Niches drive retailer riches

Trio grow despite drop-off in music biz

When Amoeba Music, Starbucks and Chicago’s Dusty Groove started selling records, the music industry was consolidating and the future looked bleak. But despite the downturn, each company has found its respective niche among consumers and flourished beyond expectations.

The success of Starbucks’ music operation has demonstrated that consumers are willing to pay top dollar for both a cup of coffee and a CD. More than 3.5 million records, by artists such as Herbie Hancock and Ray Charles, were purchased by customers in 2005, a 307% increase over the previous year, according to the chain. And Starbucks helped launch the career of newcomer band Antigone Rising, which sold more than 100,000 records of its debut through the chain.

“We recognized that there was a tremendous amount of chaos in the industry in terms of its ability to provide a quality retail option for music consumers,” says Ken Lombard, prexy of Starbucks Entertainment, explaining the move into music in 1990.

The marketing savvy of the chain, which limits its inventory to 20 or so top titles at a time and charges full retail price for the discs, has also found a receptive audience of labels and artists. It also upped its cachet in the music arena by signing exclusive distribution deals with such critical faves as Bob Dylan and Alanis Morissette.

“We’re providing our customers, who are coming in with a frequency like no other retailer, with access to music in a way that is already part of their daily routine. That’s something we don’t think any other retailer can offer.”

Starbucks boasts 40 million customers a week in its stores, says Lombard, who notes that offering CDs is one component of the company’s overall plan to build the coffee giant into a “music destination.” And the success of selling discs has buoyed the chain to start offering select wireless music downloads at the company’s more than 6,000 hot spots. “No one can provide the footprint we have,” says Lombard.

While Starbucks tackles new delivery methods, Amoeba Music owner Marc Weinstein operates his three-store music operation old-school style: bins boasting a deep catalog of new and used product covering every genre at a time when most stores carry just the radio-friendly or popular heritage acts.

Weinstein also has an unusual philosophy for someone in business: “We’re not trying to sell our customers anything when they come in,” he says. “And we’ve never done that industry thing with huge displays and in-store videos the labels pay for, all trying to tell customers what to buy. We want them to discover on their own what it is they like.”

Weinstein’s stores in Berkeley, San Francisco and Hollywood are well-established meccas for the music fan, where eclectic and popular, new and used, CD and vinyl and hard-to-find titles reside together.

The Berkeley shop was launched at a time when major chains were buying up independent stores as part of an industrywide consolidation. Eventually, the chains collapsed under the weight of all the new debt, giving big-box outfits like Best Buy an eventual chokehold on music retailing that has squeezed out most remaining independent record stores.

But Weinstein further bucked the developing trend of superstores carrying just pop hits in a huge electronics store format, and bowed his two other shops a few years later. Today, with sales north of $50 million, Amoeba is the largest independent record retailer in the country.

“I wanted a store that was a place I’d like to go into,” says Weinstein, who likes the sense of unique community that each store has fostered. “There are few better measures of a cultural scene than a record store. The Hollywood store is the epitome of that experience.”

Weinstein says the customer base at all three outlets has changed little over the years, except noting that the Berkeley store now gets fewer students. “It’s a result of downloading, and the campus is all business students now. Berkeley isn’t the place of cultural revolution that it once was.”

Though he eschews mail order, preferring that local customers “get our best stuff rather than selling it to the world,” Weinstein is preparing to launch an online store. “We need to be a digital-world player,” he says. “If people stop making CDs, we need to be ready.”

As Amoeba develops its online presence, Chicago’s Dusty Groove Internet business is well established. The purveyor of jazz, funk, hip-hop, Latin and soul from the ’60s through ’80s, Dusty Groove started selling records online in April 1996 and has made a market of carrying hard-to-find or esoteric records.

Three years ago, it opened a store, and now bins boast early Marvin Gaye, Fela Kuti and French crooner Serge Gainsbourg, among others. The company also has an extensive Brazilian music collection, and knew of Caetano Veloso long before he ever picked up a Latin Grammy Award.

Although the store does a seven-figure annual business, 90% of its sales still come from its online customers. Founder Rick Wojcik, who listens to every record he carries, says Dusty Groove succeeds because it “offers collectors, fans and artists, such as DJs, hard-to-find music from around the globe.”

“We started the business to help support our musical interests, and it’s become a place where people can learn about various music styles in a way they couldn’t elsewhere, especially in a chain store.”

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