I've seen the future and it works. Well, sort of. Tucked away downstairs at the Levi's store in London's Regent Street is the future of retailing: an unassuming table covered in a dark cloth bearing two computer terminals. Welcome to the world's first Virtual Record Store, where customers can record their own selection of songs from a computer hard-drive on to a blank CD.

For £4.99 sterling you come away with a CD complete with track listing and cover bearing the Virtual Record Store logo. With the experiment scheduled to be expanded to 20 Levi's stores across Europe - and the introductory price set to rise to £7 - it seems likely that the VRS will catch on.

One happy-ish customer was Jeanne Constable, selecting 10 tracks for a party. "It's a lot of fun," she said. "It's easy to operate but it's a pity there aren't more tracks by groups I know. I've chosen a lot of things by people I've never heard of, but I suppose that's part of the fun. I think it will be really popular when it expands a bit."

The technology involved is relatively simple. Some 4,000 songs are stored on the computer's hard disk. Using a touch-sensitive screen, the customer selects which genre of music they want to search, choosing from rock, dance, hip-hop, new age, classical and jazz. The screen fills with a selection of songs, press on a title to select it for your compilation, press again to hear a 20-second extract. Once you have filled the blank CD simply press again and the information is passed from the hard disk to a CD recorder, while sleeve notes are printed out on a printer. Ten minutes later, you have your own customised CD.

There are, however, problems. The company behind the device, Cerberus, has signed licensing deals with lesser known labels. If it's the Rolling Stones you're after, you won't find them here. What you will find is back catalogue output of the likes of Ella Fitzgerald and Bob Hope, gothic icons Bauhaus courtesy of the Beggars Banquet label, and a plethora of dance and drum and bass acts.

"Our philosophy is that if you want the Spice Girls you're better off going to Our Price," said Cerberus's Ricky Adar. "We chose the titles we have here because they fit with the Levi's image. In other outlets we would have other catalogues. We can track the combinations chosen by customers and some people have an amazing way of combining things. Would you really want a compilation with drum and bass next to classical next to jazz? It seems a lot of people do."

With the technology improving rapidly, Cerberus aims to follow the model of pub jukeboxes and have wall-mounted virtual record stores in place in the near future. "Once we get that there is no reason why they should not be in every newsagents and every chemists," said Mr Adar.

With record sales declining, virtual record stores could provide a cost-effective way of retailing music. For about £1,000, a shop can stock and sell the amount of music stored on a hard disk. Compared to the traditional costs associated with retail space, it is a cheap alternative. It should also increase access.

"Faced with the crisis in the music industry, what is the best thing to do: moan about the threat posed by technology or make use of it?" asked Mr Adar. "Sticking this in central London is fine because there are a lot of people around, but it should probably be somewhere more out of the way, where it can give people access to music, such as independent dance music, that they would not normally hear or be able to find." One of the company's outlets in association with Levi's will be in Poland.

Mr Adar argues that the innovation will also serve to stimulate the music industry. "We're paying artists and songwriters more than they would typically get because this system cuts out some of the middlemen. Basically we are providing more outlets and more revenue streams to the record companies we work with. One of the major problems for small record companies is to get product into the retail chain. This offers a way around the traditional problems."