KEY POINTS:
Just as video didn't exactly kill the radio star, digital downloads probably won't sound the death knell for retailers of physical music recordings.
But they are forcing dramatic change in the music retail scene.
Retailers are now competing for the music consumer's dollar on a wide array of fronts. Kiwi music icon Real Groovy and Australian new entrant JB Hi Fi do battle over the size of their back catalogues; Borders and The Warehouse jostle over price; The Warehouse in turn keeps an eye on internet retailers' deals.
In the US last year album sales plunged 9.5 per cent compared with 2006, while sales of digital music tracks surged 45 per cent. This is the new and challenging era music retailers are operating in.
However blame for a sales down-turn cannot be laid solely at the digital downloading door, says Real Groovy managing director Chris Hart. The entry into the New Zealand market of big retail players with mega buying and discounting power, and a flagging economy are also playing their part.
Hart admits 2007 was not the best year. In an interview two years ago he expected Real Groovy to be turning over $20 million annually by March 2006. He says it probably accomplished that, but things have flattened off.
"We're not experiencing the growth we had done, and that's the same for retail in general."
So how does a successful retail model like Real Groovy endure in the face of rapid change?
"Nooks and crannies", and systems management, Hart says. The four-store emporium has a startling number of "nooks" to its business. Few would know it is the go-to retailer for insurance claims - get your house broken into and your CDs stolen, and Real Groovy replaces your collection. It provides rewards for other companies' loyalty schemes. It publishes two magazines. It runs a ticket box office operation.
Merchandising is a growing category. "[Kids] want to have some icon or totem to represent the aspect of their identity that being a fan of that band helps to shape," Hart says.
It has sold its software for stock and supply chain management to other retailers.
Hart says Real Groovy is a very "systems oriented" company, because secondhand customers want to see a regular turnover of stock.
"So we've developed some really good systems."
Then of course there is Real Groovy's enormous trade in secondhand vinyl, CDs and DVDs. A third of its Auckland store's turnover is secondhand goods. It imports crateloads of secondhand material from the US that would otherwise not be available.
Hart says customers are increasingly buying and then trading DVDs, rather than renting them.
And the store is well and truly riding the wave of the vinyl revival. Music fans have realised, Hart says, that the sound quality of compressed formats such as CDs and digital downloads simply cannot compare to a well-recorded, well-mastered LP from the 1960s or 1970s.
He says Real Groovy competes on its range, not on price. He cites the example of a pre-Christmas price war over the new Simpsons movie - "You could buy it at Borders for $19.95, which is $4 to $5 below our cost price.
"We just don't get involved in that ... For a deep catalogue store like ours, where we have more than 20,000 titles, we can't be competing on price and offering the deepest range.
"Despite what JB Hi Fi say about having the biggest selection, they haven't got half of what we've got."
Book and music seller Borders declined to be interviewed.
Australian music, DVD, games and hardware retailer JB Hi Fi, which opened four New Zealand stores last year, wasn't so shy.
Managing director Nigel Merrett says the chain aims to grow the New Zealand retail market by putting products in front of customers that they haven't had before.
"A key thing we do is, all the product is live, which means ... you're not having to wait for a staff member to try and ferret through and find the product."
He says price is important, but so is range, and knowledgeable staff.
King of the discount, The Warehouse, meanwhile says it's enjoying good sales among the older, more generalist market.
"It's not young music that's selling on CD," entertainment buyer Terry Anderson says. "Young people are just straight downloading."
The chain's Christmas top sellers were the Eagles, Led Zeppelin, and Prince Tui Teka.
He says it is a misconception that The Warehouse sells only top 20 material, as it has a strong back catalogue as well.
PINK VINYL BEATS COMPUTERS
Mike Dorsey would give any serious music collector a run for their money as Real Groovy's best customer.
The 42-year-old advertising agency design director is in the store on average once a week, "maybe more": "If I went back over the last 10 years and added up what I'd spent there, I probably could have made a significant dent in my mortgage."
What keeps him coming back, he says, is the variety of material.
"I think they have a reasonably high turnover of stock as well. So what I find is I keep going in pretty often to see what's showing up in the bins this week. Because if you don't you might miss out, especially when it comes to vinyl ... If you see it you need to nab it now or else you might not see that particular piece of vinyl again for another three or four years."
Dorsey eschews digital downloads in favour of physical copies of his music, because he loves the artwork that comes with it.
"I don't like a lot of people to know this but I bought Madonna's Confessions on a Dance Floor on vinyl. Pink vinyl, double pink vinyl! I also bought the collectors' CD version, which has a little book in it."
He hadn't seen the pink vinyl version anywhere other than in Real Groovy.
He says the store seems to have a wide network of contacts for ordering material in to the country, even if it can take years to get it. The latest gem sourced for him was the Rolling Stones' reissue of the 1970s greatest hits album Rolled Gold on vinyl.
SAD SONGS
* Latest New Zealand figures show total turnover in music retailing dropped by 35 per cent between 2001 and 2005.
* Six years ago there were 195 music retailers in New Zealand - by 2006 that had shrunk to 167.
* Sounds, the biggest national chain of music stores, shut in November after its parent company collapsed owing almost $20 million. Some of the stores were subsequently reopened by its voluntary liquidators.
* Vodafone says December was its biggest month yet for digital downloads. It sold 160,000 ringtones, singles, albums and videos, a 30 per cent increase on November. Boxing Day was its biggest day.
