When will iTunes replace Wal-Mart as No. 1 music retailer?

An NPD analyst says unless downward trend in CD sales suddenly reverses, Apple will overtake Wal-Mart as the country's leading music retailer this year.

Apple's iTunes will likely whip past Wal-Mart Stores to become the largest U.S. music retailer sometime this year.

The NPD Group issued a report Tuesday that said Apple had outpaced Best Buy and Target to become the No. 2 U.S. music retailer. Unless the downward trend in CD sales suddenly reverses, Apple will be No. 1, said Russ Crupnick, the NPD Group's president of Music.

"Digital sales were up close to 50 percent and CD sales were down 20 percent last year," Crupnick said. "Even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year."

Anybody in their teens or early 20s is going to ask, "So what else is new?" To them, digital downloads has been part of their lives for years. It's only natural that a download store emerge as the top seller .

But anybody older is going to remember that it wasn't too long ago when music buying meant flipping through CD racks at the former retail powerhouses, Sam Goody and Tower Records.

"That's the question that the music industry has to answer soon: How do we get young people to start paying for music again? They've got to make it easier for teens to buy online."
--Russ Crupnick, analyst

Tower no longer operates retail stores, and Sam Goody's owner is renaming whatever locations it hasn't closed. "Yeah, it's astonishing--just in the post-Napster era--to see what's happened to the retail-sales environment," Crupnick said.

Apparently, the transition from offline to digital sales is occurring faster than most people expected. (Remember how record executives used to whip out statements like: "Discs are still how most people listen to music."

They may have been right then, but perhaps that won't be the case much longer.

Consider that the music industry is seeing pressure on CD sales from multiple fronts. In the offline world, there is a sort of death spiral going on, Crupnick said. As CD sales continue to slide, retailers like Wal-Mart, Best Buy, and Target devote less and less floor space to discs--which of course serves to erode sales even further.

Amazon.com, the e-tailer that used to be synonymous with ordering CDs off the Internet, has opened a music-download store to challenge iTunes.

Then there is the teen market that is abandoning CDs in droves. According to the report issued by NPD on Tuesday, nearly half of all U.S. teens (48 percent) did not purchase a CD last year. That is up from 2006, when about 38 percent of teens made no CD purchases.

Older music fans are transitioning at a slower rate but it's happening there too. In total, NPD Group said that the music industry waved bye-bye to about 1 million CD buyers last year.

Music remains popular, according to report, which found the amount of music acquired by consumers went up 6 percent. The trouble is that less of it is being paid for. Spending among Internet users fell from about $44 per capita to $40.

It must also be said that not all of Apple's success is due to the growing digital demand. Apple has flat out done a better job of retailing than competitors, Crupnick said.

For example, the music industry should follow Apple's lead and direct their attention to teenagers, Crupnick said.

Teens lack credit cards and this often prevents them from buying at almost everywhere but iTunes, Crupnick said. Apple avoids credit cards by pushing the gift cards, which teens can pay for at retail locations and then use them to purchase songs online by keying in a code. No credit cards needed.

"That's the question that the music industry has to answer soon," Crupnick said. "How do we get young people to start paying for music again? They've got to make it easier for teens to buy online. Apple CEO Steve Jobs has done a wonderful job of this. Teens have a way to do commerce with iTunes."

 

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