Review of the year

Musica's transition from a specialist music business to a truly entertainment-focused retailer has continued to gain momentum.

Colin Robb
Managing director

15 years’ service
Formerly merchandise 
director of Musica
Appointed managing director
in 2002

Musica Megastores
offers over
30 000
DVD and CD titles   

Musica wins 
Loerie Awards for creative advertising excellence

    2006   2005  
Turnover R’m 778.8   662.3  
Turnover growth % 17.6   21.7  
Comparable stores turnover growth % 10.8   21.1  
Operating profit R’m 25.6   23.1  
Inventory R’m 130.7   122.2  
Number of stores   145   139  
Full-time permanent employees   699   621  
Weighted trading area m2 18 603   17 365  
Increase in weighted trading area % 7.1   0.1  
Weighted annual sales per m2 R 41 864   38 140  

During the past year the non-CD merchandise categories have grown strongly, with sales of DVD (music and movies) increasing by 46%, gaming (including computer games) up 45% and lifestyle accessories (clothing and novelty goods) growing by 41%.

Entertainment-related merchandise now accounts for 34.5% of total turnover, after only being introduced into the brand four years ago.

Sales growth has been driven by major brand-building marketing campaigns which has also increased customer affinity with the brand. In line with the group’s focus on making the business simpler and returning to the basics of retailing, all elements of the marketing mix have been addressed. This included in-store point of sale, store navigation, media mix, window displays and quality of advertising.

The brand received eight Loerie Awards, including two gold awards, in recognition of creative excellence in the country’s premier advertising contest.

A partnership was concluded with Virgin Mobile to further broaden the entertainment offering, with branded kiosks being introduced into 26 flagship Musica stores to market Virgin Mobile products. A further 30 Musica stores sell Virgin Mobile products, with Musica receiving turnover-based commission.

The fledgling e-commerce business doubled turnover off a low base as a result of active marketing of at all consumer contact points. The e-commerce offering includes both online purchases for home delivery as well as digital downloading of music. A competitive online pricing model has been adopted, with low cost new releases followed by higher margins across the broader catalogue titles.

Musica has continued with its aggressive pricing strategy and strong value proposition, driving down the price of DVDs and competing strongly with the national supermarket chains and independent music retailers.

Musica increased its store base to 145 after opening a net six new stores, including two stand-alone DVD stores in Tygervalley and Eastgate.

Inventory growth was maintained well below turnover growth, enabling Musica to increase its inventory turn from 5.4 to 6.0 times.

Strategic focus

A strategic decision to focus the group’s resources on one entertainment brand has given rise to the Musica Megastore format, with the first four stores being converted from CD Wherehouse in late October. Musica Megastores will retain the extensive range of catalogue and import titles of CD Wherehouse while introducing the pricing and value proposition of Musica.

This repositioning to Musica Megastore is expected to retain the passionate CD Wherehouse customers and at the same time drive increased volumes owing to the high brand awareness of Musica, which has an estimated 34% share of the country’s music market.

Further locations will be sourced for Megastores while “the best of CD Wherehouse” will also be introduced into a few large Musica stores. Consolidating the Musica brand will result in buying and operational synergies.

As entertainment-related merchandise accounts for an increasing proportion of turnover, additional space will be allocated to DVD and gaming in stores to capitalise on the growth of these categories. Cellular is a logical extension of the current offering and airtime sales will be introduced in the forthcoming year.

While Musica is the dominant music and entertainment brand in the country, the emerging middle class consumer market presents an opportunity to broaden the store footprint into new areas. Sales of local music remain buoyant and account for 17% of total music sales. Ten new stores are planned for 2007, including Jabulani Mall in Soweto which opened in late October.