OPERATIONAL REVIEW

 

Ralph Lorenz
Managing Director

Musica is the largest retailer of entertainment-related merchandise in the country, targeting consumers in the middle and upper income groups.

Review of the year

Discretionary spending in the entertainment market remained muted during the year and in this environment management continued to improve returns and focus on managing margin and costs.

Musica is a broad-based entertainment business with CD sales accounting for 52% of sales, DVDs 30%, gaming 14% and lifestyle products 4%.

The CD market has remained resilient in the face of the consumer downturn. While CD sales only increased marginally year on year, Musica continued to grow ahead of the market and lifted its share to 45%. DVD sales declined by 2% with gaming up 8%.

Sales of lifestyle merchandise, which includes digital accessories, cellphones and airtime, books and T-shirts, increased by 17% as the brand expanded its entertainment offer. Musica engaged a new cellular partner during the year and Vodacom kiosks have been opened in over 70% of stores.

The Clicks ClubCard was successfully launched into Musica, enabling cardholders to earn points and cash-back vouchers which are redeemable in Clicks stores. By year-end ClubCard accounted for 40% of monthly sales in Musica while the basket value of ClubCard members was 23% higher than non-members.

Musica continued to focus on stores in destination retail locations. During the year three new stores were opened, four relocated and seven stores closed, ending the year on 152 stores. The strength of the brand is reflected in customers voting Musica as the coolest music store in the Sunday Times Generation Next brand survey. Musica was also rated as the best CD retailer in the Readers’ Choice Awards 2010 and best music store in The Times and Sowetan Retail Awards.

Market share (%)*   2010 2009
CD 45 44
DVD 23 23
Gaming software 9 9
* Per RISA/supplier data/GfK    

Strategy and focus for 2011

Discretionary spending on entertainment products is expected to remain under pressure in the year ahead and Musica will continue to drive market share growth.

Musica will open stores in destination locations which can house the full entertainment offer. Four new stores are planned for 2011 although no net growth is expected in the store portfolio owing to further planned closures of marginal stores.

ClubCard participation will be increased through data mining and exclusive offers to enhance loyalty to the brand.

An automated replenishment and efficiency system has been implemented to improve inventory management. Inventory days in stock is planned to reduce from 87 to 70 days in the year ahead.

Management will focus on the continued tight control of margin and expenses and the operating margin target has been maintained in a range of 5% to 6%.

operational review