mathematics
by Wendy Day
Retail’s Changing Landscape When I got into the music industry in 1992, it was a very different business. The changes have affected everything from talent to sales to radio to distribution, but I think the biggest changes have occurred at retail - the way we get our music. There was a time when the independent retail store was the mecca for new music and true music fans. A trip to the local mom-and-pop store (most hate to be called this) on Tuesdays meant new music, and the person behind the counter was almost always knowledgeable about what was hot and what was not. Some of my finest industry memories include George’s Music Room in Chicago and Stickhorse in Houston for new music. Those days are gone. Today, indie retail music stores are faced with unbeatable competition from stores that are in business to sell refrigerators, computers, and Made-In-China goods for cheap. Saving a buck is the prime agenda. These neighborhood retailers (many of which are black-owned in the ‘hood) can not compete with the slashed pricing from Best Buy, WalMart, and Target. For example, for the first two weeks of a release, the price runs around $9.99 at Best Buy for the latest CD. Music represents one percent of sales at Wal-Mart, Target, and Best Buy, yet half of all the new releases are sold there. That means WalMart could care less about CDs, but since it’s such a big chunk of any record label’s income, Wal-Mart can dictate and call the shots. Therefore, if they happen to be in favor of the morale majority, and want to demand clean CDs with no cursing on them, the record labels will have to go to the expense of pressing up clean CDs - which they do. Imagine what would happen if they demanded a certain price as the minimum they were willing to pay - oh, they’ve already done that, too. What if they said no more rap? Hmmmm… The local indie retailer, who is forced to buy CDs from a middleman called a “one-stop” instead of directly from the distributor, is paying a wholesale price somewhere between $10.79 and $13.65. For those of you who aren’t used to hustling backwards, you can see that the Best Buy price to the consumer is lower than the one-stop price to the indie retail stores. It is actually cheaper for the indie retailer to buy the CD at Best Buy to resell in their store (and great for the artist too, because if the store reports to SoundScan, the artist gets credit for two sales instead of one - Best Buy and the indie store). Like all good businesses, the record labels offer discount pricing for volume sales. If one chain store is able to order 20,000 CDs, why shouldn’t they get a price of $10 less discounts? And if that store is willing to turn around and sell that CD for $11.99 to get a consumer into the store so they can sell a new printer cartridge, car stereo, or a washer-dryer, who can stop them from offering that CD as a loss leader? No one. Indie retailers can’t compete because their prices from the one-stops start at almost $11. In order to pay rent and keep the lights on, they need to have a mark-up of at least 30% to stay in business. That puts the minimum price at $14 or $15. Will a consumer spend $15 at one store when he can get it across town for $10? TJ Chapman used to own a retail store in Tallahassee called Wild Style Music and More, and it was a landmark in his community. He had to close it down last year because it no longer made financial sense to keep it open. “I’m all for supporting my people and having a black-owned store in a black neighborhood, but not to lose money. We had to sell t-shirts, incense, DVDs, and other stuff just to keep the lights on,” reminisces TJ. “I learned the importance of being a SoundScan store so the major labels would pay attention to us and spend money on retail promotions to keep us in business.” (SoundScan is the tracking of CD sales that tells major labels which releases are successful, and which are not, so they know where to spend their promotions dollars). George Daniels of George’s Music Room remembers the days when it was about selling music. Now it’s about real estate. Back in 1996, he told me his “store has become rental space for the major labels to advertise new releases. A lightbox here, a poster on the ceiling, and the outside wall for a mural to the highest bidder.” I also remember 18
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George telling me he sold more rap music than any other store in the country. Today, I wonder if that’s true. I doubt it. When I asked George why he never got SoundScan since he’s such an influential store, his fear was the chains would somehow have access to his sales information and one day a Sam Goody would pop up across or down the street. Now he has to worry about them being across town since they can buy wholesale CDs so much cheaper. When I called a Big Oomp retail store location in Atlanta, which is one of many in a chain of indie stores owned by Big Oomp, the person agreed only to speak to me if I didn’t quote them. Apparently the success of Big Oomp comes from diversification. He owns real estate and a record label in addition to the seven stores. The retail business is hard, but having more than one store allows for better prices from the distributors and one-stops. Also, many of the local indie labels sell direct to their stores, and that affords a better profit margin. As I called around the country, I was surprised at how many small retail stores also have record labels: Kottage Boy Entertainment, Birmingham J’s label in Birmingham, AL is based in owner Aquil Abdur-Rasheed’s Music and More. DJ DMD owned a retail store for many years in UGK’s hometown of Port Arthur before signing his in-and-out deal with Elektra Records in 1998. A wack white rapper from Chicago runs his fledgling label out of his store’s South side location. I was also surprised at how many indie stores were also selling DVDs and mix CDs, which have a better profit margin than CDs. In Jacksonville, FL and Dallas, TX there are a bunch of stores offering bootleg CDs from behind the counter. When TJ’s store was still open, he regularly had to “worry about bootleggers in front of his store selling CDs just off the burners for $2-$5.” They were pretty brazen and would target his customers on their way into his store. No one can compete with a $2 CD that sounds just as good as one that costs $17. So, is retail going the way of the dinosaurs anyway? Is the next generation of music lover going to be able to bypass the record label and distributors and download music directly from an artist’s website? Many artists think so. I pulled up David Banner’s SoundScan, and I see that he sold more downloads of “Play” than he sold whole CDs. At kazaa.com, a file swapping website, a search of his song “Play” brought back over 18,000 hits (meaning that more than a lot of free downloading of music is still going on). So what can be done to help our independent retail stores stay in business? Well, we could all shop there and pay $5 more for a CD, which is unlikely. The labels could support them with more promotions, which is also unlikely (as the head of one of the major distributors told me, why would they want to encourage small retailers who tend to be a high credit risk, take 120 days to pay their bills, and sometimes return more CDs than they’ve ordered, when they could nurture accounts with large chain and discount stores that pay within 15 or 30 days and never have a return?). One retailer suggested a tighter policy to get rid of bootleggers. But bootleggers on the street are faced with stiff competition with free or 99 cent downloads - you don’t even need to leave your house for that. Regardless of what the solution is, if we want to keep our independent retailers alive - because they are a major component of the neighborhood and a good source for underground or independent CDs - we have to stop replacing loyalty with profits. - Wendy Day of Rap Coalition (mathematics@rapcoalition.org)