Record Labels Getting Squeezed by Wal-Mart

Oct 13, 2004
George Anderson

By George Anderson

Record label executives are unhappy about the pressure being put on them by Wal-Mart to lower prices on CDs but none of them wants to go on the
record for fear of retribution from the retailer that sells one out of every five music discs purchased in America.

Wal-Mart, according to a Rolling Stone article, has been using CDs as loss leaders, selling recordings that cost it $12 for $10 or less.
The strategy up until now has been to drive consumer traffic with loss leaders and make up margins on the sale of complementary items such as boom boxes.

The retailer, however, has decided that it would like to offer its “Always low price” to consumers and make money on the sale of CDs at the same
time. According to the Rolling Stone’s anonymous sources, Wal-Mart has been aggressively pushing for lower prices from suppliers.

“It’s a line in the sand — you don’t do this, then the threat is this,” said a representative of one of the record labels supplying Wal-Mart.

Although Wal-Mart denies putting pressure on record labels, many acknowledge having dropped prices for a stunningly simple reason. “You can’t reach
consumers if you’re not in Wal-Mart,” said one label executive.

Wal-Mart, as the Rolling Stone piece points out, is not your traditional record store.

It carries about 5,000 CDs in an average store compared to the 60,000 titles in Tower Records, for example.

Moderator’s Comments: If you’re going up against Wal-Mart, how do you win as a competing retailer? If you’re a music supplier, should you be actively
looking to support competitors or Wal-Mart?

Don Van Cleave, head of the Coalition for Independent Music Stores, a retail consortium, told the Rolling Stone, “When you’re buying CDs for twelve
dollars and selling them for ten like Wal-Mart, it makes the rest of us look like we’re gouging the customer, when we’re not. It’s super tough to compete with that price point.”

George Anderson – Moderator

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