Musical Instrument Store Business Plan

Consumers spent $6.9 billion on musical instruments nationally in 2003. This was the second highest yearly total on record. The industry achieved these numbers even with a slow economy and the stock market in a period of transition. Lower pricing was a factor in the increased sales, but this also lowered profits and overall industry dollars, decreasing the yearly total from the industry high of $7.1 billion in 2002.

Key sales areas related to our business model are:

• Fretted instruments $903.2 million.
• School Band Instruments $532.2 million.
• Sound Reinforcement $819.9 million.
• Printed Music $511 million.
• Electronic Keyboards $200.7 million.
• General accessories up 4.8% in retail dollars shipped, to $364.3 million.

In the musical instrument industry, consumers are looking for wide selections, prompt and knowledgeable service, good product value, and music lessons to further their understanding and enjoyment of the products. They prefer to find stores offering these benefits through word of mouth.

The musical instrument market has recently been driven by a number of low-cost, high-selection Internet and mail order companies, which has caused prices to level out, by giving consumers comparison shopping at their fingertips. In response, various large chains have tried to offer similarly wide selections in their physical retail spaces, at the expense of staff training and customer service. However, the high-profile advertising generated by these chains has rippled down even to small stores, as more and more musicians at all levels start to seek out the missing elements of these sales model. MusicWest has the experience, prices, and focus on customer service to fill these gaps.

4.1 Market Segmentation

The following market segmentation table is based on the finding that roughly 46% of the general population are “musicians” of some form or another. Within that group, there are different segments, ranging from professionals, to semi-professionals, to hobbyists and novices. It is very difficult to make a single demographic profile of the typical consumer for this industry, as within each instrument or client type, the figures for age and income will vary drastically. The market analysis numbers show the 46% of the local population around MusicWest who will serve as our potential customer base.

Listed directly below are the latest industry figures relating for New Mexico in total Musical Instrument sales:

4.2 Target Market Segment Strategy

We intend to target musical novices, hobbyists, and semi-professionals. These groups include the largest percentage of musicians, with the greatest amount of disposable income. These market segments can generally be approached with the same marketing techniques, and can be very loyal when treated properly.

We have chosen not to make professional musicians our focus for several reasons. Professional musicians require a great deal more attention and require much less profitable pricing, and they prefer a more exclusive shopping environment away from the novice consumers (ego).

4.2.1 Market Needs

Our target clientele, though varied, can be approached in very much the same manner. Their most important market needs are:

• Selection
• Value
• Service
• Lessons

Most musicians need support and service. The instruments that we sell can be difficult or impossible for end users to service. Potential clients tend to seek stores that can fulfill these services through word of mouth referrals and/or direct shopping experiences. These musicians come back time after time if they feel they are getting a fair deal.

One of the most common complaints from musicians in our market is the high turnover of sales staff at other dealers, and the resulting inconsistencies in their shopping experiences from day to day. Consumers like to see the same faces on each visit and this business is one that thrives with the personal relationships salespeople develop with their clientele.

In addition, female customers have traditionally been treated poorly by this male dominated field. By reversing this trend, reinforced by ongoing sales training and with unbiased customer interaction by our sales staff, we can further exploit the weaknesses of our top local competitors.

4.2.2 Market Trends

The musical instruments market is currently being driven by mail order and internet retailers. Although such companies are known for low pricing and large selection, their prices have bottomed out at a level the smaller stores can offer, while still remaining financially sound. Retail mega-stores such as Guitar Center and Sam Ash are growing at a steady pace, but appear to be affecting the market in a positive manner. Their high level of advertising drives in more consumers, who in turn will seek out other music stores for comparison-shopping, and for the music lessons and personal service not offered by most of the mega-stores.

Consumers increasingly expect the music stores they deal with to offer a clean, high-tech and comfortable shopping environment, and more personal service to explain the ever-increasing levels of technology in musical instruments. Consumers generally want all this and expect to see prices consistent with the mega-stores. In short, they want a one-stop shopping experience. We have shopped these major chain stores, and find that they have poor customer service, and that their average employee is under-trained in sales and technical aspects unique to this industry. Another trend that benefits this industry is that as production moves to other nations such as China (due to lower cost of manufacturing), prices go down and units sold go up, increasing revenue opportunities.

4.2.3 Market Growth

The musical instrument market has seen steady growth over the last ten years, with revenue increasing from $4.2 billion in 1995 to $7.1 billion in 2000. 2003 sales were down to $6.9 billion, still the second highest year in industry history. These numbers were reached in spite of the difficulties with the economy and turmoil on Wall Street. The most dramatically declining product was acoustic pianos, a product we are not interested in at the present time. The market had seen steady growth of around 4% over the last few years, despite other key industries being down (for example, automobiles down 7%, personal computers down 3% and new home construction down 1.8%). In addition, 10-year growth patterns for the last decade show incredible gains in key instrument categories. We expect these trends to continue as the economy strengthens.

4.3 Service Business Analysis

Musical instrument retailing is accomplished through a variety of outlets:

1. Local Musical Instrument retailers: Storefront reseller with less than 10,000 square feet. These retailers usually carry one to three main brands and offer a mix of instruments and accessories. Occasionally these will be specialty stores, offering only one type of instrument for sale (i.e. drums, pianos or band instruments).
2. Chain stores and Superstores: These include major chains such as Guitar Center and Sam Ash. These stores are always bigger than 10,000 square feet and offer greater selection of instruments. These stores offer sub-standard walk-in service and generally cater to people looking for products in boxes with aggressive pricing and little support.
3. Mail Order: The market is increasingly served by mail order businesses that offer aggressive pricing of boxed product. For the purely price-driven buyer, who buys boxes and expects no service, this can be very attractive. These dealers also serve as an educational tool by displaying items that most local dealers do not stock.
4. Others: These include direct sales by manufacturers and the increasing number of Internet sites that are mainly price driven. EBay has also become a player in this category.

4.3.1 Distributing a Service

Musical instrument re-sellers are supplied by a variety of means:

1. Direct purchases from manufacturers – generally the best price, but higher minimum orders.
2. Purchases from national distributors – large selections, good prices.
3. Purchases from regional distributors – small selection, average pricing.
4. Specialty distributors/mfg. reps – good to great pricing based on yearly volume.

4.3.2 Competition and Buying Patterns

Consumers expect to walk into a clean, well-stocked shopping environment. The consumers do shop between stores, as buying a musical instrument is a big purchase for most. Price tends to be a huge influence on most musical instrument buyers; if they feel your pricing is out of line with the market they will usually walk right out. On the other hand, if they feel your price is in line with the market they tend to look to what else your store offers, such as lessons, repair facilities, knowledgeable staff, etc. Growing percentages of customers are price-driven only, and want to be handled in a direct and efficient manner without lengthy price negotiations. Accessory buyers tend to find the store closest to their home or place of work for the sake of convenience.

4.3.3 Main Competitors

There are several local retailers that will compete with us on some level. In the following segments, we will attempt to give a consumer view of the main competitors, from largest to smallest, and a brief description of the others. For school band instruments, our two main competitors are Music World and Baum’s Music, and for guitars and amps Marc’s Guitar and, to a lesser extent, Guitar Center and Grandma’s Music and Sound. Grandma’s and Guitar Center are the two largest stores, but they do not sell school band or orchestral instruments. There are only three band instrument purveyors in Albuquerque, and all are small-scale operations.

4.3.3.1 Marc’s Guitar Center

Marc’s Guitar Center, 2324 Central Avenue SE, Albuquerque, NM 87111 

Hours Mon-Fri: 10-6 | Sat: 10-5:30

Marc’s Guitar Center is a small shop catering to beginning players. This store offers a very limited selection of electric and acoustic guitars and amplifiers at generally average market prices. The store has two full-time teachers and its proximity to the University of New Mexico is a prime factor in its success. Marc’s does only small local advertising in its general vicinity and relies on the yellow pages and word of mouth for its expansion. The store is in its 25th year of business. Although the location is its greatest asset, many people do not like to visit the university area, due to its exaggerated reputation for high traffic and crime. The store carries some name brands and a few “B” brands.

4.3.3.2 Music World

Music World of Albuquerque, 7017 Menaul NE, Albuquerque, NM 87110

Hours Mon-Sat: 9-6

Music World is a full line retailer going through severe changes. Three years ago, Don Johnson, the owner of Music World, bought the two King Music Stores that had been in Albuquerque since the 1950s, and then opened a second Music World location in Santa Fe around the same time. Within one year’s time he had 100% employee turnover at the King locations, and as of this plan he has closed all three stores and moved his last remaining Music World store into the old King Music building on Menaul. The store carries a few name brands augmented by basic accessory lines. The King Music stores, at their peak, were generating approximately $1.8 million between the two locations, but sales had fallen off by more than half when Mr. Johnson purchased them. The stores have always had the reputation for high prices and have always pushed the idea that they provide more service than most. In fact, the stores offered little more service than one normally expected to receive. Music World is extremely out of date in their sales and marketing techniques, and is on the declining slope of technology. These stores sell basic items available anywhere. The store recently lost its largest piano line (Baldwin/Wurlitzer). As of the date of this plan, Music World is experiencing severe cash flow problems and is in litigation for discriminatory employment practices with former employees. A second lawsuit has been filed by his former landlord for damages done to the premises.

4.3.3.3 Other Competitors

The following are additional but smaller competitors:

Lesman’s Music – Specializes in dj and recording gear and rentals. Lesman’s recently downsized from a full line retail operation. They have a very poor reputation but still fulfill a need to the community. The store recently moved to a new location that, oddly, has no storefront parking.

Baum’s Music – School band instruments only. They have a good reputation and loyal clientele. Baum’s offers instrument rentals. The store primarily stocks a few entry-level instruments and has a large repair department.

Rio Rancho Music – School band instruments only. They call on school band directors as a means to drive the business. They offer rentals but have a very poor reputation in the community. The store has been for sale for over five years.

Encore Music – Very small retailer that specializes in vintage gear and some new guitars and amps. They have a decent reputation. They do some minor repairs. This store is rumored to be having cash flow issues.

Robertson’s & Sons – Specializes in orchestral instruments. The store has average pricing on most items. They have a very good reputation and are world renowned for their repair department.

Music Go Round – Franchised used musical instrument dealer.

Apple Mountain Music – Folk instruments are their focus. They offer music clubs on ethnic instruments; open part time.

Studio D – A pawn shop/music store; some new, mostly used, gear.

Luchetti Music – Recently out of business; was a drum specialty store.

Mail order catalogs:
There are several mail order providers on the national scene. The biggest of these is Musician’s Friend (owned by Guitar Center) out of Medford, Oregon. These low cost competitors drive the market. They have large inventories and offer all of the latest products to hit the market, usually before the local storefront dealers. These mail order shops are taking a large bite out of the local dealers’ market, but also contribute to educating the public on new items, and assist in growing the overall market on a national level. Service can be less than ideal, and shipping and handling fees are involved. Other catalog dealers are Venemans Music Emporium, American Music Supply, and International Musician’s Supply.

4.3.3.4 Grandma’s Music and Sound

Grandma’s Music and Sound, 800 S-T Juan Tabo NE, Albuquerque, NM 87123

Hours Mon-Fri: 9-6 | Sat: 10-5

Grandma’s Music is Albuquerque’s largest musical instrument retailer, with over 13,500 sq. ft.

This store is a pro shop that carries state-of-the-art technology within its pro audio department. Grandma’s carries guitars, drums, sound reinforcement, pro audio, dj and general accessories. The store stocks a huge amount of name brand gear. The store also has a large presence in the mail order and Internet sales areas. The store operates on aggressive pricing and high volume sales and is generating approximately $6 million in sales per annum. Grandma’s has a poor reputation with the average non-professional musician, in terms of customer service.  All customers are definitely not treated alike here. The store has repair facilities and a large staff, but again suffers from apathy toward non-professional shoppers. The stores pricing is adjusted to the knowledge level of the customer. The store in general is very well laid out and has state of the art lighting and displays, but is also very cluttered, with hazardous audio cables strewn about the floor where one might trip over them. As of this plan, Grandma’s is relocating to the Westside at the intersection of Paseo Del Norte and Coors Blvd. They have no plans to add teachers at the new location.

4.3.3.5 Guitar Center

Guitar Center 6001 Menaul Blvd. NE, Suite B, Albuquerque, NM 87110

Hours Mon-Fri: 11-7 | Sat: 10-6 | Sun: 12-6

Guitar Center is the nations largest musical instrument retailer with local space over 13,000 sq. ft.

Guitar Center is the nation’s leading retailer of guitars, amplifiers, percussion instruments, keyboards and pro-audio and recording equipment. They presently operate 128 Guitar Center stores, with 108 stores in 46 major markets and 20 stores in secondary markets across the U.S., including Albuquerque. Guitar Center is also the largest direct response retailer of musical instruments in the U.S. through its wholly owned subsidiary, Musician’s Friend, Inc. Its catalog and website, www.musiciansfriend.com, opened in Albuquerque in March, 2004.

4.3.4 Business Participants

Superstores are a growing presence in the larger markets. These stores benefit from national advertising, economies of scale, and volume buying, and carry the latest name-brand items. The aggressive pricing and selection of the superstores threaten the smaller local stores.

These local stores are generally mom and pop stores that are under-capitalized and suffer from an outdated management philosophy. Unless these stores can adjust to the superstores’ way of marketing and selling, they run the risk of increasingly losing key lines and eventually the core of their customer base.

Many small to medium companies who have adapted to this new way of doing business are increasing their business even with the superstores in their immediate vicinity. These smaller stores are able to offer services and support that the giants cannot, and have focused their stock in order to compete on a more level playing field. MusicWest intends to fit in this category.