Why Sunrise Records Thinks It Can Succeed Where HMV Failed

Vinyl is having a moment, and Ontario-based Sunrise Records is basking in it. But is the market big enough to sustain 70 new retail locations?

Written by Catherine McIntyre

Few people were surprised by last month’s announcement that HMV would be shuttering all 102 of its Canadian stores. The 30-year-old company had been operating at a loss of about $100,000 per day by late 2016 and, with physical music sales plummeting year after year in the industry at large, that trend was unlikely to let up.

Last year alone, physical album sales dropped 14%, according to marketing research firm Nielsen. In the last ten years, the sale of CDs (the most common form of digital music) plunged 84%. Meanwhile, on-demand streaming—through paid services like Apple Music and Shopify, or free platforms like YouTube—jumped 76% in 2016, now representing 38% of all audio consumption.

But Toronto area business Sunrise Records isn’t deterred by the numbers. On Monday, the company announced it would be taking over 70 of the defunct HMV locations across Canada in an optimistic bid to succeed where HMV, and many other competitors, are failing.

The move is part of president Doug Putman’s expansion plan, which he started when he bought Sunrise Records in 2014. Bricks and mortar music shops were already feeling the pinch from digital sales at that point, but Putman was convinced that a wider selection, including a significant focus on non-music products like DVDs, board games, and clothing merchandise, would help buoy the business. Since then, Putman has doubled the number of Sunrise Records locations to ten, all of them in Ontario.

Putman points to the resurgence of vinyl records as a major contributor to Sunrise’s success. About 30% of the company’s sales come from vinyl, a model Putman plans to sustain as the business expands. “We definitely think [the vinyl trend] is going to continue to grow,” he says. “I don’t see any reason why it wouldn’t.”

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Vinyl is indeed experiencing a comeback, with sales climbing for six years in a row. About 40 million discs were sold last year, generating close to US$900 million in revenue, up 29% from the year before. According to a survey by Deloitte, 12% of Canadians bought at least one vinyl record last year, and by the end of 2017, global vinyl sales could reach US$1 billion. Some of the growth is from audiophiles who prefer the sound over digital. But a bigger factor is nostalgia; “that analogue drop in an all-too digital world,” says Duncan Stewart, director of Technology, Media and Telecommunications Research for Deloitte Canada. “It’s like a log on a fire rather than a gas fireplace,” he adds. “You probably don’t heat your home with a log on the fire, but you may put one on on Saturday night because it’s a pretty thing to look at.”

While Stewart predicts vinyl adopters will keep their turntables in rotation, it’s unlikely we’ll continue seeing double-digit growth in the space. “We could see a plateau,” he says, noting that we’re nowhere near peak vinyl levels of 1981, when more than one billion records were sold worldwide. “It certainly doesn’t feel like it’s going mass. I would be astonished if that were the case.”

In a Financial Times article last month, Paul Lee, another Deloitte analyst based in the UK, called vinyl’s renewed popularity “a blip;” suggesting the trend was overblown and perhaps fading.

The outlook may be disconcerting for the myriad vinyl shops rushing into a space. Calgary-based record press outfit, Canada Boy Vinyl, for example, is one business that’s gone under after overestimating the vitality of the industry. Dean Reid opened the pressing plant—one of about 40 in the world—in 2015 in hopes of dominating a niche area of an emerging market. But two years on, the plant has closed, a notice in the window in January showing that the company owed $66,000 in unpaid rent.

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“Vinyl is still a niche market,” says Bruce Winder, co-founder and partner at Retail Advisors Network. “I get nervous when someone goes from 10 to 80 stores overnight in an industry that appears to be in decline,” he says of Sunrise’s ambitious expansion plan. “I don’t think vinyl is big enough to warrant having that many stores.”

Putman acknowledges that vinyl alone isn’t enough to sustain 80 retail locations. Boosting CD stock by 50%, adding more merchandise, renegotiating lease terms, and offering exceptional customer service are critical to their growth plan, too. While there’s plenty of reason to be skeptical, Stewart is cautiously optimistic that the plan, thanks to the vinyl trend, could work. “It’s not the world’s fastest growing market,” he says, “but it’s not one that’s going to disappear either.”


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