With music sales on its iTunes Store continuing to grow and sales of physical CDs continuing to fall, Apple has become the second largest music retailer in the United States, only trailing retail giant Wal-Mart.

The number-two position was bestowed on Apple by research firm NPD Group, which counted the music sold during 2007. Because iTunes sells music as individual tracks while stores like Wal-Mart do not, the firm counted every 12 tracks as a single CD sold.

While it didn't provide specific numbers for 2007, Apple says it has sold a total of four billion songs via iTunes, with 20 million sold just on Christmas Day last year. 50 million people are now iTunes customers buying from a catalog of 6 million songs.

"The more interesting number is the 50 million customers, that's 50 million folks who have given Apple their credit card information and are buying stuff from them," remarked JupiterResearch analyst Michael Gartenberg, who closely follows Apple.

But although Apple is seeing continued success from iTunes, the company is facing new challengers. Amazon has expanded its DRM-free music store by adding MP3s from all the major labels. Microsoft also recently rolled out new versions of the Zune for its online music store. Although Yahoo dropped out of the race, Rhapsody from Real and MTV is still going strong in the subscription music space.

Nonetheless, Gartenberg says that a lack of DRM won't draw users away from iTunes. "It's either going to be another device that can drive consumers elsewhere (devices still drive consumers to the stores and services, not the other way around) or a totally game changing experience that re-defines how music is purchased and consumed."

Who did Apple beat in 2007? Best Buy came in third place with Target in fourth, according to NPD's figures. Overall, music sales rose 6 percent in 2007, but spending fell 10 percent due to more consumers buying from digital stores rather than purchasing more-pricey CDs.

48 percent of teenagers said they did not buy CDs in 2007 compared with 38 percent in 2006, NPD added. The research firm saw nearly 50 percent growth in digital downloading last year among all age groups, and around 10 percent of music purchased in 2007 came from legitimate online music stores.