Best Buy Enters the Musical Instrument Market
Best Buy is, of course, well known as a music retailer. In an era when major chains of record stores are a thing of the past, Best Buy is second only to Wal-Mart in physical music sales. However, since CD sales have continued to decline, Best Buy is seeking new ways to stay on top. We reported last issue that the Richfield, Minnesota-based company had purchased digital subscription service Napster, giving them a foothold in the digital music market and a way to compete with Wal-Mart’s digital music store.
Now, the company has taken an even bolder step in securing its place as one of the nation’s premier music retailers by moving beyond recorded music. More than 80 new musical instrument “stores-within-stores” will be rolled out across the country by the end of 2008. These stores will be in direct competition with major instrument retail chains like Guitar Center and Sam Ash. In fact, at a recent entrepreneurial panel organized by Berklee faculty member Marty Dennehy, Sammy Ash, the COO of Sam Ash music stores, named the opening of the Best Buy stores as one of the main challenges his company will have to face in the future.
Each location will have its own dedicated team of employees working exclusively with musical instruments, so prospective buyers will not be dealing with appliance salespeople that know nothing about music. Employees will not be paid on commission, in an attempt to avoid any high-pressure sales pitches. Each store will be a 2,500 square foot section of larger Best Buy stores and will sell guitars, basses, drums, keyboards, and recording gear. They will not sell string or woodwind instruments.
In addition, each location will offer music lessons in dedicated practice rooms. Students will be charged $20.00 for each half-hour lesson, or about $70.00 for a block of four lessons. The motivation behind this tactic is very clear: music lessons drive up sales. Lessons will probably not make much money on their own, but will get a large number of students (and their parents) into Best Buy each and every week. Just imagine it. Students will pick up the picks, strings, drumsticks, and other accessories they need while they are in the store for their lessons. And parents may spend 30 minutes every single week browsing the store while their child receives a lesson. The sales potential there are huge.
The plan to open these mini-stores began with customer surveys that indicated many Best Buy customers coming in to buy music and electronic equipment also have a strong interest in musical instruments. A music store was quietly opened in a Riverside, California Best Buy location in 2006 in order to test the waters. Clearly, the company like what it saw, because it rolled out more music stores in other test markets across the country. Now the company is gearing up to expand beyond test markets and raise the profile of this new enterprise among musicians.
The possible pitfalls for a gigantic retail chain getting into a business with which it has had no previous experience are great. Customers in this area are finicky and often rather demanding. Many will likely be skeptical of Best Buy’s new endeavor, so the company will have to work extra hard to gain the trust and respect of its potential customers.
By all indications, Best Buy is attempting to do just that. The musical instrument project has been taking shape over the last three years and appears to have the full support at the highest level. All indications are that Best Buy is very serious and dedicated to this expansion and its approach is anything but haphazard. In fact, Moody’s Investor Service has downgraded its rating of Guitar Center’s bonds, partly in response to Best Buy’s bid to compete with what is the currently the nation’s largest musical instrument retail chain.
It’s not for nothing that many think, if done right, Best Buy’s move could seriously hurt Guitar Center and other music stores. Guitar Center is the largest music retail chain and has more than 200 locations. Best Buy, on the other hand, operates more than a thousand locations, with plans to expand to 1,800 stores worldwide. The sheer size of the company may allow Best Buy to get lower prices from distributors and pass the savings onto customers. One distributor present at a “supplier’s summit” at Best Buy headquarters joked that Guitar Center is “the 800 lb. gorilla—Best Buy is the 8,000 lb. gorilla.”1
So far, the stores have not really made a huge impact in the musical world. Most musicians probably aren’t even yet aware that Best Buy is selling Les Pauls and Stratocasters not too far from the plastic versions that come with Rock Band and Guitar Hero. However, Best Buy has just invested what must have been an extraordinary sum developing these music stores and are putting their full weight, so it will most certainly not be long before the chain manages to brand their name into the brains of millions of consumers looking to buy new music gear.
By Mark Schafer
1. “Best Buy to Open 75-85 Music Stores in ’08.” The Music Trades. September 2008: 22.
