Musica battles to hit high notes as digital takes over

AS the “last man standing” among entertainment retailers, Clicks’ Musica brand will need to rethink its strategy to pique consumers’ interest and remain relevant in a world with one foot in the digital space.

Clicks Group CEO David Kneale said “the fact that all of our competitors have closed enables us to be the last man standing”.

Although Musica stores contributed only 5% of the group’s overall turnover, which grew by 12.2% to R9.2-billion in the 20 weeks to January 17, the group would not be looking to sell off any Musica stores despite more consumers downloading music online, he said.

According to the group’s 2015 annual report, Musica is not central to the Clicks health and beauty strategy. Of the 118 outlets, two were closed between 2014 and 2015.

A recent trading update said Musica sales increased by 2.6%, with same-store sales falling 0.4%, while store inflation for the period stood at 2.1%.

Alec Abraham, a Sasfin equity analyst, said Clicks had tried to sell off the Musica brand a couple of years ago, but found no buyers. Market conditions were not favourable for the entertainment retailer, whose customer base was migrating to digital.

“It’s a shrinking market . . . so they’ve reduced the number of stores. They’ve also adjusted the merchandise mix to include personal electronic hardware such as MP3 players,” said Abraham.

According to the annual report, Musica gained market share in all product categories, accounting for 60% of South Africa’s CD market and 43% of the DVD market.

Abraham said that despite the muted performance of the Musica division, it had had a negligible effect on the group, given that it was a small unit.

“The business is not thriving but they are not making losses, [although] they are not growing the profits . . . Same-store turnover went up by just 0.4%, and if you strip out price inflation in their goods, it appears their volumes were negative.”

Musica’s former competitor, Look & Listen, went into business rescue 18 months ago and closed about 12 stores, leaving it only three in South Africa.

Look & Listen MD Howard Lazarus said the failure of entertainment music retailing had “got to do with the move towards digital and a combination of streaming and downloading. If you can see that you are going to have a problem in a year from now, rather you close the store ahead of time, while you are in business rescue.”

He said landlords “did not have faith in the future of the industry”, so would not renew leases even for profitable stores, which he described as the “beginning of our woes”.

“It goes without saying that when you have large stores around you that close, you will pick up the business, bearing in mind that the performance of Look & Listen stores was on average three or four times and in some cases six or seven times the size of a Musica in the same centre.”

Kneale said that despite the changing industry, “there is longevity in the physical format and in the music business”, which would last “decades”.

But Lazarus said: “It’s not a business that has a huge future . . . downloading and streaming will continue to be a problem and I think the continued introduction of video and visual formats will simply add further pressure to the format of the physical stores.”