It's becoming obvious that music specialty merchants - such as independent stores and retail chains including Trans World Entertainment, Hastings Entertainment and Newbury Comics - will likely be the last stores to carry physical CDs. Yet the major labels, trying to manage the CD in the final phase of its life cycle, appear to be making decisions based on what's happening at the big boxes.

One tactic to appease the big boxes has produced a positive result: Prices dropped dramatically during the last five years, with the deepest depreciations coming in just the last two years. "We applaud [the majors] for bringing product to lower prices," an indie merchant says. "We are seeing a resurgence in sales. It energizes the customers and brings more of them into the store."

These days, front-line titles (e.g., new releases, classic catalog) tend to be priced so CDs sell between $10 and $13, while mid-line titles are shrinking dramatically. Budget product, believed to be the primary catalyst of the slowdown of declining CD sales in the United States, now carries wholesale costs in the range of $3.25-$3.75. There are often discounts on top of those prices, depending on specific deals struck between the trading partners or catalog promotions.

Merchants say the majors have depreciated thousands of titles to budget prices, which also are now sold "one-way," i.e., without any return privileges. However, when a lack of big-box sales no longer justifies a CD's continued inclusion in the catalog, majors often follow up by cutting such titles out completely, or making them available solely for manufacturing on demand (MOD).

Indie merchants complain that, just because big boxes aren't selling catalog, doesn't mean their own sales for those titles are falling. Moreover, they contend two problems with MOD product. First, a CD that might sell well at wholesale in the $3 range can be discontinued, then return as an MOD product with a wholesale cost of $10 or $11, which translates into a prohibitive $14.98 list price. In addition, consumers still buying CDs at music specialty shops don't like the cheaper MOD type of CDs and inferior packaging. (Some label distribution executives disagree, with one explaining that MOD titles "almost" match the quality of bulk-manufactured CDs, except for those albums featuring elaborate packaging.)

A different problem, according to the indies, is how the majors select specific titles to depreciate and move to one-way. "There have been SKU reductions at big boxes, so the majors will say they're not getting enough volume to continue keeping a title active, and yet we indies are selling the crap out of it," another independent merchant says. "It is disconcerting to have it disappear, or come back at a much higher price."

A different indie retailer says, "I can appreciate the majors' need to follow overall demand and go to one-way in sales or delete titles when appropriate. But I'd hate to see a major label's accountant driving this process based on what business he sees at big boxes."

Moreover, indie stores fear that moving to one-way or MOD signals that a title will soon be cut out completely. The major-label distribution executive indicates that, if indie-store coalitions or chains like Newbury and Hastings could identify key catalog titles, labels will respond with special manufacturing runs, as long as those CDs sell immediately and don't linger in warehouses.

While the majors are rightfully protecting themselves from being financially hurt by a dying format, the indies believe marketing opportunities will drive catalog sales and they implore the majors to offer some assistance. For example, when titles go one-way, indies would prefer extra dating (that is, more time to pay for product than the standard 60 days). Also, when the major labels drop their prices, the indies would like some notice so they can alert customers about the potential savings.

"They can get a lot of CD titles priced at $4.99-$7.99," an indie merchant says. "But we need to let the customers know that these cheaper prices exist." By offering wholesale pricing promotions, merchants can offer two CDs for as low as $8. "We're willing to lose margin so we can bundle product," the merchant says. "Consumers love that stuff."

As the indies will attest, marketing still works when selling product in-store.

"Over the last year, we sold seven copies of Sam Cooke's "Live at the Harlem Square Club," 1963, and then we featured the title in-store and sold 19 copies in one month," says Terry Currier, owner of Music Millennium in Portland, Ore. "It's really about working the catalog to make it sell. The labels need to help retailers keep the catalog alive. We're seeing a renaissance opportunity for selling CDs, thanks to the lower pricing."••••

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