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
Written by: Ben Reid @ 17 Oct 2006 5:04
