With vinyl growing into a steady, profitable niche business and showing no signs of slowing, other merchants beyond core music stores are taking a chance on the format. In Los Angeles, the Whole Foods chain is experimenting with vinyl inventory in five of its 340 locations, and Target—the fourth-largest music retailer in the United States, with an estimated $500 million in music revenue in 2012—will test the waters as well, placing 80 stock-keeping units in a limited number of stores.
For independent music retailers, vinyl has turned into black gold. The resurgence began on a very small basis with indie labels responding to the desires of fans, but it got wings and hit the mainstream thanks to Record Store Day, which put vinyl back not only in stores in a big way, but in the news, too.
From 2004 to 2007, vinyl sold fewer than 1 million units per year, according to Nielsen SoundScan. After the first Record Store Day in 2008, sales nearly doubled from 990,000 units in 2007 to 1.9 million in 2009. Each year since has produced growth, and last year vinyl sales reached 4.6 million units, a gain of 17.7% from the 3.9 million scanned in 2011. So far this year, vinyl album sales have increased 31.9% to 3.7 million units from the 2.8 million scanned in the corresponding period of 2012. What’s more, such sales now account for 2% of overall album sales thus far in 2013.
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But for Whole Foods and Target, sales and profit aren’t the main drivers. Target (which already sells vinyl online) uses music as a traffic builder. Whole Foods (which sells CDs, sometime racking them at checkout) uses music as one of the ways it differentiates itself from other supermarkets. “Vinyl has created a fun factor in our stores,” says Mike Bowen, Whole Foods executive coordinator for the Southern Pacific region. “We have DJs, and shoppers can ask them to play music. We have husbands asking the DJs to play songs for [their] wives . . . customers coming in and dancing down the aisles, having fun.”
On the other end of the spectrum, Newbury Comics—the 28-store Boston-based chain with $80 million in 2012 revenue, about $24 million of it in music sales—sees vinyl as a growing and profitable niche that it wants to pursue more aggressively. Newbury is staking a claim in the format, both online and in stores, with hopes of becoming a long-term major player in vinyl retail.
“We are just looking at the space and can see that ultimately there are going to be three or four players that will serve this market three years out,” Newbury founder/CEO Mike Dreese says. “Considering that, we have the legacy knowledge to take a position in this business. Our buying staff has to be the best out there for buying this product.”
Initially, when vinyl began becoming news again, indie retailers were afraid that big-box retailers would spoil things for them. Target, which declined to comment for this story, isn’t the first mass merchant to become intrigued with vinyl. About two years ago, Best Buy put vinyl in its stores (an initiative that lasted a year). Independent retailers saw it as a twofold threat: First, they had to compete with a big chain that discounted music as a loss leader in order to generate traffic. Second, there was a fear that major labels would accommodate the bigger merchants on better terms for vinyl.
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However, labels held firm on buying terms. Unlike CDs, vinyl is sold one way, without return privileges. And by maintaining vinyl as a one-way sale, the majors protected indie merchants, who know how to buy vinyl and extract profit, while keeping other retailers who lack that expertise at bay.
But not everyone is convinced that the majors have held the line, or that they will not offer more flexible terms to Target. The head of an independent distribution firm says big accounts have demanded return privileges on vinyl, and acknowledges his company has bent. “If Target gets into vinyl, you can be sure they are getting better terms than other accounts,” he says.
And the difficulty of buying vinyl hasn’t kept all nontraditional music stores out of the format. Urban Outfitters and Hot Topic have long had a place in helping establish vinyl among younger fans, and Whole Foods may be reconnecting older consumers with the format.
Whole Foods, which buys vinyl from a wholesaler, is carrying only about 15 titles per store, so the risk isn’t that big. Moreover, it allows each store to select titles for their locations. Music has been part of the chain’s lifestyle selection for more than 10 years, and each store has a
music specialist, Bowen says.
For the Aug. 17 launch of its vinyl program in five Los Angeles locations, Whole Foods had in-store events, with acts like Dawes and Brett Dennen playing at its West Hollywood store. (The chain also gave away a pizza with each vinyl purchase.) “Due to the overwhelming success of records in these five stores, we are currently talking to other stores outside of California about launching vinyl records,” Whole Foods associate marketing coordinator Ashley Gibbons writes in an e-mail.
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