The latest music industry conspiracy theory goes something like this: The majors want to kill physical formats, so they're using fulfillment house Direct Shot to ship all their CDs and vinyl to stores.
The first part of the theory, about the majors wanting to kill physical, is absolutely untrue gallows humor. But it underlines merchants' frustrations at Direct Shot Distribution, which they say has been unable to deliver the right product to the right stores, a situation that is hurting them financially and ruining relationships with customers.
Direct Shot is the Franklin, Indiana, company that Sony Music Entertainment, Universal Music Group and, recently, Warner Music Group use to fulfill physical product orders to retailers and wholesalers. In essence, Direct Shop should function like an invisible pipeline used to get product from the major label distributors and their labels to record shops and wholesalers around the country. But back in April, when WMG switched to Direct Shot from its previous manufacturer and fulfillment house, Technicolor, the U.S. industry distribution system became overloaded and sent the entire pipeline into a tailspin, impacting all the major distributors and the independent distributors they own, too. As a result, music from record labels that comprise close to 85% of U.S. music sales are being mis-shipped to stores -- or not shipped at all.
Behind the scenes, all the major labels are working hard with Direct Shot to sort out the mess and get things back to normal. But in an open letter from independent retailers published Tuesday (July 16) on Billboard.biz, the retailers say the problems are so bad they are appealing to the major labels to step up their involvement and help rectify the situation in a more expedient manner.
According to that letter, new release shipments often don't make it to all the stores they are supposed to on time; they arrive with only a fraction of what was ordered; they are sent to the wrong stores; they arrive without packing slips; and invoices often do not match was was delivered or ordered. And, still, merchants are expected to pay in full because they can't get anybody from Direct Shot on the phone to straighten things out.
Things have been in turmoil since before the Music Business Association convention in May, where the issue became a topic of conversation. But the problems appear to be escalating instead of getting better, and merchants are at their wits' end.
An industrywide June 27 email sent to label sales, commerce and distribution executives by Michael Bunnell, the executive director of the Coalition of Independent Music Stores, reported that new releases that had problems getting to stores by street date include albums by The Black Keys, Gov't Mule, Dre, David Bowie, Bob Dylan, Baroness, Santana, Keb' Mo', Lukas Nelson, Pepper, Hollywood Vampires, Amon Amarth, the B-52's, Crosby, Stills, Nash & Young, Joy Division, Calexico, The Get Up Kids, Grateful Dead, Stray Cats and Mavis Staples.
In most instances, some product from those titles got to some stores, but there wasn't even a consistent delivery performance within the same chains. And if product was received by stores before street date, that didn't mean it was without other problems: retailers detailed missing packing slips; damaged product; and shipments that should have arrived in one box, but instead arrived with 30 CDs coming in 30 packages with one CD in each.
"Every element of [Direct Shot] is broken: ordering, shipping, receiving, billing, returns and returns authorization -- nothing is working," says Bryan Burkert owner of The Sound Garden, which has stores in Baltimore and Syracuse, New York. "It is chaos and we retailers are always behind 10 eight-balls."
Another merchant says he is still marveling at the ineptitude on display, telling Billboard, "I did a large restock on the titles from one of the majors on July 1 and so far only about 10% has shown up."
Rob Roth, whose Fords, New Jersey Vintage Vinyl store is celebrating its 40th anniversary, says music merchants are faced with "an unprecedented" situation. "You order one piece and you get 30 pieces, but it comes two weeks late," he says. "They can't take anything back but they keep billing us for it."
Another merchant who's involved with a small chain adds, "This mess is so batshit crazy and what's scary is it seems to be unraveling further. You have a situation where you have no confidence that what you ordered will arrive and no clarity on when you will get it. It is an endless fiasco."
If this mess isn't straightened out before the holiday selling season, there is growing fear that "some merchants will be forced out of business," says one indie label executive.
As it is, some merchants are reporting anywhere from a 10%–20% decline in business, with customers coming in looking for records that simply are not in the store because of shipping problems. But other merchants say that while customers are frustrated when product isn’t in the store, indie merchants are gaining customers since so many traditional big chain retailers still in the CD business are nevertheless reducing their inventory. Others say that since they are also sell other product lines beyond music, they are weathering the storm. Nielsen Music reports that album sales at indie stores are up 0.8%.
While it's most noticeable with new releases -- especially if there is a pre-order involved, an in-store promotion being done without the product or only some of what was ordered -- catalog is also experiencing the same problems.
"Distributors are doing their best to fix this God-awful situation," says another indie label executive. "But it turns out having all the majors use one fulfillment company is a bad idea. When they were just handling Sony and UMG, [Direct Shot] may have not been the best but they could at least keep up an even product flow. Now, it's all clogged up so that UMG and Sony are impacted as well." Multiple retailers confirmed this assessment to Billboard.
While WMG's switch to Direct Shot was the catalyst, there are actually a plethora of issues involved, says one music merchandiser who operates on the buying side of the business. "It was a perfect storm of things coming together within months of each other which is causing this clusterfuck," says that merchandiser.
Those problems include Direct Shot taking on more than it could handle when WMG switched over, but around the same time, CD manufacturer CDA -- which a lot of independents use -- closed its doors. That forced a lot of labels to switch to brokers and European manufacturers who are not as conscientious about being compliant with industry standards for receipt-of-goods specifications.
Moreover, Technicolor -- Warner's former distributor -- also overlooked industry standards in some of the product it transferred from WMG to Direct Shot, sources report, although some sources add it had more to do with indie product manufactured overseas than major label music. Because product being received is not compliant, Direct Shot has been spending a lot of time trying to sort that product and even find it in their warehouse, those sources add.
Finally, at about the same time, Target, one of the largest CD sellers in the U.S., switched from getting orders shipped to its warehouse to being drop-shipped directly at its stores. This increased Direct Shot's outflow a thousandfold, a distribution source tells Billboard, making the outflow an even bigger problem than the inflow.
All the majors are working overtime trying to assist Direct Shot with the problems, including sending teams to their warehouse. Moreover, Direct Shot has supposedly added a third shift to help work through the issues. Direct Shot didn't respond to requests for comment.
"Each of the major distributors are very aggressively addressing the problems in their own way, but I don't know how much of what they are doing is being communicated to indie retailers," says one industry wholesaler.
Sources say Direct Shot is trying to have everything fixed by mid-August, but there is some skepticism among indie labels and retailers if that goalpost will be met.
On top of everything else, Direct Shot was just acquired by Legacy Supply Chain in mid-June, leaving some to wonder what this will mean to the current mess. On the one hand Legacy doesn't have music DNA, says one veteran senior industry executive, but on the other they "look like a pretty decent company," so this could help.
Still, indie retailers worry, what if Direct Shot finally gets things fixed and then Legacy decides that it wants to change systems? Could this situation be re-triggered?
The thing that remains the most frustrating for indie retailers -- even beyond the immediate financial hurt -- is that "customers are losing confidence that we will have the music they want," says Vintage Vinyl's Roth.