Pop goes pop-up: Music retail goes seasonal and temporary
Deloitte predicts that 2011 revenues for digitally distributed music will exceed physical music sales in at least one major market, most likely the United States. This long-anticipated event will probably be driven by a sharp decline in CD sales, rather than a significant increase in digital music subscriptions or downloads1.
This leads to a related prediction: CD retail will start becoming a seasonal or event-driven purchase. By the fourth quarter of 2011, there could be 1,000 temporary “pop-up” music outlets created to meet occasional surges in demand. Pop-up outlets will be a small, but growing, niche segment2.
In 2011, the U.S. will likely be the first of the big-three recorded music markets to see digital music revenues from downloads, subscriptions and streaming services advertising surpass revenues from physical music. The UK is likely to follow, either in 2011 or by the end of 20123, assuming CD sales continue their steep decline4.To put the severity of this decline in perspective, CDs made up 75 percent of record labels’ 2009 revenues in the UK.
The decline in the CD market is likely to cause a marked reduction in year-round shelf space dedicated to physical music. Even with fewer competitors, dedicated music retailers may decide that their shrinking revenues and profit margins make physical music retailing less viable5. Some may diversify, shifting their focus from recorded music to equipment for playing music, concert and festival tickets, or music-related clothing.
Rather than selling popular hits, other music retailers may specialize in music genres that would be harder to discover on the Web. Their aim would be to attract fervent music fans who are willing to pay for music. These niche markets will likely make up only a small portion of total album sales, similar to vinyl record sales. For example, in the U.S., vinyl sales grew 250 percent from 2006 to 2009. However, the end result only represented 2.5 million units out of a total album market of 374 million6.
Despite the shift toward digitally distributed music, physical music retailing will not vanish: while demand for CDs in the medium term will continue, it will become increasingly seasonal. In 2010, nearly half of all CDs sold in the UK were expected to be purchased during the fourth quarter, driven by seasonal gifting and the finale of the X-Factor music talent show7.
Retailers will likely respond to variable demand by creating pop-up stores. Current music retailers might establish a variety of temporary stores, including conventional retail spaces with short-term leases8, temporary outlets in high traffic locations9, and small-scale outlets offering curated, exclusive merchandise10. These curated outlets could be located wherever and whenever there are people who want to buy CDs, such as live music venues11.
In the medium term, pop-up stores may also be set up to coincide with major record releases. A long line of fans eager to purchase a new release from a pop-up store could generate marketing buzz and increase record sales.
General retailers, such as department stores and supermarkets, may abandon selling CDs year-round if their turnover and margin targets are not met. Instead, they may only stock CDs when demand is stronger, such as during gift-giving seasons or major music events. In some cases, music might be sold from a pop-up outlet physically located within the main store12. During the rest of the year, music might only be available from the main store’s website13.
The next few years will probably remain challenging for music retailers. The one bright spot is that CD prices could rise over the medium term as dedicated CD buyers have fewer outlets to choose from. CDs could follow the path of vinyl LPs, which rose significantly in price following their exit from the mainstream.
Music fans who prefer CD audio quality might be willing to pay a higher price. However, price increases will not compensate for a continuing decline in unit sales; net revenues from recorded music will continue to decline.
Nevertheless, because recorded music provides crucial exposure for musicians, it is likely that record labels and other music promoters will continue to produce CDs – even at a loss.
1According to the IFPI, in 2009 CD sales fell by 12.7%, losing $1.6bn in value; digital downloads grew by 9.2%, gaining less than $400m in value.
2In 2010, one chain, ToysRUs opened 600 pop-up toy stores in the US alone. Source: Boo! Pop-Up Stores Popping Up All Over, NPR, 19 September 2010: http://www.npr.org/templates/story/story.php?storyId=129942010
3Deloitte’s view is that it is feasible that physical sales recapture the lead over digital distribution in markets where it had already been overtaken. If in 2012 there were a strong roster of album releases by the type of artist that is favoured by mature audiences, this would boost CD sales, as this age groups tends to buy physical product rather than downloads, particularly in gift-giving season. Any regained lead would probably be short-lived.
4For perspectives on other markets, see: for Canada: Industry looks to the titans to revive flat sales, Metro News, 25 November 2010: http://www.metronews.ca/halifax/scene/article/702329--industry-looks-to-the-titans-to-revive-flat-sales
5One of London’s largest music stores is scheduled to close in 2011. Source: HMV to leave Oxford Street store, Retail Gazette, 18 November 2010: http://www.retailgazette.co.uk/articles/22302-hmv-to-leave-oxford-street-store
6US vinyl record sales. Source: Top Ten Selling Vinyl Albums of 2009, Musicbyday.com, 10 January 2010: http://www.musicbyday.com/top-ten-selling-vinyl-albums-of-2009/768/;US 2009 album sales. Source: U.S. album sales fall despite Michael Jackson boost, Reuters, 6 January 2010: http://www.reuters.com/article/idUSTRE6055R020100106
7X Factor finalists top UK chart with Bowie's Heroes, BBC News, 28 November 2010: http://www.bbc.co.uk/news/entertainment-arts-11858000;Take That album sales frenzy, itv.com, 16 November 2010: http://xfactor.itv.com/2010/music/viewer/read_take-that-album-frenzy_item_100929.htm;Industry looks to the titans to revive flat sales, Metro News, 25 November 2010: http://www.metronews.ca/halifax/scene/article/702329--industry-looks-to-the-titans-to-revive-flat-sales
8HMV to open pop-up shops, BBC 6 Music News, 19 October 2009: http://www.bbc.co.uk/6music/news/20091019_hmv.shtml; Pop up shops, LoveCamden.com: http://www.lovecamden.org/pop-up-shops
9For an example of this approach in the jewellery sector, to address demand in the run-up to Valentine’s day, see: Signet Group jewellers open pop-up stores for Valentines, MarketingWeek.co.uk, 8 February 2010: http://www.marketingweek.co.uk/signet-group-jewellers-open-pop-up-stores-for-valentines/3009713.article
10For an example of how pop-up stores have worked in other sectors, see: The pop-up shop phenomenon, Sunday Times, 28 December 2008: http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/eating_out/article5388955.ece;for an example of how pop-up stores have worked in food retail, see: Marmite reopens pop-ups, Marketing Week, 20 October 2010: http://www.marketingweek.co.uk/sectors/food-and-drink/marmite-reopens-pop-ups/3019578.article
11For some examples of deployments of music stores, see: Third Man pop-up stores to hit London this week, DrownedinSound.com, 27 October 2009: http://drownedinsound.com/news/4138263-third-man-pop-up-stores-to-hit-london-this-week;The Black Keys release Brothers + NYC pop-up store + 2010 tour dates, bandweblogs .com, 11 May 2010: http://bandweblogs.com/blog/2010/05/11/the-black-keys-release-brothers-nyc-pop-up-store-2010-tour-dates/
12Popping for Shoppers, Hub Magazine, February 2010: http://www.hubmagazine.com/archives/the_hub/2010/jan_feb/the_hub34_tracylocke.pdf
13'X Factor effect' boosts profits, says Sainsbury's boss, Independent, 10 November 2010: http://www.independent.co.uk/news/business/news/x-factor-effect-boosts-profits-says-sainsburys-boss-2130007.html