Friday 18 August 2017

Golden Discs chain is giving it another spin with new Tesco deal

The resurgence in vinyl sales is a reason for optimism according to the chief executive of Golden Discs, Stephen Fitzgerald

Golden Discs chief executive, Stephen Fitzgerald: ‘It has never been more fragmented in terms of the amount of ways to consume music and movies’
Golden Discs chief executive, Stephen Fitzgerald: ‘It has never been more fragmented in terms of the amount of ways to consume music and movies’
Samantha McCaughren

Samantha McCaughren

Sales of DVDs and CDs have been under pressure for many years, but the next few weeks will be hectic for Golden Discs. Now one of the last remaining music and movie retailers, 50pc of its annual sales take place in November and December.

"Our business is so seasonal. We see a lot of people who wouldn't darken our doors most of the year because they prefer to stream or download. But you can't really give your mum a Michael Buble download," said Golden Discs chief executive, Stephen Fitzgerald.

In addition to the usual pre-Christmas rush, Fitzgerald will also be pushing out its new relationship with Tesco.

"We've been working very, very hard on this deal for the past seven months and we're still at it," said Fitzgerald. "We're just ironing out teething problems now but we've been stocking the Tesco stores over the past number of weeks and we've just launched the Golden Discs branding piece in the stores."

Golden Discs and logistics company Exertis will supply 80 Tesco stores around Ireland. Under the partnership, Golden Discs at Tesco concessions will operate as standalone units within those Tesco stores.

The arrangement comes against a difficult backdrop. Sales of DVDs have been on the slide, with chart-topping releases now selling hundreds rather than 1000s of copies in Ireland.

However, Fitzgerald expects that the new relationship with Tesco will change that. "It is very hard to make an deductions from the chart numbers this year based in everything that has happened in the industry," he said.

"Xtra-Vision is gone, HMV is gone, a lot of independents are gone and the Tesco business has been adrift for a number of months. So Golden Discs has been the only sizeable contributor and when you're comparing them with last year, sales have fallen off a cliff," he said.

"Now that the Tesco business is up and running again and being supplied and we're actively managing it, I think you are going to see that number improve significantly."

Fitzgerald said that Irish DVDs and CDs would also see a boost from its expanded role in the Irish market. "We will very much focus on the Irish and local repertoire, that will be a big thing for us."

Among the big sellers in the coming weeks will be Game of Thrones box sets and comedian Tommy Tiernan's DVD.

Although the way people consume content is undergoing enormous change, Fitzgerald is optimistic about the future.

"I think it has never been more fragmented in terms of the amount of ways to consume music and movies in terms of streaming and subscriptions," he said. "And I think there is absolutely a very strong and healthy position in all of that for physical products."

He said that music is so widely available, people are consuming more and more of it. "Overall, the music market is up 11pc this year and I think packaged is down about 3pc. So it's certainly challenged but there is plenty of room there for us."

Fitzgerald described the Golden Discs journey as a "rollercoaster ride". His father, Jack, set up the business in 1962. In the company's heyday, there were 35 stores and for many years Golden Discs was the go-to retailer for teenagers stocking up on the latest vinyl or CD albums.

Following an examinership in 2009, the company shrank to ten stores during the recession.

But opportunities have re-emerged. When HMV and Xtravision left the market, the chain expanded into new locations.

In recent weeks, Golden Discs has opened in former HMV stores in Dundrum Town Centre and Henry street on a temporary basis.

"There is an option in Dundrum to stay on for something longer but the immediate deal is just into the first quarter of 2017," he said.

At the moment, the chain has 14 stores and would like to add five to six next year.

"Depending on what happens with Dundrum and Henry Street, we would open stores in those type of locations in Dublin and several others around the country," said Fitzgerald.

This would give the group seven in Dublin, four in Cork and around nine around the rest of the country.

"They will need to have the footfall where it makes sense," he added. "I think the days of the big, big superstore are just over and equally, the big rents on Grafton Street are just not possible any more."

Fitzgerald expects that expansion into regional towns to equate to an investment of €3m.

"That would be funded through various sources, from suppliers and from internal resources and some external resources." Up to 40 new jobs would be created.

Despite the pressure on physical formats, there are areas of growth.

"We're seeing growth in CD," said Fitzgerald. "Some people might think that is counter-intuitive. You would think digital services are killing it off. But the predictions out of the UK and US is that CDs are probably bottoming out now."

"We're seeing huge growth in vinyl," he said. "We are probably up around 200pc on last year's numbers."

Fitzgerald said that vinyl sales as a percentage of turnover is small, accounting for single digits in some stores and moving into the early teens in others.

"But if is keeps growing at current rates, it is going to be a sizeable format in the not too distant future." In the US vinyl sales now equate to half of CD sales.

It had been a niche area, appealing to middle-aged shoppers but now the hipster penchant for vinyl is feeding into sales. "Some 46pc of vinyl sales are to 16 to 25 year olds."

Fitzgerald said that despite all the negativity around DVDs, some growth was being witnessed for box sets and newer high-definition formats such as 3D and the latest technology, 4K.

As part of its deal with Tesco, Golden Discs will sell games, which is a new area for the chain, although games are being also stocked in the Dundrum pop-up shop.

"We are going to look at it very closely now and see how the performance is and take a view on in the New Year," he said in relation to a the chain's longer-term position on gaming.

"The detail of that industry is very different to music and DVDs. Margins are tighter, the stock investment is significantly higher and is more fickle. You can kind of predict what a film will do on DVD because you have seen it in the cinema. And an album you can predict it by the amount of marketing support a label puts behind it and how popular the artist it, but games are notoriously tricky to predict."

He is not concerned about the switch to online shopping. "It's always been there and yes there is a foreign exchange gain for sterling, but for the most part, when you add post and packaging for most purchases it is coming out the same as our retail on-shelf products."

"The labels and the studios are cognisant of that and they want to drive volumes, which is reflected now in much better pricing."

After some difficult times, the company's financial position has improved. In the past year, Fitzgerald said that the company had a "healthy turnover and, yes, absolutely profitable".

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