YULETIDE GLOOM
December 20, 2008
Retailers Consider Further CD Cuts As Holiday Sales Decline Accelerates
'Blue Christmas' may turn out to be the theme song for this holiday season.
U.S. album sales were down 21.7% during the first week of December from the same period last year, accelerating from the 17.4% decline recorded during the last two weeks of November, according to Nielsen SoundScan. (Thanksgiving was in the last week of November this year, but in the third week of November 2007).
For the three-week period ending Dec. 7, sales were down 18.9% from a year earlier, compared with the 13.8% year-to-date decline.
The continued slide in CD sales remains the industry's biggest challenge, even though hit albums are selling better this year than last. Sales of the top 10 albums on the Billboard 200 for the three weeks ending Dec. 7 totaled 5.8 million units, up 2.9% from 5.7 million during the same period last year. But overall CD sales are down 24.7% during that period to 28.2 million units, a faster pace of decline than the 19.3% drop recorded year to date.
In general, smaller chains and independent retailers are performing better than large chains and mass merchants. For the first three weeks of the holiday selling season, indie stores have seen album sales decline 8.6%, while chains suffered a 19% drop and mass merchants saw sales plunge 29.2%. Nontraditional retail, which includes digital downloads, online CD sellers, concert venues and stores like Starbucks, saw album sales rise 8.7% from a year earlier, but that gain fell short of the 15.3% increase those channels have collectively tallied year to date.
Retailers are responding to the deteriorating business conditions with cost reductions and plans to reduce CD floor space in the new year.
"DVD, Blu-ray are doing great, the CD, no," says an executive at a large wholesaler. "I expect next year that we will be cutting back on our CD buying . . . we will be buying less of each title."
Dilyn Radakovitz, co-owner of the six-unit, Sacramento, Calif.-based Dimple Records, says she expects her chain will no longer carry deep catalog in the new year.
"It's not happening for CDs anymore, and I told my husband we are going to have to remodel the stores again in January to take that into account," she says. "Instead of carry 'A' titles, 'B' titles, 'C' titles and 'D' titles, we may only be an 'A' and 'B' titles store."
In their place, Dimples is bringing in books and more trend merchandise. Right now, magic cards and yo-yos are doing well, Radakovitz says.
"I am also selling a lot of ice cream," she says. "I can make a 50% margin on ice cream, while on CDs I can lose two bucks."
At the eight-unit Exclusive in Oshkosh, Wis., GM Stephanie Huff says sales are holding steady from last year, although she declines to give exact numbers.
"It's really market by market," Huff says. "I have a store in Janesville where a General Motors plant is closing and 2,500 people are losing their job on Dec. 23 and that store is doing just fine."
So far, DVD sales have saved the chain, Huff says. "A lot of people are shopping for DVDs, that's for sure," she says, even though "Target's sales pricing on DVDs is ridiculous . . . 'The Dark Knight' is the hot ticket in DVDs."
As a result of the current sales picture, and worries that the new year could bring further misery, in-store hourly workers at Brighton, Mass.-based Newbury Comics are taking a 2% pay cut, while salary employees are taking a 6% cut, and top executives are taking anywhere from a 10% to 20% cut.
"The wage cuts were progressive: the more you made the more you were cut," Newbury Comics CEO Mike Dreese says. "This is a different approach than just laying off people. We would have had to cut 12 staffers."
In addition to slowing CD sales, one music specialty chain says it sold fewer iPods in November than in October. The chain is also no longer struggling to keep the Nintendo Wii in stock due to slow sales.
"When the hot products don't sell, you know it's a deep-seated problem," says an executive at the chain who asked to remain anonymous. "Sales are dismal. We wouldn't have expected to be in this kind of position now."
While he hopes that the last week of Christmas brings in enough sales to offset some of the decline, he says he is now resigned to a weak holiday season.
And he's even more worried about what the first quarter will bring.
"At least now with the hit titles, there's a reason for customers to come into the store," he says. "What kind of fall-off in sales will there be when there's nothing new to buy come Jan. 15?"
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