TORONTO -- Sunrise Records is placing a major bet on Canadian music sales with plans to move into 70 retail spaces being vacated by HMV Canada.
The Ontario-based music retail chain has negotiated new leases with mall landlords across the country.
Sunrise's expansion gives the company a quick foothold in the Canadian music scene just as the industry's largest retailer closes shop. Stores will begin to open this spring after HMV liquidates and removes its signs.
The investment comes at a time when many are dismissing physical music sales as more listeners shift to streaming options.
Compact disc sales fell 19 per cent to 12.3 million units last year, according to data compiled by Nielsen Music Canada. Meanwhile, on-demand audio streams experienced dramatic growth, rising 203 per cent to 22 billion streams, helped by services like Apple Music and Spotify.
Sunrise President Doug Putman isn't convinced the data signals the end of physical media.
“Vinyl is almost a $1-billion business right now and it just keeps growing and we don’t see any sign that it’s going to slow for us,” he told BNN on Monday. “We’re seeing everybody from millennials all the way up buying into it.”
“People are forgetting that the new generations, they still want something tangible. They want physical. Yes, they’re streaming. Yes, they’re downloading, but if I get just a percentage of those people coming in and buying, it turns our business into a successful business.”
Putman added that quality music will still sell beyond streaming and downloading services.
“A new pop song comes out, I’m not going to be the leader at selling that new, hot pop song. That’s going to be streaming or digital,” he said. “But, you come out with a great album, you pick an Adele, something like that, the numbers were off the charts for how much we could sell.”
“If artists are putting out relevant music that people like [for] more than just one song or two songs, they gravitate to buying the physical.”
Putman also believes that independent music retailers have a part to play in Sunrise’s success and vice versa. He points to industry-wide initiatives like Record Store Day – an annual North America-wide promotion day that offers vinyl merchants a chance to sell limited run records to welcome more customers through their doors – as initiatives that help both big and small businesses.
“It’s a community … You can have a chain but you still need these indies,” Putman told BNN. “Indies do a great job and we want to partner with them.”
“The better they do, the better we do. We are interconnected.”
Putman has long believed in buying merchandise you can hold in your hands. He grew up working at the family business, Everest Toys, a manufacturer and distributor based in Ancaster, Ont.
He bought the Sunrise chain from Malcolm Perlman in October 2014 just as streaming was going mainstream. Perlman had spent the previous few years shutting down most of the Sunrise stores in the Toronto area, often blaming higher rent.
When Putman gained control of the company, there were five Sunrise Records stores left. He's since doubled the number by opening in Ontario cities like Ottawa and North Bay. He said all of those stores are profitable.
His approach is a departure from the financials at HMV Canada.
In court documents filed last month, HMV painted the image of a hemorrhaging business where sales were projected to slide to $190 million in 2016, after gradually weakening over the previous couple of years.
Overall, HMV said it was losing $100,000 a day.
"It's an absolutely huge number," Putman told The Canadian Press.
"But we've been able to find a way, working with landlords and our suppliers very closely, to mitigate that."
Putman said his company won't lose $100,000 a day when the mall locations open, and he has set a goal of making all stores profitable in 2018.
Former HMV locations factored into the deal represent roughly $100 million in sales, Putman said.
Locations included among the new lease agreements are the two-level store in West Edmonton Mall, as well as other malls in Burnaby, B.C., Winnipeg, Hamilton, Mississauga, Ont., and Saint Bruno, Que.
The company will outline a more extensive list of stores as the full leases are signed, Putman added.
Sunrise Records will invite 1,340 former HMV employees to apply for 700 positions as it prepares to move into the new locations.
The company was unable to reach new terms for about 30 of the closing HMV stores, Putman said, including the company's flagship location at Yonge and Dundas streets in Toronto.
However, he did tell BNN that he had reached out to the building’s new owners in hopes of reaching an agreement.
Staying ahead of trends will be one of the biggest challenges Sunrise faces as it defines itself as a hybrid music retailer and cultural merchandiser.
Aside from CDs and DVDs, Sunrise will hedge its bets with board games, themed toys and a wide selection of music, film and TV apparel.
HMV tried that strategy too, but Putman believes he can do it better with a broader selection. He's also putting a major focus on growing interest in vinyl records, which will be placed at the front of stores.
Vinyl sales grew 29 per cent last year to over 650,000 units, and Nielsen figures show growth this year remains steady.
Sunrise will also tap into other popular slices of nostalgia, like audio cassettes. Sales of tapes jumped 79 per cent to about 7,000 copies last year.
Putman said the company won't invest much in tapes, which he considers as a "niche market," but said Sunrise already stocks a number of cassettes and tape players.
Yet not every factor will be within the new owner's control.
Record labels are making seismic shifts in their priorities with a stronger focus on how digital sales drive music charts.
Some of last year's biggest hits, including Beyonce's "Lemonade" and Drake's "Views," were released under a digital-first strategy. Streaming and download services had the album weeks before record stores.
Other albums, like Grammy winner Chance the Rapper's "Coloring Book" and Kanye West's "Life of Pablo," went without a physical release at all.
Putman hopes those examples remain anomalies, though he said those hurdles are just part of navigating an evolving industry.
"Is the business the same today as it was five years ago? Of course not," he said.
"And it's going to be very different in three years. It's up to us to adapt and change."
- with files from BNN