Does a strong show signal improving industry sales? Retailers shook off memories of a difficult 2006 and flocked to NAMM. Brimming with enthusiasm and confident that 2007 will be a great year, they helped make this year's Winter NAMM a banner show. But are four days of fun in Anaheim enough to generate strong results for the balance of the year?

Two weeks after closing the books on what could only be described as a disappointing year, a record number of retailers flocked to the NAMM show in Anaheim, California where for all outward appearances they left their troubles behind, put on smiling faces, and acted like they didn't have a care in the world. Exhibitors were completely caught off guard by the strong turnout and the unexpectedly buoyant mood of retailers at the show. After being buffeted by mass merchants, internet competition, and slugglish consumer spending, who would have guessed that the retail community could be so jolly?

NAMM data confirmed the major surge in turnout: The association reported that attendance hit a record 84,695, up nicely from last year's level of 81,315. Industrious trade show planners also managed to squeeze an additional 100 exhibitors into the Anaheim Convention Center, bringing the total exhibitor count to a whopping 1,535.

We're well aware that the accuracy of these attendance figures have always been somewhat suspect, and that even NAMM management admits to the difficulty of doing a precise headcount at its show. However, conversations with the overtaxed bartenders at the nearby Hilton and Marriott hotels left no doubt that show attendance had achieved new highs. Bar tabs at both hotels broke records every night of the show, and the Hilton bar was poised to rake in over $50,000 on Saturday night and completely sold out several brands of beer.

The attendance numbers tell only part of the story however. Harder to quantify, but perhaps more important, was the prevailing mood. Much to everyone's surprise, exhibitors and retailers interviewed during the show, and polled afterwards, were nearly universal in their optimism. Given the pervasive grumbling throughout much of last year, the sudden outbreak of euphoria created more than a little cognitive dissonance. "Why is everybody in such a good mood?" was one of the more frequently asked questions.

Considering the events in the 12 months leading up to NAMM, a lot of thoughtful people expected a somber, restrained event. And if you look back at the year, it makes sense. Early in 2006 a spike in gasoline prices and a declining housing market sent a chill wind through the economy that prompted consumers to clamp down on spending. As the year progressed, surging sales of flat screen televisions and gaming controllers like the Nintendo Wii and the Microsoft X-box reportedly grabbed 45% of all holiday gift spending. When the fourth quarter rolled around, as m.i. retailers, from Guitar Center down to the most humble morn and pop shop, scrambled to get a piece of what little discretionary spending was left, they found that they had 10,000 new competitors, in the form of all the Wal-Marts, Targets, Costcos, and Best Buys that had increased their stock of musical instruments. Taken together, these factors derailed any growth expectations and unquestionably took a heavy toll on profits.

If holiday sales had unexpectedly shot off the charts, some hot new technology had captured consumers' imagination, or the new Congress had promised to deliver billions in industry subsidies, we could understand the rampant enthusiasm that permeated the NAMM show. But, truth be told, other than a noticeable drop in gasoline prices, we haven't seen any thing to suggest a material change in market conditions for the balance of 2007. It's doubtful that competition will ease anytime soon, technological advancement seems to have plateaued for the present, and there is no musical phenomenon creating a surge in store traffic. So why then in a Music Trades poll (see page 76 for complete results) did 64% of NAMM exhibitors report that their customers were "highly enthusiastic and anticipating strong sales for 2007"?

An unexpectedly exuberant crowd mobbing the conventional hall. Record amounts of alcohol flowing from the hotel bars. Could there be some correlation? That's one plausible, although not terribly flattering, explanation for the buoyant atmosphere at the show. Another is that the party-like atmosphere of the NAMM show put attendees in a such a good mood they engaged in a bit of unrealistic optimism. Between the bars, hospitality suites, concerts, receptions, and assorted other events, there's a lot more than business going on at NAMM, and the show, like nearby Disneyland, is something of a fantasy world.

Despite all that, we like to think that the optimism at NAMM was the result of a renewed sense of focus and determination within the retail community. There's nothing like a brush with extinction to focus the mind and get the adrenaline flowing, and after going toe-to-toe with an expanded roster of competitors in 2006, independents came to NAMM with a mission to position their businesses for success.

Among the indicators that this steely new attitude, and not the alcohol, was fueling the high spirits wer the standing-room-only crowds at educational sessions for all four days of the show. Every morning at 8:00 A.M., hundreds of retailers packed the Hilton ballroom to hear various experts hold forth. (That's a heroic effort for a crowd populated by ex-musicians used to rising at the "crack of noon.") During the course of the day, dealers also packed the NAMM "Idea Center" on the show floor, looking for insights and ideas to take home.

In another significant shift, independent retailers seemed to be taking a page from the playbook of their mass merchant competitors, scrutinizing every SKU for its profit potential, and refusing to bow to supplier demands to stock a "representative selection" of any product line. One indication of this shifting mindset was the conversations at various bars, where "margin potential," not coolness factor or features, was the primary topic. A slew of accessory lines including stands, straps, cables, capos, and the like, were also major beneficiaries of this trend. A common refrain among retailers was, "We came to this show to realign our inventory with a more profitable mix of products. We're done stocking products just because they have a famous brand name."

The focus on earning an adequate margin helped the fortunes of a number of, for lack of a better term, second-tier brands at the show. It also benefited high-end guitar sales, a product category that seems tailor-made for service-minded independent retailers. Martin, Taylor, and Paul Reed Smith, to name just a few, left the show with a surprisingly strong order book.

Although NAMM long ago gravitated from an order-writing event to an exercise in image-building and positioning, sales at the show were unexpectedly strong. The most plausible explanation is that retailers were finally replenishing their stocks after working through the inventory glut that plagued them for most of 2006. Recall that after three strong quarters in 2005, most dealers "stretched" in their fourth quarter purchases to achieve the various manufacturer rebates and incentives. What they didn't anticipate was the mass merchant competition looming on the horizon. Consequently, after losing a large chunk of entry-level business to the likes of Wal-Mart in late 2006, a huge contingent of retailers entered 2006 awash in inventory. With no hope of achieving any supplier sales goals, they consciously dialed back their purchases in 2006 to maximize cash flow and to set the bar lower for 2007. Although that bulge has become a memory, it seems to have left independents with a healthy dose of skepticism and caution in their purchasing practices.

With 1,535 exhibitors representing every conceivable segment of the industry, and some that even strain the imagination, the NAMM show provides a unique four-day mirror of market trends. Gauging order-writing activity, booth traffic, and retailer interest is a good way to assess what will be "hot" in the months to come. Much of what was gleaned from this year's show merely confirmed conventional wisdom. Although growth in guitar sales has abated somewhat, the category shows no sign of relinquishing its place as the industry's top dollar generator. Existing guitar manufacturers may have complained of tough conditions in 2006, but that didn't stop a host of new entrants from plunging into the market. By our estimate, this year's NAMM hosted the debut of 15 new guitar makers and at least 20 new guitar accessory suppliers. The percussion category seemed to fare a tad better than guitars in 2006. Perhaps it was because drumsets are harder for mass merchants to properly display, or maybe the primal act of striking a drumhead has an increased appeal in an increasingly digital world. Then again, maybe it's just due to the fact that drummers, as a group, are more genial types. For whatever reason, drum makers seemed less angst-ridden that their colleagues serving the fretted instrument market.

In technology, the trend continues to be away from self-contained recording solutions toward peripherals that work with personal computers. This helps explain the tremendous crush of people at the M-Audio, Focusrite, and Edirol exhibits. As one supplier explained, "By virtue of their scale, Dell, Apple, or Hewlett-Packard can deliver processing power and memory more cost effectively than any m.i. company. It's a lot more cost effective for the end user to develop specialized interfaces that piggyback on their computing power." Sound reinforcement was another area that generated strong interest at the show. Growing demand in the church market has created a powerful sales and service opportunity for independent retailers.

Furniture, appliance, and home furnishings manufacturers have suffered lately due to the slowdown in new housing starts and the general softness in the housing market. These outside forces also seem to be weighing on piano makers. At NAMM, the piano hall was one of the few quiet spots at the show, and most exhibitors complained about light traffic and lackluster sales.

One of the pleasant surprises at NAMM was the unusually strong demand for institutional percussion instruments, stringed basses, and background brass--the types of products that are generally purchased by schools rather than individuals. Despite routine claims that school music programs are facing draconian budget cuts, 48 of the 50 states are currently running budget surpluses, and schools seem to be in the process of replenishing their stock of instruments. Institutional sales were also one of the bright spots in the piano industry.

Complaints about the trade show seem to rise in direct proportion to the general level of discontent with business. Put another way, tougher sales equals louder complaints. With exhibitors and retailers in a generally good mood, negative comments about NAMM were at a minimum this year. One grievance was raised regularly, however: the presence of the general public on the show floor. It's not that dealers and exhibitors are against letting the public in, it's that they think the current situation represents the worst of both worlds. The NAMM show is billed as a "trade only event," yet thousands of autograph seekers, with no connection to retail, clog the aisles and get in the way of transacting business. To sum up the widespread attitude, "either kick the non business types out completely and make the show truly 'trade only,' or declare a public day and do it right. The current half measures, however, don't seem to sit well with many.

There are at least 325 U.S. companies with sales that exceed the volume of the entire music products industry. Yet our relatively small industry can boast the 20th largest trade show in the country. Whether this is logical or not is beyond our ability to judge, but it does help explain why the NAMM show, despite lasting for only four days out of a 365-day year, is viewed as such an important happening. The event, which is a marvel of good management, would have been the perfect start for a new year for business if it were not for one small detail. Last year's show was also high-energy celebration, but the enthusiasm quickly dissipated as the year progressed. As this year's show drew to a close, otherwise jubilant feelings were tempered by the concern that it takes more than a good show to make a good year. Here's hoping the concerns are misplaced.

HOSHINO--Richard Ash & Howie Mandell, Sam Ash Music; Terry Bissette, prod. mgr.; Barry Horowitz, Sam Ash Music; Bill Reim, pres.

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DANSR--Michael Skinner, Steve Baughman, Stephen Wick, Jim Metz, Leslie Grabruck, Andy Blanco.

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NEW SENSOR--Rick Stevenson, dir. pro audio mktg.; Owen Matthews, Mike Matthews, pres.; Suzi Matthews, a/r; Ralph Trimarchi, sales mgr.

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HANSER INDUSTRIES--Tony Manza; Karl Keif, Keif Music, Vancouver, Canada; Jack Hanser, pres.

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DEG MUSIC--Mark Schafer, pres.; Mark Reynolds; Dave Compaan.

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HARMAN MUSIC GROUP--David Rohrer, guitar market manager; Rob Urry, pres.

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GENEVA INTERNATIONAL--Fred Forshey, Forshey Piano, Houston, TX; Earl Matzkin; John Rybiski.

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BECHSTEIN AMERICA--Ken Ambrose, C.E.O.; Werner Albrecht; Sally Phillips; Karl Schulze, chron.

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GRAPH TECH--Terena Dunwoodie; Dave Dunwoodie; Debbie Okrainetz.

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E.M. WINSTON--Rick Dietrich, Zeswitz Music; Ronnie Ginott, CEO; Laurie Orr, pres.

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STRING SWING--Anne, Travis, and Paul Thieman.

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SCHIMMEL--Viola and Hannes Schimmel-Vogel

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