What is the Future of Indie Music Stores?

So now are all music stores Wal-Mart?

Big artist are choosing Wal-Mart over the combined distribution power of all the other music stores. The Eagles, AC/DC, and now The Boss - Bruce Springsteen has released his "Greatest Hits" album, which went on sale Jan. 13, exclusively at Wal-Mart. This strategy has proven extremely successful for both The Eagles and AC/DC.

The Eagles' Wal-Mart exclusive, Long Road Out of Eden, went septuple-platinum, although there is evidence that in some instances, independent records stores purchased the album at Wal-Mart for $11.88 to resell it at their locations for $19 to $25. This could have led to unnaturally high sales numbers for the album, which topped the charts with 711K copies sold in the first week.

Wal-Mart is even edging out other big box stores. AC/DC's Black Ice, offered exclusively at Wal-Mart, is outselling Guns N' Roses' Chinese Democracy, sold exclusively at Best Buy, nearly 4 to 1 - 1,055,000 units to 318,000 units at last count.

Only Apple's iTunes Store can rival the giant Wal-Mart in music sales. 2008 sales figures show Apple iTunes Store as the largest retailer of music, with 19% of sales. Number 2 was Wal-Mart at 15% of the market--counting sales at both its stores as well as its website. Best Buy cornered 13%, Amazon 6%, followed by companies like Borders, Circuit City, and Barnes and Noble. ITunes being a digital-only retailer indicates how much the music industry has shifted over the past 10 years.

Wal-Mart has taken on iTunes in hopes of dominating online sales by undercutting Apples iTunes Store with songs starting at 74 cents compared to iTunes' price of 99 cents. Wal-mart's original plan for online music sales was to only offer Microsoft's DRM format, which doesn't work on Apple's iPod. Now, you can download MP3s from Wal-mart's web store using OS X, Linux, or Windows, Firefox, Safar, or Internet Explorer.

Digital distribution is no doubt the future of the record industry. Radiohead, Nine Inch Nails and Metallica have all released albums independently through the internet. Digital downloads are up, while sales at independent record stores are down—way down. According to the NPD Group, 48% of US teens didn’t buy a single CD in 2007, compared to 38% in 2006. People using digital downloads will select one or two songs from an album that they want–but not the whole CD. By contrast, the music stores rely on sales of entire CDs. In 2007, there was a 10% drop in overall music spending, according to the NPD Group. According to Enders Analysis, physical sales of CDs, as compared to digital sales, will fall from $35 billion in 2001, to $15 billion in 2012. This continuing loss of sales will come from a lot of independent stores across America.

I have to say that this does seem a bit familiar. Back in Richardson, TX, Bill's Records and Tapes was the place everyone went to buy music. Bill had it all. It wasn't just about the music, it was the art, the smell, the entire experience of shopping at Bill's record store that made it so great. Then came Sound Warehouse - the "big chain store that was going to destroy independent Bill." I'm sure it cut into his business, but he was still there for a good long while competing with the chains and retaining his customer base pretty well, so it seemed.

Now the "threat" is Wal-Mart and iTunes. I've read countless stories on how independent music stores have gone out of business due to the fact that they can not compete with the larger chain stores like Wal-mart. From adding products to serving coffee, it does seem like the independents that are sticking around are finding new and different ways to compete.

Is this just another part of the natural evolution of music stores? What should the independent stores do to gain market share and stay a vital part of the music industry?