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Wal-Mart Squeezing Record Labels to Cut CD Prices
Raindance writes "RollingStone.com has a revealing article detailing how retail giant Wal-Mart is making loud noises about throwing its weight around in order to get significantly better bulk prices on CDs. Says one industry executive, 'This wasn't framed as a gentle negotiation, it's a line in the sand -- you don't do this, then the threat is [your product is dropped].' This is the first time a big player has attempted this sort of hardball move on the labels, and the labels may be forced to deal, as Wal-Mart sells 1 out of every 5 retail CDs. Monopoly one, meet monopoly two."
Walmart does it to ALL of their manufacturers. Perhaps this one may deserve it.
though many of you hate walmart for a bunch of good reasons, if you do not sell your CD in walmart, you can not top the billboard charts. Artists have changed core elements of their music/art because walmart said they wouldn't sell it if they didn't. This might actually lower prices for some independant music resellers, though unlikely. Them walmart will just ask for an even lower price. The fact remains that walmart has such a huge purchasing power, that little stores can not compete.
While I don't agree with this practice, I am glad to see it getting turned on the record companies now, since they've been ripping me and other consumers off for years. Let the jackals tear each other to pieces...
The cost of carrying 60,000 cds instead of just five is tremendous assuming you don't want to be constantly stocked out. Granted, I buy all my music on the 'net and none of it from major labels, now, so I'm not necessarily supporting the old model, but if people want to find those other 55,000 CDs in a store, they're going to have to pay more. No gouging about it.
Read jack phelps dot net
"Personally, I can’t believe that 1 out of 5 CDs are sold in Walmarts."
The thing is, nearly 1 out of 5 *anythings* are sold by Walmart. They are big on a scale most people can't imagine.
We view "entertainment" industries as big, but really, companies like Walmart dwarf them. They just aren't in the news every day like the movie and record industry. They chug along making billions of dollars without drawing attention to themselves.
Wal-Mart has 3500+ domestic stores, and nearly 1500 international units. They pull in over $60 BILLION dollars per quarter and $2 billion of that is PROFIT.
Walmart has so much purchasing power with wholesalers that this current story is just everyday business. However, this time they happened to target a branch of the media, who tend to yell and scream louder than most industries when *anything* happens to them.
The Glass is Too Big: My Take on Things
From the end of the article...
$0.17 Musicians' unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead
Democrats and Republicans only disagree about how to enslave you
lol. I remember marking stuff up 100%. $12 cost, $24.99. It's still a good deal when you think about it. Think about what the retailer has to pay for: rent, electric, water, employee salaries (managers, assistant managers, cashiers Christmas help), insurance, shipping, returns, snow removal and other maintenance, and new product. How is a record store supposed to pay all of that with a %33 markup? What a moron.
There's a difference between anticompetitive tactics and actually being a monopoly. Both are covered under antitrust laws, but WalMart is only the former.
Read jack phelps dot net
There's a reason why Walmart is popular in sparsely populated areas -- time. In rural areas, a consumer may have to drive to several different stores separated by great distances to get everything they need for the household. This takes an enormous amount of effort and time. Walmart brings all of these disparate "stores" under one roof, making it much more convenient for rural shoppers to go to Walmart. The tradeoff is that the stores may not be the cleanest or have the greatest variety of products, especially at the high end.
By contrast, in the larger cities, the necessary goods are in closer proximity to one another so that going from one store to another is much less cumbersome. This also creates greater competition for shoppers' dollars, and the stores (on the whole) have a greater variety in order to distinguish one from another. In addition, bigger cities are actively trying to fight back against suburban sprawl and make better use of nearby land. The sheer size of Walmart runs counter to those goals. Therefore, Walmart is disdained in the big cities because it takes up an enormous amount of valuable space and does not stock the high end products that are locally available.
Rule #1 -- Politics always trumps technology.
A 30% markup for a specialty store is not unreasonable. You act like some asshole is just taking the $4 and putting it in his pocket. You should try to run a business. The owner of the store probably invested a good bit of money up front to get started. You have to fill the store with racks, buy inventory, and plan on running at a loss for the first few months as you grow your business. The owner is probably paying back the debt incurred at startup for a long time or they risked a lot of savings just to get started.
Once you get past that hurdle you have to pay rent, taxes, insurance, hire employees, pay unemployment tax, workers comp, social security. You also have to pay to advertise your business, pay your accountant to file your taxes, possibly hire a book keeper to help you keep up with the sales tax that you must pay. It is endless. $4 per CD doesn't go very far. You have to sell a lot of CD's to break even. Making a big profit off of such a business isn't a trivial thing.
I'm not saying that you should feel bad for business owners. Just realize that it isn't all that easy. If you go into a store that you really enjoy that has a wide selection, knowledgeable employees, and a great atmosphere with good customer support, you should appreciate it for the gem that it is. Someone has really had to put a lot of thought and strategy into pulling it off right. They probably also took a lot of risks just to get it started. It isn't all that easy.
Here is a very interesting article on the way Wal-Mart works with suppliers. They have done similar things in other industries to what they're doing here, and really transformed the way business is done in some fields.
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making money hand over fist -> must not be doing anything unethical
Am I getting you right, is that what you're saying? So DeBeers, MS, Exxon, R.J Reynolds, we know those guys aren't doing anything wrong because they have lots of money? That's the most bizarre argument i've heard in a very long time.
Anyway, as for a good argument why WalMart isn't the greatest thing since sliced bread, despite their impressive wealth you can try this article: http://www.alternet.org/story/12962
You can refer to the book No Logo also for more information.
Really, there's a wealth of damning evidence out there. I don't think you've been looking.
We hope your rules and wisdom choke you / Now we are one in everlasting peace
"This is the first time a big player has attempted this sort of hardball move on the labels."
Not true in the least. Slashdotters have Wal-Mart to thank for the record labels being punished for price fixing (as in the popular Slashdotter refrain, "the record companies are evil! They've been busted for price fixing!"). Here's what happened, in a nutshell:
- Wal-Mart started selling CDs at sub-par margins or as a loss leader to get people into the stores to buy other high-margin items.
- Record chains like Tower Records freaked out, as their primary business was selling CDs and they couldn't compete with a Wal-Mart which had a huge store of fishing rods and cheap clothing to make up the bulk of their business.
- The record companies helped fund the advertising for Tower as well as two other chains (TWE and MusicLand, I believe) in exchange for Tower et. al. agreening not to display prices in those ads that went below a certain point. FWIW, this is called a "MAP program," for "minimum advertised price," and is prevalent in tons of other industries.
- Wal-Mart got all pissy and threw their weight around with the government.
- The government told the record companies to stop, and to send checks to consumers.
- Lots of other industries, including the computer peripheral industries, still happily continue MAP programs... until that point that Wal-Mart tattles on them, too.
- Tower Records subsequently declared bankrupcty. Enjoy buying your music at Wal-Mart, folks.
That's about as hardball as you can get.Sitting in my day care, the art is decopainted.