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A belief in the ‘resurgence’ of the physical market: Sunrise Records to take over HMV stores

A belief in the ‘resurgence’ of the physical market: Sunrise Records to take over HMV stores
Business
Sunrise Records is betting big on the resurgence of CD and vinyl LP sales as the independent Ontario chain prepares to take over close to three-quarters of the storefronts vacated by insolvent HMV Canada.

Toronto-based Sunrise, which opened its first store in 1977, has managed to survive through the industry bloodletting that led to the demise of large and small music chains throughout North America. The nine-store chain announced over the weekend that it will take over 70 of HMVs closing locations, and encouraged that chains employees to apply for jobs at the new stores.

We have a belief there is a resurgence coming in the physical market, Doug Putman, President of Sunrise Records, said in an interview Monday, citing the retailers solid sales of CDs and LPs despite more than a decade of steadily rising digital music sales. As an industry (sales of physical music products) are shrinking, but we are not seeing that from a Sunrise perspective. We are seeing our CD business increase, and we are seeing our vinyl business increase. Its a point echoed by Indigo Books chief executive Heather Reisman, who has cited a stabilization in the market for physical book sales in recent years despite the introduction of e-books.

Putman purchased the then-struggling Sunrise chain in 2014, when it had five stores. His move to capitalize on the void left by HMV required him to negotiate individually with landlords.

It is a seven-figure investment, it is a lot of money, but we see a way for (the expanded business) to be a profitable chain.

It defies the odds in an industry that has seen the death of strong independent chains such as A&B Sound and Sam the Record Man. HMV, the last remaining music retailer of its size in Canada, announced in January that it would close all of its 102 stores across the country, owing its largest secured creditor $39 million. Sunrise will begin opening inside former HMV locations in April 2017.

Much like HMV and Indigo, Sunrise has broadened beyond its core base of products to include a variety of non-core products such as licensed fan apparel, movie and TV memorabilia and board games.

Sunrise derives 60 per cent of its sales from music and 15 to 20 per cent from DVDs, with the remainder falling under the other category, which Putman would like to grow to 30 per cent or more of sales.

We are seeing (CD) increases in the single digits, which is nothing crazy, but for an industry that posted a 20 per cent decline on CD sales, for us to show any growth we think is pretty amazing. Vinyl has done even better, he said, outstripping the 30 per cent growth rate in the industry. The business is triple for us what it was two years ago, Putman said.

Stepping into vinyl early relative to other players, about seven years ago, also helped Sunrise establish itself among independents as a place for vinyl, experts say. Sunrises managers are encouraged to curate record sections to target the musical tastes of the local markets where they operate.

This is a bold move, said Eric Alper, a veteran Canadian music writer and publicist. Sunrise could easily keep their nine stores and be happy for the next ten to 15 years but I think if they listen to how their customers want to consume physical products, going big on this could bode well for them.

Sunrise sees about 70 per cent of its CD sales in back catalogue and 30 per cent from new releases.

I think HMV wanted to be everything to everybody, Alper said, offering a full stock section of top 40 releases while also trying to cater to more niche tastes and offer the back catalogue selections of independent record stores.

Sales of physical music are still strong in Canada, Alper noted, with CDs still accounting for 15 to 30 per cent of overall sales. Vinyl sales account for a much smaller portion, about 1.5 per cent, but the format is growing quickly.

In 2015, digital music became the primary revenue stream globally for recorded music, overtaking the physical sales of albums and CDs, according to London-based industry association IFPI. Industry revenues grew 3.2 per cent in 2015 to US$15 billion, with digital music accounting for 45 per cent of sales and physical music accounting for 39 per cent of sales.
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