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Inflation Cuts Into Merch and Vinyl Profits, Even As Sales Skyrocket: ‘We’re Getting Squeezed’

"Everybody is paying more to make less money," says one executive.

When Billy Candler, co-founder of full-service merchandising company Absolute Merch, went to the House of Blues in Anaheim, Calif., in early February, he saw a welcome sight: “The line for merch was out the door,” he says. Fans eager to buy T-shirts, hoodies and other items is a great sign for artists touring in 2022 since merch sales at concerts remain vital to many artists.

The road out of the pandemic seems to be filled with potholes, however. Inflation — everything from cotton costs to shipping fees — has sent the costs of merchandise and vinyl records soaring from pre-pandemic levels. Unable to shoulder their higher cost burden, each company in the supply chain has raised prices for its clients. That leaves less opportunity for suppliers and artists to profit from music’s much-awaited return to the stage.

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“Ultimately, everybody is paying more to make less money,” says Candler.

U.S. inflation hit 7.5% in January, the highest level in 40 years, according to numbers that the Bureau of Labor Statistics released Feb. 10. A crucial component of overall inflation is the price of gas, which is baked into product prices and, for musicians, is a major cost of touring. U.S. retail gas prices averaged $3.41 in January, up 41% year over year, according to the U.S. Energy Information Administration. That was about 27% higher than the average $2.69 per gallon Americans paid in 2019. But energy prices are merely a symptom of the problems facing businesses today.

“We’re getting squeezed on every side,” says Stevie Hopkins, founder/CEO of Second City Prints, a full-service merch company whose clients include Manchester Orchestra and Concord Music Group. Hopkins has raised prices three times in two years, and Candler says his costs increased 30% “across the board.” His artists are also finding that venues now want a larger cut of merch sales. A typical 15% to 20% share of revenue before the pandemic is now 20% to 25%, and up to 30% at big festivals.

Dealing with inflation is like bleeding from a thousand tiny, interrelated cuts. Stocking a merch table at a concert isn’t as straightforward as it used to be. Getting goods on time from suppliers can mean paying a premium for a rush shipment. Manufacturers dealing with labor and raw goods shortages have raised prices, and production is unpredictable. Facing their own labor and cost challenges, freight carriers have also raised prices.

Record labels face the same set of factors as merch companies. Freight in particular “is a huge factor” in labels’ decision to raise their vinyl wholesale costs, says Nabil Ayers, president of Beggars Group’s U.S. operations. “So much of what we make is manufactured in Europe. Even if we ship via boat, which takes four to six weeks, it still costs a lot.” Micki Windham, production manager at Thirty Tigers, a Nashville-based labels services company, agrees. “If we have to airfreight, it can be as much as $2 a unit. Normally, it would cost 75 cents to $1 a unit.” Windham says she can plan for long lead times, but having a title in stock often trumps its cost. “If we don’t have the luxury of time, we have to use airfreight — which is astronomical.”

Although “extremely reluctant” to raise wholesale prices, many labels began to do so in the fall of 2021, says Glenn Dicker, co-founder of Redeye Worldwide, a North Carolina-based distributor. Thirty Tigers started raising vinyl wholesale prices by $1 to $1.50 a unit in January, says Windham. Ayers estimates that higher shipping and materials costs have caused the average retail price for a standard, single LP to increase from about $20 to $24 in the last few years. But labels haven’t raised their prices for CDs, which are less expensive than vinyl to manufacture and ship.

Higher vinyl wholesale costs have translated to higher prices at retail. “Our prices are rising — but it’s not us,” says Chris Brown, CFO of Bull Moose, an 11-store chain in Maine and New Hampshire. “We can’t dictate what we pay for things.” Rather than adjust its margins to compensate for higher wholesale and operating costs, Bull Moose put extra emphasis on higher-margin used goods through in-store banners, radio spots and social media ads. “You can’t increase prices when you market yourself as a low-price leader,” says Brown.

The good news is consumers have so far been willing to pay higher prices. According to the RIAA, the average vinyl LP sale price has steadily increased in the last three years, from $26.06 in the first half of 2019 to $27.49 in the first half of 2021. But U.S. sales are up 87% over that two-year period and are on pace to increase again in 2022.

There are no industry statistics for music merch sales, but insiders say fans don’t seem to be suffering from sticker shock. Shanna Reznik, owner of merch company Threefour, whose clients include indie rocker Phoebe Bridgers, has seen per-head sales at concerts double or triple since artists resumed touring in the summer of 2021. The key is giving fans something that’s worth the higher price, says Reznik, such as a concert-specific T-shirt or a more elaborate design. She notes, “People will always pay for quality and something that’s going to last.”

This story originally appeared in Billboard’s 2022 Women in Music issue, dated Feb. 26, 2022.