Ben Reid
17 Oct 2006 5:04
Wal-mart, the United States' biggest retailer, wants every CD you buy to cost no more than ten dollars. The company, which moved a quarter of a trillion dollars' worth of goods last year, is used to getting its own way.
The store, which boasts 138 million shoppers per week, sells an estimated one in every five major-label albums. Insiders believe that it has so much power, that what it chooses to stock can basically decide what ends up being successful. "If you don't have a Wal-Mart account, you probably won't have a major pop artist," said one label executive.
Wal-Mart willingly loses money selling CDs for less than $10 to lure consumers into the store, hoping they might also pick up a DVD player or a boombox whilst inside.
But now, Wal-Mart is fed-up of losing money on its cheap CDs. It wants to keep selling them at the current price ($9.72), but it wants the recording industry to lower the prices at which it purchases them ($12) in the first place.
Last year, Wal-Mart asked the industry to supply it with choice albums at favorable prices. According to music-industry sources, Wal-Mart executives hinted that they could reduce Wal-Mart's CD stock in favour of more profitable DVDs and video games. "This wasn't framed as a gentle negotiation," said one label rep. "It's a line in the sand -- you don't do this, then the threat is this." (Wal-Mart strongly denies these claims.) As a result, all of the major labels agreed to supply some popular albums to Wal-Mart's $9.72 program. "We're in such a competitive world, and you can't reach consumers if you're not in Wal-Mart," admitted another label executive.
It is in the best interests of the music industry to keep Wal-Mart happy, because if Wal-Mart cut back on music, industry sales would suffer severely, but hardly affect the retail outlet. While Wal-Mart represents nearly twenty percent of major-label music sales, music represents only about two percent of Wal-Mart's total sales. "If they got out of selling music, it would mean nothing to them," explained another label executive. "This keeps me awake at night."
Gary Severson, Wal-Mart's senior vice president and general merchandise manager in charge of the chain's entertainment section, said "The labels price things based on what they believe they can get -- a pricing philosophy a lot of industries have.
"But we like to price things as cheaply as we possibly can, rather than charge as much as we can get. It's a big difference in philosophy, and we try to help other people see that."
One major-label rep is reported to have said, "I don't think there is a music supplier in America who really enjoys doing business with Wal-Mart."
Source:
Rolling Stone