Analysis of the UK Music Retail Industry - Essay Example

? Analysis of the UK Music Retail Industry By Table of Contents Analysis of the UK Music Retail Industry 1.0 General Analysis of the UK Music Retail Industry 3 1.1 Introduction 3 1.2 PEST Analysis 4 1.2.1 Political Environment 4 1.2.2 Economic Environment 4 1.2.3 Social Environment 5 1.2.4 Technological Environment 5 2. Strategies and Tactics used by Music Retailers in the United Kingdom 7 3. 0 Conclusion 8 4.0 Recommendations 9 Appendix 11 Appendix 1 11 Appendix 2 12 Appendix 3 13 1.0 General Analysis of the UK Music Retail Industry 1.1 Introduction Music is a hobby for every one in five adults in the United Kingdom (UK). Music is a lifestyle for a large proportion of the UK people. Majority of the people in the UK listen to music everyday at home, at work and while enjoying their leisure in other places. The significance of music in a consumer lifestyle is emphasized by study results, which indicate that music access has been enhanced by new technology and other trends. Music retailers in the UK include Woolworths, Zavvi, HMV, EMI, Universal, Sony, and Warner (Key Note 2011, p1). Many of these retailers offer CDs, cassettes and vinyl. For a long time the “bricks and mortar” music retail shops dominated the UK market. However, there has been a sharp reduction in their market share over the past decade with online retailers like Amazon winning, from the brick and mortar shops, a recognizable share of the market. Several physical retails stores in the UK market have been forced to close some of their branches in view of the various changes and challenges that have graced the market. The paper will highlight some of the changes that have been witnessed in the UK market and will provide a PEST analysis of the UK music retail industry. 1.2 PEST Analysis 1.2.1 Political Environment Control on copyright and recording places potential limitations on the formal distribution channels, for instance, downloading music online (Burt and Sparks 2003, p74). In other words, formal distribution channels have been affected by recording and copyright controls and laws. The present issue concerning the political environment in the UK involves VAT. The problem of Low Value Consignment Relief (a tax mechanism that allows retailers to utilize distribution channels in Channel Islands to sell goods at a low price in UK without the need to pay VAT) has been a thorny issue for the physical music retailers in UK. The music retailers feel that it will make bricks and mortar music shops be disadvantaged in terms of costs. Music retailers’ fears have been increased with the recent move by the government to raise VAT to 20 percent from 17.5 percent (Cardew 2011, p1). 1.2.2 Economic Environment The relatively low cost of music media and devices indicates that there will be little recessionary pressure on sales and expenditures. The recent economic recession hugely affected consumer spending and resulted in revenue fall in the music industry by an average of 3.7 percent in 2009 (McMillan 2011, p5). While the recent recession saw a significant drop in sales of music albums and media between 2009 and 2010, the economic situation of UK has improved in 2011. This means that across the country, the level of disposable income has grown meaning that consumers may be willing to spend more on entertainment. “Bricks and mortar” music shops which operate with considerably high overheads tend to set higher prices for their products as noted by McMillan (2011, p6). 1.2.3 Social Environment Some of the physical music retailers in UK have a popular image in the society meaning that they attract a wide range of customers. The population aged between 19 and 40 is heavily involved with and have varied tastes of music. It is important to note that while the younger generation is more comfortable with using high tech equipment such as computers, iPods, Shuffle flash disks and the likes, the older generation is more conservative and therefore prefer to us CDs, cassettes and vinyl players. What this means is that the older generation would prefer to buy music products and devices from physical music stores. Specialist retailers attract more music buyers who are below the age of 30. Supermarkets attract music buyers aged 30 years and above. The demographic group 25 – 44 years is more at ease buying music while shopping for other items and thus, the supermarkets are attracting more music buyers than the previous years. However, back catalogue sales are not the strongest points for the supermarkets and chain stores (French Music Export Office in London 2003, p71). Currently, the younger generation has adopted a culture of loving to get entertained while on the move (Tucker and Strobl 2000). The young stars thus prefer to have powerful, high tech, portable devices with them as they walk, travel, work or engage in leisure activities. 1.2.4 Technological Environment Technology is changing the structure of the music retail industry in the United Kingdom. The Internet has been a major force to reckon with in so far as the UK music industry is concerned. In fact, there is an ongoing debate that the internet will substantially eliminate physical retail stores and the prospects of digital delivery will completely eliminate the need for retailers. The technology is likely to change the mode of retailing and distribution as noted by the French Music Export Office in London (2003, p79). The Internet is one of the tools that have made sharing of information easy. Potential customers can research on the kind of music that they prefer with great ease. This has made it easy for customers visiting physical music stores to identify the products that they need easily. On the other hand, the free accessibility of music files from the Internet has led to the closure of several physical music retail stores as witnessed in the recent past (Sandulli 2007). Moreover, many people prefer to listen to music online without having to buy CDs, Cassettes and other music storage media, a factor that has seen declines in the sale of physical music media over the years. HMV, for example, has announced that it will close about 40 of its braches due to profit declines attributed to competition from online retailers such as Amazon. 2. Strategies and Tactics used by Music Retailers in the United Kingdom Physical music retail shops have adapted to the market changes and trends witnessed in the UK. Considering that the effects of the recession are far from over, most of the retail stores have resorted to selling low-cost items that are on higher demand compared to music devices and media. Some of these include accessories, clothes and video games. Yet again, to cut on costs while at the same time targeting a bigger market, some shops have gone the multichannel way as noted by Regner and Barria (2009) and Harris, Himelstein, McEachern, Nyong and Tu, (2009). With reduced costs, the shops have managed to offer cheaper products to an expanded market. One main influence on the music industry is taxes. High taxes are affecting most physical music stores in that they reduce their profits. The high taxes have also changed the consumer demands and interest. In order to reduce on costs in overall, some physical stores have resorted to selling certain products online. This way, they get to pay lower taxes compared to what they normally pay when they sell physical products. As an example, HMV is an established music retailer in the UK owning over 40 high street stores (Cullen and Newman 2002), that has resorted to marketing and selling its products online. This way, it targets a larger market and makes it convenient for customers, especially the younger generation, outside the UK to place orders and receive their purchases real time. This measure has also seen businesses benefit from the Low Value Consignment Relief which previously was perceived as a threat to the stores. To cater to the needs of the younger tech-savvy generation, many stores stock an assortment of portable high-tech devices (Hesmondhalgh 1998). Some stores have made strategic changes to their appearance in a bid to attract potential customers. EMI Records and Woolworth, for example, have considerably changed their stores’ layout and the quality and type of products that they offer. The new layout is made up of central customer payment desks with assistants who are smartly dressed. The new outfits serve to attract the young and older alike even as the organizations endeavor to offer discounted rates for most of their products considering people’s preference for items on offer. Yet again, the shops have opted to offer high-tech products targeting the younger tech-savvy and entertainment hungry generation in appreciation of recent technological developments. Furthermore, the retail stores have made it possible for shoppers to pay for their purchases using credit cards. This has proved most convenient for most customers who prefer not to carry huge bundles of cash for security reasons. PEST 3. 0 Conclusion The music industry in the United Kingdom has faced many challenges and the change in the digital age is one of the factors that have heavily affected it. This technological issue has made it easy for anyone who has access to a computer and internet to perform both the sharing and recording of music. This has forced the ‘bricks and mortar’ music retail stores to adopt the recent trends in digital age. Politically, the control on the copyright and recording places have had significant limitations on the distribution channels of the music retail stores. However, by selling some products online and taking advantage of the Low Value Consignment Relief, a physical music shop can overcome challenges related to high taxation. Economically, the recent economic recession has put a lot of pressure on the music retail industry in the UK and this has led to the fall of the total revenue in the industry. However, the situation has been on a steady improvement trend which means that physical stores are bound to have customers streaming in as in the past. Socially, consumer trends have changed and this has affected their taste for music. The online distribution channel because of its reliability and convenience attracts these consumers. 4.0 Recommendations Considering the changes in the technological, social and economic environments, “bricks and mortar” music stores need to change their way of operation to some level. The stores need to market their products online and collect funds through merchant accounts, so as to target a wider potential market. The business needs to obtain the necessary licenses to ensure that online business activities are legal and do not contravene copyright laws. This measure will go a long way in overcoming some of the restrictions that face traditional “bricks and mortar” shops. Diversification has always been a positive measure to many businesses. The physical music store should consider selling other products, not necessarily related to music and entertainment. In addition, the store may consider stocking an assortment of high tech products considering their suitability to the entertainment longing generation. The physical retail store should make it possible for customers to pay conveniently for products using credit cards and Paypal. In addition, the shop needs to endeavor to offer new products in the market targeting the market segment that is tech-savvy and keen on prestige. Appendix Appendix 1 Back catalogue/new releases sales by type of retailer (Source: French Music Export Office in London 2003, p71) % expenditure Back Catalogue 2001 Releases 2002 Releases TOTAL Total Market 27% 18% 55% 100% Music Specialists 33% 20% 47% 100% Chains/Multiples 17% 15% 68% 100% Supermarkets 13% 14% 73% 100% Mail Order 40% 27% 33% 100% Internet 38% 15% 47% 100% Other 47% 17% 36% 100% Appendix 2 Courtesy of the Guardian http://www.guardian.co.uk/news/datablog/2009/jun/09/games-dvd-music-downloads-piracy Appendix 3 Courtesy of Pirate Party, UK References Burt, S. & Sparks, L., 2003, Department of trade and industry: Competitive analysis of the retail sector in the UK, Scotland, UK: Institute for Retail Studies. Cardew, B., 2011, Music retail hopes for UK Government action to VAT, MusicWeek [online], 2 March. Available from: [Accessed 13 Jan. 2012]. Clark, C., 2007, Illegal downloads: Sharing out online liability: Sharing files, sharing risks. Journal of Intellectual Property Law & Practice, 2(6), pp402-418. Cullen, P. & Newman, A. (2002) Retailing: Environment & operations, Mason, OH: Cengage Learning. Esas, A., 2009, Marketing – Main [online], Scribd. Available from: [accessed 13 Jan. 2012]. French Music Export Office in London, 2003, The British music market in comparison with the French music industry, London, UK: French Music Bureau. Harris, D., Himelstein, M., McEachern, J., Nyong, E. & Tu, C. ,2009, Multi-channel retailing: Assessing the strategy of a UK multi-channel retailer in the context of its pure-play competitor [online]. Available from: [accessed 19 Jan. 2012]. Hesmondhalgh D., 1998, “The British Dance Music Industry: A Case Study of Independent Cultural Production”, The British Journal of Sociology, Vol. 49, No. 2: pp. 234-251. Key Note., 2011, Music industry market review 2010 [online], Key Note. Available from: [accessed 13 Jan. 2012]. 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