and we don't even realize it yet. I don't understand who will have money to buy the products in the U.S. if all our jobs go to China.

Angress: We're living in a very competitive global economy. We face technological changes that can cause yesterday's hot product to quickly become obsolete. Global product sourcing can cause price deflation, and oversupply threatens profit margins. These issues are not unique to the musical equipment business.

We've focused our efforts on working with the manufacturers who are in this business for the long haul—those who foster strong brand reputations by consistently delivering innovative products that really work well for our customers. Together with these manufacturers, we've worked hard to produce promotions that excite our customers, and to develop much more efficient ways of handling our supply chain to eliminate unnecessary costs. Such things as freight costs from Asia can significantly impact the price of our products. Lowering our internal costs allows us to run a profitable business while offering a huge product selection and being the industry's price leader.

Dolnick: From a sales and support view, I think the most difficult part of being in the pro market today is keeping up with changing technology. From a business side, it is eroding margins of products, caused partially by the growth of the Web and subsequent illicit dealers.

It is a far cry from the days of demoing a multi-track two-inch Ampex and showing just a portion of the available features in a digital product. [This change is coupled] with the sheer options now available to the home-studio buyer: a world of virtual studio tracks and multi-track HD recorders with a myriad of built-in effects.

Hovey: In some cases, I'm not seeing multiple sales of the types of units we were [selling] beforehand. With regards to imports, the overall gross margin is strong and price points are extremely attractive. However, you're dealing with weaker gross profit dollars, and the net is that you're not selling an increased factor in quantity. In order to net the same amount of gross profit dollars, you simply have to sell a larger quantity. Then, we may be selling more. But the bottom line is not bringing in as much gross total profit dollars.



What are the most promising trends or products you will check out at NAMM?

Surack: As for new trends or products, I am not sure. I just hope the manufacturers can find ways to come out with more expensive, yet very desirable products.

Angress: We don't expect any real surprises at the January NAMM show. Our merchandising team is in touch with the vendor community all year long and is quite often involved in product development, well in advance of actual product releases.

We are, of course, seeing continued rapid advancement in recording technology. Our little industry is reaping the benefits of developments in the much larger computer industry. The G5 Apple and high-powered Windows-based computers have become the central platform of most professional recording environments. This move away from dedicated hardware and into general purpose computers has again increased customer value. Apple and Guitar Center recently inked a VAR deal for the professional audio market.

The trend toward powered speakers also continues. It is rare today for a musician to purchase a studio monitor that doesn't have built-in amplification. This trend is visible in sound reinforcement as well.

Dolnick: Sam Ash Professional has been fortunate to maintain a very strong team of product specialists who have evolved over the years by maintaining proficiency in this rapidly changing recording world.

The trend that is dominating this world is everything-digital, beginning with software that lets any novice create his or her masterpiece to ancillary MIDI, USB or Firewire devices at lowered prices, up through all the third-party manufacturers that have jumped on the Digi bus.

At NAMM, our buyers will be looking for all the new plug-ins, digital recording devices and control surfaces that are ever-changing in this fast-paced world we know as "pro." The trend is definitely toward more powerful gear, with all the bells and whistles included at lowered retail prices. In the end, the musician, studio owner and production houses all win.

Hovey: [Last] summer's NAMM was actually disappointing in regards to new products, so I am hopeful that we will see more at the upcoming show. I have not yet been pre-introduced to anything that will be announced at the show. I think with the market being a little slower for the manufacturers over the past year and a half, they may have slowed down with their research and development. I'm just hoping that has changed at this year's show.