The Future of Music Retail: Margin, Margin, Margin!


In this article, the first of four posts, Corin Birchall of Kerching! Retail looks at retail models that can bolster gross margins. These articles are part of the MIA’s new initiative “The Future of Music Retail”: a series of articles, regional workshops and video training materials, designed to help our retail members flourish in today’s tough trading climate and in the years to come.

Few customer deem it palatable to be charged a premium for a branded product, above what is promoted online.  There are, however, many aspects of a transaction that are less sensitive to comparison, or may be desirable yet were not on the shopping list at all.

The voting has recently ended for this years NAMM Top 100 competition.  This is a great opportunity to hear the stories of MI retailers -that have evolved and re-positioned their business for the new trading landscape: Tuition, rental and loyalty schemes have transformed many music retailers in the US.  I will share some of the best ideas over the next few posts.

Closer to home, working with businesses outside of music retail has given me a perspective on how some sectors manage to operate with lower margins on branded goods, and that’s where I’d like to start…

Forget the primary item, look at everything else

I was working with a camera reseller recently.  A branded DSLR would yield gross margins of around 8%.  How can you sustain a bricks and mortar business on an 8% margin?  Well this particular business focuses on two areas:

  • Selling accessories and add-ons. “By and large our shoppers are less sensitive to the selling price of accessories, certainly the lower priced items, its all about getting the best price on the main item.” He stated. This isn’t news to us, but if you ran a report today in your business, how many transactions are made up of just one item?  I suspect more than there should be.  This is one area we will set out to fix in the regional workshops and eLearning.                                                                                                                  Book for our retail workshop (FREE for MIA members) here
  • Selling training. DSLRs are pretty complicated bits of kit.  For a customer to get the benefit of a DLSR’s features you need to understand some basics in photography: Aperture, ISO and shutter speed.  This retailer covers all of these in short 30x minute training sessions in-store.  Training is 121 and charged at £25 a session.  The training is well publicised in-store, adding value and helping to close more sales.

This training approach could easily be transferred to MI.  Many of the products we sell are quite complex, whether acoustic or digital.  Short 121 training sessions in-store, or over SKYPE could add considerable margin to transactions.

Second Hand

Otherwise know as… previously owned, vintage, pre-loved, nearly new or previously played.

We’ve seen a couple of our big players do a push on second hand recently and this is great to see.  For those businesses with a bricks and mortar presence, previously owned products can drive footfall.  EBay and Reverb make it easy for customers to do price comparison, so stores will still need to be reasonably competitive, although no two second hand guitars are the same.  The beauty of buying pre-owned from a store is you get guarantees and support, simply not possible from eBay or a private seller.

With your added services of fresh strings, setup and warranty, pre-owned acoustic instruments from a retailer are a no brainer.

Some stores have decided to reduce the amount of capital tied up in stock by operating as an agency, to private sellers. This model is popular with dress agencies, stock is put in by the seller on ‘sale or return’ and a commission taken at the point of sale.

Warranties and insurances

Music retailers should explore extracting some of the service elements of their offer and charge customers for them, as bolt ons and service packs.  This can also help customers understand and appreciate price variations between distance sellers and local stores.

Dixons Retail, home of Currys/PcWorld and Car Phone Warehouse charge £35 to set-up your laptop when you collect it from the store.  Dixons also push their post sale service contracts and warranties hard.  Dixons currently have around 11 million service contracts and warranties in place, across their portfolio of products, reportedly generating 50% of their profit.

Apple will provide free product support in their 38x UK stores, but still successfully charge between £99 and £250 for its premium Applecare package.

My local BMW service centre is a great customer experience.  They will toast you a tea cake on arrival, offer you unlimited tea and coffee, you can book an appointment with the onsite barber and enjoy free WiFi, whilst you watch the oil free spotlessly dressed mechanic plug his laptop into your car from a viewing gallery.  They can afford to, as the cost of a service pack is eye watering.

I was talking to the Director of Operations, “Yes we turnover much more here than the showroom”.  Servicing, warranties and repairs not only enhance the customer experience but can yield good profit.  In house engineers generate regular traffic to a store and service plans can be added to the sale to bolster margins.

Should customers expect premium service at the lowest internet price?

More thoughts on bolstering margin next week!

Don’t forget to book yourself or your team on to the Future of Music Retail workshops –

The event and online training tools are FREE to MIA member retailers. Non-MIA members are welcome to attend the workshops for just £149+VAT.