Ralph Lorenz
Managing director

Appointed managing director in September 2007

20 years’ retailing experience with Foschini Group

Previously operations director of Markham

“Customers voted Musica the country’s Coolest CD Store in the Sunday Times Generation Next survey.”

operational review

Musica is the largest retailer of music and entertainment-related merchandise in the country. The product range includes CDs, DVDs, gaming and lifestyle products. Musica targets consumers in the middle and upper income groups through its network of close to 150 stores across southern Africa.

Review of the year

Musica’s performance over the past year was driven by strong sales growth in the entertainment categories of DVD which increased by 33% and gaming which rose by 38%. Non-music sales have increased to 41% (2006: 35%) of total turnover.

This highlights the success of the strategy to transition Musica into an entertainment brand.

As entertainment-related merchandise becomes an increasing proportion of turnover, additional space has been allocated to DVD and gaming in 70 stores to capitalise on the growth in these categories.

Musica has extended its presence in the cellular category and airtime for all mobile networks is now available in all stores.

A key strategy is to broaden access to the Musica brand and expand the store footprint into new areas to take advantage of the growing middle class consumer market. Musica opened seven new stores. Two stores were relocated to improved trading environments and five underperforming stores were closed.

The conversion of the four CD Wherehouse stores to the new Musica Megastore format early in the financial year has enabled the group to focus on a single entertainment brand. The successful conversion has proved the viability of the larger format store model and this will be expanded selectively.

Musica’s management team was bolstered by the appointments of Ralph Lorenz as managing director, Robbie Ferns as merchandise executive and Simangele Tshabalala as human resources executive.

An extensive customer research programme undertaken during the year showed that Musica’s brand is well known, has a strong customer affinity and is highly visible. Customers identified Musica’s in-store experience as a weakness and this is being actively addressed through increased customer service training, streamlining of administrative processes and improved product availability.

Musica’s customers endorsed the brand when it was voted the country’s Coolest CD Store in the Sunday Times Generation Next survey.

During the year 6.1 million customer transactions were recorded, with the average value per basket increasing by 9% to R144, despite price deflation of 1.3%.

Musica’s point of sale system was upgraded to create an integrated payment solution for stores. This eliminated the need for card terminals and the system enables all stores to now sell airtime, improve stocktake functionality and gain access to stockholding of all stores to improve customer service.

Several plans have been implemented to improve supply chain management. Musica’s distribution has moved to UPD. A store-to-store courier service has been introduced for small stock quantities to improve availability and enhance the customer experience.

Market share (%) 2007 2006
Entertainment* 21.6 20.5

* based on supplier data

Strategic focus for 2008

Musica continues to capitalise on opportunities to broaden access to the brand. After an extensive exercise to determine the potential property footprint, Musica plans to open 20 stores in the new year. A new megastore will be opened in Cavendish Connect in Cape Town in December 2007.

Extended trading space will be allocated to DVD and gaming in a further 40 stores.

The plastic gift cards launched in August to replace the paper-based vouchers have been rolled out to all stores.

Rising interest rates are expected to place pressure on discretionary spending.

However, sales of DVD and gaming are expected to remain buoyant in the year ahead. Musica’s profitability targets are based on improved operational efficiencies, including improved stock availability.