Big Box Stores’ Cutbacks May Give CDs Even Less Shelf Space Than Sugary Cereals

Reports are surfacing that that the three stores that make up the bulk of CD sales right now–Best Buy, Wal-Mart, and Target–are planning to dramatically scale back their music sections after the holiday season, thanks to executives believing that the CD market is in “permanent decline” and that sales will drop even faster next year than they did in 2007. Cutbacks are expected to be in the 20% to 40% range, and the Silicon Alley Insider has a rough estimate of what that could mean for the music industry:

Assume that the retailer cutbacks come in the lower side, say, 25%. Assume that those sales drops are somewhat mitigated by digital sales and by die-hard CD buyers who seek out discs at other outlets, like Amazon–and call it a 20% sales drop. The U.S. is a third of global music market, and the retail cutback won’t affect the rest of the world, so the decline there shouldn’t be as steep — say, 10%. That’s still a 14% drop industrywide (that number would vary depending on how much exposure a big label has to the U.S.)

But a retail cutback could be much more damaging than any single year revenue decline. In a worst-case scenario, and one we think is quite likely, a cutback sets off a self-fulfilling prophecy: Retailers stock less music, so consumers have less to choose from, and then buy even less, causing retailers to stock even less. Repeat.

The only good news for the big labels: They see it coming, and are scrambling as fast as they can to adapt. The bad news: There’s little they can do.

The only consolation? The big-box stores are pulling back the floor space they devote to DVDs, too. OK, that probably doesn’t make the music industry feel better. But the plan as outlined by SAI–and the likely scenario of less choice resulting in fewer purchases, thus helping that predicted decline along–makes me wonder how much more important jockeying for those few spaces in big-box stores’ aisles will become. Will artists’ and labels’ rush to offer exclusive extras and special editions for big-box shoppers, which has angered some people in the past, will finally peter out, or will “special editions” turn into the only way that labels can assure space for their wares on those stores’ shelves?

Music Decline to Accelerate in 2008 With Retailer Cutbacks [Silicon Alley Insider] [Photo: Soctech]