RETAILERS FORECAST THE FUTURE.

* Will The Internet Revolutionize Retail?

* Are Chains The Wave Of The Future?

* What Untapped Market Opportunities Remain?

* What Will Retailing Look Like In The Next Decade?

"Competition Produces Growth, Not Just Market Share"

Paul E. Murphy Jr. M. Steinerts & Sons, Boston

The Internet will change retail to some extent, but the quality music dealer should not be afraid of an educated customer, only of a misinformed customer. The Internet can provide as much misinformation as information. Further, I view the Net as a starting point in gathering information. One still needs to do the footwork. A correspondence course may have value but it doesn't replace a university. Another concern is the manufacturer/distributor who decides to eschew his traditional network and sell direct on the Internet. I believe this is short-sighted and will prove to be suicide. The best way for any supplier to use the Internet is to provide good information and direct the customer to the local dealer.

The attentive dealer will always respond to his market. He may not be ahead of the curve, but he's on it. The current trend in piano sales that we're seeing indicates an older demographic in the buying public, even today. We are responding with adult seminars on music and the piano and with adult lessons.

It is particularly difficult to predict what forces will affect the market for instruments next week, let alone in the next ten years. Regarding the ability of manufacturers to use current technology to improve their processes, tolerances, etc., I have seen instruments manufactured to visual perfection, but the result lacks personality. Wouldn't it be awful if pianos were made with such purity that all extraneous harmonics were eliminated?

Looking at the positive side of this trend, I believe that competition generates customers and sales, not just market share. The quality independent dealer will remain viable, just as he does now.

"Stay On The Fence And You'll Die"

Gary Gand, President Gand Music & Sound Northbrook, Illinois

The Internet is one more tool that can be used by sellers and buyers to meet and complete transactions. The real question: Will it create more music sales? I don't think so. It will not increase the pie. The big revolution was TV. That increased the pie when kids saw rock-and-roll (Elvis, Beatles, Woodstock, MTV, etc.). A picture is worth a thousand words (or dollars).

The computer will become the musical instrument of the future. Everybody will have several. There will be no cost of entry.

The music industry has always moved from black to white, from young to old. That will never change. The industry needs to keep it eye on the ball.

The world always seeks out the lowest-cost producer, from Japan, to Korea, to Taiwan, to India, and now China. America has to stay competitive, but without sacrificing quality. On a musical level it was Britain that launched the '60s rock invasion. Americans were busy singing folk songs. Who knows where it will come from next. The strong independents will survive, and the strong chains will, too. Eventually one or two of the chains will run out of funding and they will get eaten by the others. A single store owner has to want to remain in business to do so. If you're on the fence, you'll die.

What can we expect in musical tastes? Expect the unexpected. Nobody has ever called it. Henry the Fifth couldn't even tell if he won the battle when it was over. We won't know what the next big thing is until it has passed.

I do know one thing. People always want a new beat. You can take the oldest song you know and give it a new beat, and people will buy it. Just listen to Carlos Santana and Dave Matthews rifling over Brahms (on the new Santana album). Two million record buyers can't be crazy!

"The Ranks Of Retailers Will Thin Out"

Rosemary Rodd Leo's Pro Audio And Spitzer Music Oakland, California 

One of the things you will see in this biz in the next few years is fewer of us. Independent of the big chains, Internet, etc., my personal observation is that a fair number of people got into this business back in the late '70s and early '80s when the cost of entry wasn't so high. With the natural passage of time, some of them will be gone. Small businesses don't do well in the sale or succession process, so probably more stores than you would expect will just close.

Added to this is the effect of all the competition/consolidation. While some people still try to whistle us through the graveyard by talking about the number of storefronts remaining almost unchanged, etc., I don't think the effect has really happened yet. Stores may stay in business a while, but everyone is working longer and harder for less and less gross profit. At some point it either won't be worth it, you can't afford it, or you just get tired. So even some of the retailers who do everything right, focus on niches, service, lessons, etc., etc., will still be driven from the business.

Sales tax is a bigger factor in this business than anyone admits. Some interesting surveys say that customers don't really want to buy mail order or Internet; they'd like to see/hear the gear and buy locally, but high sales taxes force them to tax-free alternatives. A quick way to verify this is to compare sales figures for non-bricks retail in high sales tax states vs. low sales tax states (normalized for population density, etc.) Mail-order success accompanies high sales tax.

Niches are us!

I think successful m.i. retailers will move more and more into the contracting and installation business. Baby Boomers will become a much larger part of our marketplace as they retire and have more time to indulge in creative hobbies. High tech will make music more available to younger people because they will be able to use technology instead of having to take years of lessons to make music. Lower income groups are being left out of the Internet and will also be left out of Internet marketing. Niches will open up catering to groups who are not into the Net. Expect the unexpected!

"The Eternal Law ... Adapt Or Perish"

Mark Goff, President Paige's Music Indianapolis, Indiana 

While technology, demographics, competition, and products are changing more rapidly than ever before, the fact is that we have always had to deal with change, and we always will. Those who adapt to changing market conditions, while meeting their chosen customers' needs better than the competition and keeping their financial house in order, will thrive. As for those who don't, they have never survived in the past, and they won't survive in the future.

"The Challenge Is To Encourage Art"

Tim Hoy, Hammell Music Bloomfield Hills, Michigan 

The process of making music or visual art relies on the ability of our brain to take thoughts, ideas, feelings and emotions and formulate them into a concept. We then run them down to the ends of our fingers, select a tool, and use whatever given talents and skills that we have developed through practice and education, and then we create art. Whether that tool is a paintbrush and canvas, or a piano or violin, it is the same process.

Our challenge for the next millennium will have less to do with superstores and who has the latest product than with who can best keep people focused on the true process of making art.

As medical advancements continue past the year 2000, the scientific analysis of music on the brain may be one of the more significant contributions to our industry. Radio, television, tapes, and CDs removed people from participating in the arts. Our future is dependent on what we know has always been the truth and will continue to be the truth in the year 2000 and beyond, and that is simply that music is fun.

"Let's Expand Music In The Schools"

Fred Bramante Daddy's Junky Music Manchester, New Hampshire 

The public schools hold the key to unprecedented growth. At present only the band and orchestra segment is taking significant advantage of this untapped market. There needs to be a shift in thinking about the role of music in the schools, including what is generally accepted as music worthy of study. The shift is already taking place, but our industry needs to give it a helping hand.

In the past traditional classical music played on traditional instruments has had a near monopoly in the classroom; however, the most popular music in the world, American music, has never been given its due. We should put faith in an industry-wide effort to teach American history, social studies, literature, etc., through the study of American music. American music is a national self-portrait. An interdisciplinary curriculum incorporating American music's emotion and passion with other subjects will make them come alive and add significantly to a student's education.

I will appreciate the day when MENC gives full blessing to the role of American music in the schools and my company can do what band instrument dealers have been doing for years: rent instruments to students.

While the instrument mix will likely change, music's role in the schools will be stronger than ever. When more students want to learn music in the schools, the natural by-product in that our industry will be strengthened.

"A Retail Model For Consumers, Not Investors"

Michael Kramer, AST Sound New York City 

There are about a dozen qualified independent retailers nationwide who need to be encouraged by suppliers to pioneer new products. Vendors must work collaboratively to minimize risks taken by retailers in order to create a comfortable and mutually profitable climate for end-user sales that can't just be clerked.

We as retailers will add value to a sale by offering design-build capability and the experience to select from amongst all audio/visual sources to meet our clients needs.

We need to create a business model that really works, not to dazzle Wall Street money managers. If we are to become conveniently located showrooms of brick and mortar, we must give customers some reason to leave their money with us other than the lowest prices.

"Find A Niche Or Forget About It"

Roger White, White House of Music Waukesha, Wisconsin 

The Internet will create a better informed segment of our customer base, but I am not convinced that it will "revolutionize our industry." This segment will have a better idea of what product is right for them. Some will purchase online, but I feel that the majority will still go to a dealer so that they can touch and feel the products.

On changing demographics, we have already experienced growth in the 30-to-older age group. Major purchases are made for themselves and not just for their kids. The success of the "Weekend Warriors" program attests to the interest of this age group to perform and enjoy music during this part of their life. The industry could do a better job addressing this group.

National claims will impact the future of retail music. Only those small dealers that find their niche and go with it will survive.

"Basic Human Values Still Rule"

Denny Senseney Senseney Music Wichita, Kansas 

I still believe very strongly in the values of hard work, honesty, and everything I learned in kindergarten. Those values are what will, by and large, save the independent business of the future; however, the nature of business (primarily distribution) will see many changes, and there are many "dragons" on the horizon for those who are not prepared for change.

We had better make it convenient and entertaining for all of our customers to buy from us. That means offering products and services both in an exciting, well merchandised store, conveniently located, with hours that customers want to shop, and through a well merchandised and convenient-to-operate Internet store.

Will the distribution network change? Sure. For every manufacturer/publisher who chooses the strategy of unlimited availability through all channels, there will be another who profits from the value provided by a small network of independent retailers planting, watering, fertilizing, nurturing, and harvesting their fields of future customers.

What I am counting on is the fact that people will still enjoy the experience and security of buying certain products and services as close to home as possible from people they like. They will appreciate all of the convenience of e-commerce and home delivery. They will pay a little more for those who provide consistent and reliable service. And as long as we answer those needs better than our competitors, while efficiently managing our businesses, we can survive and thrive.

"The Value Of Music Is Eroding In The U.S."

Kevin Cranley, President Willis Music Company Cincinnati, Ohio 

During the past 100 years our industry has grown and prospered because of an underlying value placed on music education and participation. While this value and its perception continue to grow elsewhere in the world, I believe it is eroding within our American culture. As the recreation-time options increase for children and adults alike, our industry market share over other activities will naturally diminish. Our challenge is to communicate to our society by way of the individual the personal benefits and societal need for music participation. Every segment of our industry needs to unite and move together toward educating the individual. During a recent talk to our local Rotary club, I spent the conclusion of my presentation discussing the benefits of music participation for all ages. The question-and-answer period that followed focused exclusively on this topic. People want to know how they, their families, and their friends can enrich their lives. Whether it's through sports, computers, or music, it doesn't matter much to them. I believe our competing industries are winning the battle. When was the last time you heard about a child giving up soccer to spend more time at the piano? We all know the superior benefits of music education over other activities; it's time we share this with our neighbors.

"Relationships Will Always Drive Business"

Charles Sued, President Upstairs Records Inc. Brooklyn, New York 

When mail-order catalogs came out a few years back, retailers went wild. Retailers bashed mail-order houses, and manufacturers even distanced themselves from selling to "mail-order only" businesses. Now the major chains themselves are all in the mail-order business (give or take a few). Now that the Internet is happening, we are going through the same type of "resistance." Let's all accept that the Net is here, and let's use it to benefit the music industry. Our customers love the benefits of the Net: its ease of use, wealth of information, and shopping conveniences. Retailers love the Net because we can reach a larger customer base, get information to our customers quickly and economically, and orders done over the Net cost pennies of what it costs to do it in person or over the phone (no commission, no 800 charges, no operator to input order into the computer, etc.).

I'm not saying the Internet will replace retail stores; that will never happen. Just as mail order didn't replace retail; it helped it. I feel that the Net will also help retail by providing customers with a wealth of information (that most stores don't provide) for them to bring to their local store and shop. Mail-order and Internet businesses (like mine) do most of their business with customers who are not near a retail store. Most customers with a retail store nearby will bring in my catalog or printout from my Web site and buy it locally.

Manufacturers are doing their best to prevent a global headache on the Net. Most manufacturers allow us to sell only to the U.S. Also most foreign customers do not purchase outside their country because when they add the shipping, customs and duties, and wait time, it isn't much of a savings.

In my opinion the independent retailers will always be there. They are usually first to spot new trends and hot products, they provide much better customer service, they are more organized, highly specialized, and quick to act. While major chains provide large size, nice selection, and price, most music customers want more. Most people want relationships. A relationship is something that a chain store can never give its customers.

Do you know how many times I hear reps tell me that they hate training chain stores because next month they have a whole new staff that has to be retrained? Customers like to walk into a store and see the same salesperson who helped them before when they spent two grand, to get better treatment and good service. Normally you'll never spot the same salesperson in a chain store three months later. Relationships will be the biggest benefits of independent retailers, and this benefit will keep them alive in the next millennium.

"Hanging Tough On The Front Line"

Curtis B. Pearson, Owner/CEO Pearson Music Company Raleigh-Durham, North Carolina 

Now that we have excellent highways that can take you 150 miles in two hours; an information age that has no boundaries world-wide; distribution and transport networks that can deliver anywhere on the globe in two days; mail-order houses that have prices at 10% above actual cost; and e-commerce offering everything known to man at unbelievable prices, what is going to happen to the "bricks-and-mortar" retail stores for the next 100 years?

They will be right on the firing line doing what the owners know best; greeting people, making friends, creating loyalty, showing hands-on features and benefits, emphasizing the tonal features, teaching people to play, and servicing instruments in need of repair.

"Succession Among Independent Retailers"

Mick Faulhaber, Ward Brodt Music Madison, Wisconsin 

There most certainly are economic and clear business trends for our industry. The so-called "box" stores will continue to grow and eventually dominate the public's perception of marketing, just as nearly all other retail business have experienced. There is so much capital going into the market, the trend can not be changed unless there were a financial crash; however, there will continue to be very prominent and successful niche stores such as vintage outlets, school service dealers, education facilities, and piano rebuilders. As in the clothing business, the local tailor still does quite well. The problem with these small niche businesses is, "Where are the people who will follow in the footpaths of the current technicians going to come from?" We are already seeing this trend in the agriculture industry.

As my generation approaches retirement, there are concerns regarding successful business succession. There have already been some alarming trends as Boomers begin to turn the reins over to their offspring. Finding good dedicated middle management personnel may be virtually impossible in the next 20 years as the next generation sets its sights on larger companies and higher-than-attainable compensation programs.

This is another trend that has emerged in the past couple of years: the takeover of independents by expansion-minded growing chain operations. This is what I see in the future for many of the industry's top 200 stores. Merging, selling to larger chains, or liquidation may be the fate of most of us in the next ten to 25 years.

Then we come to the market. As with associates that we hire, our customer's average age is increasing. Many new hires are now in their very upper 20s to low 40s. High-school-aged youths have so many opportunities for their time that there are fewer and fewer who want to pay the price to become proficient musicians. The print music that we sell to high-school bands continues to be easier and easier and of less musical quality. Pop music also continues to lose its originality and quality of composition. These are cultural trends that are most difficult to change. Perhaps the revival of the "swing" era music is an indication of kids learning to listen to better music; however, when I pick up my daughter from high school, the thumping cars are more obvious than the oldies rock stations. Fewer and fewer music educators are inspiring students to follow in their footsteps simply because of the nature of public school education and politics as a career.

"We're No Longer The First Source For Consumers"

Sam Tritico, President Sam's Music Nashville, Tennessee 

The Internet has already revolutionized the way business is transacted. No longer is the local dealer showroom the first source of contact and information on new products, industry trends, and pricing. Whereas in the past the local dealer started the process and was fortunate to keep the customer there until purchase, or get him/her back after a few rounds of 800# shopping, now the local dealer often isn't seeing the customer until purchasing decisions have already been made (more often erroneous than in the past, due to the plethora of conflicting and often absurd "information" posted on the Net). The need for a knowledgeable and technically oriented sales staff in high-volume stores with large inventories has been reduced as they opt for either a self-serve system or high-pressure salespeople to close the deal. The opportunity here is for smaller stores with professional staffers to show their mettle by providing more, better, and clearer information than can be gathered by surfing the Web. Also, stores of any size that combine in-store and online savvy should see positive results as the customers realize the need for both.

The first challenge is to find ways for listeners to sort through all the available music and find the good stuff. The second is for the people making the music to find ways to get paid properly for their efforts. This may not be a job for our industry but rather for the recording industry, which, at least in Nashville, could use a shot in the arm.

Global competition is already the new order of the day. Today's buyer has little to no preference for country of origin. More developed nations are already being forced out of manufacturing low-end merchandise.

To make room for the expansion of the chain stores, many independents will close, some will survive, and a few will prosper.

The #1 challenge facing our industry is restoring profitability, at least at the retail level. There currently is simply no room for error. This has been good to a point, as we've all corrected some bad habits and improved our marketing chops; however, there may soon come a time when the economy slows down, and even well managed operations can not make a profit until a major purging of competition takes place. This would not be welcome, in my opinion, as I believe the diversity of retailers we have now is good for the furthering of music. If all we have left after the shakeup is a pair of self-serve big-box retailers per major metro area, we all lose.

"Redrawing The Old Battlelines"

Gerson Rosenbloom Medley Music Bryn Mawr, Pennsylvania 

As we enter the new millennium, the rate of change in our industry, and in the world around us, continues to accelerate. More than ever it is imperative that we work smarter, that we work harder, and that we work more united as a global industry. The "enemy" isn't the Internet, it's not the store down the street or the catalog in the mail. If battlelines are to be drawn, they should pit the music industry against anything that threatens to compete for discretionary consumer dollars. We need to become the best marketers in the world, we need to fight tirelessly to bring visibility to the joy of music making, and, most of all, we need to speak with one voice.

"What Customers Really Want"

George Gruhn Gruhn Guitars, Nashville, TN

While it is clear that Internet commerce is growing by leaps and bounds, in the immediately foreseeable future bricks-and-mortar retail stores will continue to thrive if they are positioned to satisfy customer demands. In spite of the rapid growth of e-commerce, new malls and retail establishments continue to be constructed at a record pace. The vast majority of retail sales in the U.S.A. are conducted in person rather than on line. In the years in which I have been in business I have observed tremendous changes due to emerging new technology. When I first opened my shop, personal computers, fax machines, and even pocket calculators were simply not available. United Parcel Service did not yet have a nationwide network, and shipping guitars nationwide was a great challenge. In spite of these obstacles, by the late 1970s as much as 40% of my total business volume was export, and a large percentage of the remainder was domestic mail order. Over the years we have adopted the new technologies such that today we operate very differently than in the past. Our Internet Web site is now much more important to us than our printed catalog, and we do far more e-mail than postal mail. These changes that have made it much easier to reach out to customers have been to a considerable extent the proverbial double-edged sword since they have also served to greatly increase the level of competition in our industry. In addition, it should be noted that modern communication technology makes it much easier for the public to bypass the dealer network entirely. The Internet provides a means of eliminating middlemen, which can be very detrimental to dealers.

While mail-order and Internet sales continue to be a very important component of our business, they do not appear to be about to overwhelm the physical display or personal service that our staff can provide to walk-in customers.

Our bookkeeping and inventory control is computerized, and we rely on modern information and communication technology, but the basic sales techniques and human interactions remain unchanged today compared to 30 years ago. Customers like to come in to a retail establishment where they can see and touch the merchandise and receive personalized face-to-face attention from people they trust. I fully expect the pace of technological change to continue at breakneck speed on into the new millennium, but I do not expect it to replace our bricks-and-mortar store. During the past five years our walk-in trade has increased.

While new technologies continue to be introduced into the music marketplace and sound reinforcement systems continue to evolve, fretted instruments are remarkably conservative products. The acoustic guitar models that sell in quantity today are firmly rooted in designs introduced in the 1920s and 1930s, whereas the vast majority of electric guitars that dominate the market today are firmly rooted in designs introduced during the 1950s. I fully expect to be able to sell traditional steel-string flattop guitars, Fender Telecasters and Stratocasters, Gibson Les Pauls and ES-335s, five-string banjos and mandolins for as long as I remain in business.

While I tell people on the phone every day that one picture is worth more than three hours of verbal description, and I frequently tell them "I can not see it through the phone," I anticipate that in the very near future this will change. We now have the technology to make any computer linked to the Internet function as a videophone. I predict that the once the equivalent of the videophone is universally available, a vast number of shoppers will use this capability in preference to visiting Internet Web sites. It is my experience that people would rather talk to a salesperson on a one-to-one basis than read a catalog or Web site, look at still pictures, or even view a video. Today the Internet permits computer users anywhere in the world to visit Web sites and send e-mail at local call telephone rates. Videophone capacity through the Internet will permit customers worldwide to call for direct interaction at local phone rates.

Business conditions in the new millennium will be "interesting" and challenging. There will be good opportunities for those who are willing and able to adapt, but many will find the transition traumatic. Regardless of whether this is the ideal universe or not, it is the only one of which I am aware that we have been given the option of operating within. It should be an exciting ride

"We Lag In Using Database Marketing"

Tom Austin & Eric Schwartz Sherman Clay & Co. San Francisco, California 

Once customers are comfortable with conducting business over the Internet, they quickly utilize search tools to obtain the most favorable pricing. This will increasingly put pressure on companies that rely on high profit margins. Already there is evidence that customers use brick-and-mortar retailers for the product evaluation process and then actually purchase the product from a low-priced Internet retailer.

This will eventually place manufacturers in a bind. They can easily establish a direct sales channel to customers, bypassing low-priced Internet retailers, but in the music industry, manufacturers also recognize the unique services that brick-and-mortar retailers provide: instrument repair, instrument rental, lesson programs and teacher affiliation, and customized guidance in the selection of the right instrument, to cite just a few.

The tests of traditional channels of distribution will most likely take place in the courts. Currently, manufacturers who recognize the need for retail fixed site distribution often discourage or even prohibit through dealer agreements selling and/or pricing on Internet. Since the consumer is the ultimate beneficiary of the "perfect competition" provided by the Internet, it is likely that the courts will eventually rule against such prohibitions. If the restraints on Internet trade are removed, brick-and-mortar retail sites will have to respond by serving even more focused niche markets effectively and efficiently or close down. If this scenario comes to pass, it is unlikely that manufacturers would remain in their traditional roles.

At this early stage of evolution in the Internet, the most difficult obstacle appears to be the cost of shipping, setup, and returns, but with current trends there is no doubt that this problem will be overcome. For something such as a piano, this time may be a long time coming. Eventually, for those of the younger generations who are very comfortable with the idea of conducting e-commerce, even such an item as a grand piano will be purchased in this manner. There has been a tremendous amount of information disseminated regarding the physical and emotional benefits of music education. Certainly it is clear that the increased birth rate over the past ten to 20 years will have positive effects on the music industry. The other demographic factor, the Baby-Boom generation's retirement, may offer just as much opportunity.

In both cases, however, it is not clear that the industry has a grasp of how to conduct music education in a meaningful and profitable manner. The industry most definitely needs to reach out to these demographic segments.

Computer manufacturing technology has resulted in improvements in product quality. Developing nations offer not only this technology but also a cheaper cost infrastructure, especially through lower labor costs in labor-intensive production; this may give these developing nations a significant albeit temporary advantage. In the case of pianos, it is clear from just a brief 30-year perspective that Japan entered the U.S. domestic market as a very inexpensive alternative to American makes. This eventually led to the Koreans entering the U.S. domestic market. The Japanese response, by and large, was to move upscale. Now the Chinese are beginning to enter the U.S. domestic market, and Koreans are following the same path that the Japanese pursued ten years earlier. It is not clear at this time who might eventually replace the Chinese as the entry-level providers, but it is certain that someone will appear. Global competition will most definitely intensify.

It is important to remember that the buying power of the consumer is spread throughout the country, not just in the major markets. Beyond the top 50 metro markets there is significant buying power, but it is dispersed so widely that it would be difficult for many major music industry retail operators to justify placement of a costly fixed retail site outside major metro markets. In light of this, many independent retailers should be able to find profitable niches -- that is, unless the Internet changes all rules. It is likely that these independent retailers are well positioned to provide specific services that the Internet retailers are not likely to provide.

The top 50 metro markets offer significant potential for retail aggregation. It will be difficult for independent dealers to compete against powerful, committed, well financed multi-regional or national dealers.

There is a tremendous upsurge in the ability of companies to manage customer databases and to more effectively and efficiently target new customers. There is not enough being done by the music industry to truly tap into this field.