The State of Record Retail in the Nineties
Just how does music get to the consumer anyway? Circa 1990 I xompared how the major and minor record retailers did it. The round-up didn't get published but it now serves as a look back at a time and place where actual record stores controlled what music got to fans.
One strange thing: the woman who answered the phone at Sam Goody (the receptionist, I assume) always said the company couldn't do press interviews because "we are in voluntary cooperation with the FCC right now." Or was it the IRS? Every time I called I got the same scripted-sounding answer. Neither the FCC nor anyone else--including the IRS--has ever been able to explain to me WTF she was talking about. I don't think she knew, either.
In the record retail business, California is an especially competitive market with three of the largest chains in the country--Music Plus, Tower, and Wherehouse--doing most of their business in this state. There's also California newcomer Sam Goody, with few stores in this state but which may be the largest retailer nationwide. Sales aren't limited to the giant chains either--smaller chains and independents still have chances on the retail scene. Such a high level of competition can effect what sells, so anyone looking to sell music would do well to understand how the record chains move product.
To find out how the record chains sell music, we talked to spokespersons for the big three chains. One major difference between the companies is that Tower runs a decentralized operation with each individual store being largely responsible for buying. That means merchandising is spread between more than 50 domestic retail outlets--and there are British and Japanese stores, too. Company president Russ Solomon granted us an overall view.
Wherehouse and Music Plus, on the other hand, each run a centralized operation, with most buying decisions made at the corporate level.
Music Plus is the number-one retail chain in terms of sheer physical space--meaning most square feet, according to Angie Diehl, their Director of Marketing.
Wherehouse is California's largest retail chain in volume, according to Jim Dobbs, the company's VP of Sales Merchandise.
Chains as tiny as Rhino play a part in selling records, too. To get an idea of how a smaller chain compares to the giants, we spoke to David Crouch, the manager of the Rhino Records store in Westwood. He says his store is a joint venture with Rhino Records. There is one other store that's linked to the record company--in New Paltz, New York. "The Rhino in Claremont (California) is no longer connected with us except that we let them use our name," he says.
"We buy from major distributors, we buy from the guy that just walks in the door," says Tower's Solomon. "Small labels must be in a specialized category to compete."
All chains, however, buy primarily from the six major distributors, who correspond roughly to the major labels: CEMA, EMI, Columbia, BMG, MCA, and Polygram. Solomon estimates these six are responsible for about 85% of all in-store product.
Explains Crouch, "CEMA is the direct promoter for a group of labels--Capitol, EMI, Chrysalis, Enigma, and Rhino. If we were going to order the new Duran Duran record, we'd deal with them. If we wanted to order a new Warner Bros. or Elektra release, we'd deal with them."
Diehl advises that if you're a tiny label in need of distribution, go to "the Big Six," since the six don't limit themselves to the major labels. Labels that consist of "just you and the other two guys in the band," may deal with major retailers, she adds, insisting, "We buy [almost] anything."
"Talk to retailers about who's a good indy distributor" if you're a small indy label, adds Dobbs.
For all the retail chains, the remainder of in-store product is supplied almost entirely by independent distributors. Direct-from-manufacturer buys also happen. Dobbs, for example, estimates that Wherehouse deals with about thirty independent distributors, and for some product--such as Windham Hill--they deal directly with the manufacturer.
Sub-distributors are still another possibility for putting product in retail outlets, and has two different meanings. Diehl explains that sometimes the term refers to a deal between a minor label and a major distributor, such as between Virgin and WEA.
Other times, Diehl adds, sub-distributors may also be called "one-stops." Chains do little business with one-stops, but independent dealers usually get merchandise from them.
Wherehouse is the only retailer interviewed that uses the term "mark-up" to differentiate between wholesale price and retail price. Dobbs explains, "The ticket price is computed on the suggested list price," depending on how good a value was negotiated at wholesale.
Diehl of Music Plus counters, "Mark-up is an oxymoron," because the retail price tends to be calculated below the suggested list price.
Crouch gives this example, "The Red Hot Chili Peppers have a list price of $9.98. We might sell them for less than list price but the company will still want to see the same amount" for themselves, typically $5-6 per record.
List prices involve different factors. Tower's Solomon points out an artist's contract may determine whether the record is given a high or mid-range price when newly offered. "Budget" is the term usually used for older records.
All retailers describe the same basic contractual agreement with distributors. Crouch uses 50 Red Hot Chili Peppers records as an example. The store buys those 50 Peppers records and then returns what doesn't sell. There's no time limit for a return. Only a certain percentage (commonly 10-20%) can be returned without penalty.
That means the distributor will grant a certain amount of credit for that first 10-20% of returns, and then levy a penalty--grant less credit--for a greater number of returns. Wherehouse's Dobbs calls this the break-even point.
The chains rarely use consignment as a retail agreement. Crouch explains, "No one wants to have fifty records sitting around waiting to be sold on consignment." However, small independent stores may take consignments they can get product in their stores.
"A distributor, if one title dies, he has other titles [unlike] a guy with just one record," asserts Solomon of Tower. "Either get a distributor or go on consignment."
One thing all the chains agree on is that consumers play a major role in determining what records get pushed and why. "If it doesn't sell, we don't stock it," says Dobbs of Wherehouse.
Solomon maintains stores take a conservative approach even if the artist is getting hyped. "Buy very lightly, especially a new artist like Sinead O'Connor, and hope it does well, until sales justify you buying more," he says. "When you see in-store displays, you don't know if that means high sales, you don't know what the record company decided to push."
Diehl looks at promotion another way, "A, we can push on our own, B, push for a company, or C, together." She claims the record companies will often mandate promotion for new breaking artists. When Chrysallis wanted to break Slaughter, she recalls, they gave her company videos and pictures and even brought the rock band over to meet the retailer.
"Picks are not handed down. Logic dictates what's going to sell," says Crouch. "Sales dictate what records get pushed," whether it's Michael Jackson's or Sonic Youth's. He sums up, "Some labels promote their releases better than others but any label will help you promote a record."