Starbucks Screwing Up Just Like A Real Record Store

Dan Gibson | March 17, 2008 11:00 am

Although Starbucks has made itself one of the most powerful music retailers in the country–one in which “prestige” albums can be sold at full retail price, refueling the dreams of every record executive in Burbank and Manhattan–they have largely flown under the music media radar. The Hear Music label has received most of the attention by grabbing high profile artists like Paul McCartney, but the nuts and bolts of what gets into the racks next to the cinnamon swirl coffee cake has been more of a mystery. The New York Times, providing a service possibly no one asked for but me, looked into the balance between moving units and retaining credibility. The shift for Starbucks has been from a coffee retailer with a few discs that could still seem hand-selected, to twenty discs that seem more like the new release rack at Borders. Let’s face it: no one’s going to believe claims of quality control screening when the second James Blunt disc is a featured selection.

Others suggest that Starbucks has expanded and altered its mix of music too quickly under Mr. [Ken] Lombard [head of Starbucks’ entertainment division]. Before he took charge, the stores offered 5 to 20 CDs over the course of a year, according to the company. Now, Starbucks displays as many as 20 CDs at a time, adding six to eight new ones each month or so.

“They’ve lost that ‘event’ thing,” a senior executive at one of the industry’s biggest labels said, requesting anonymity because the label continues to market music there. “It would be like Oprah’s Book Club having 15 books a week.”

Starbucks says it still has the power to move record sales, including for its own label, which released Paul McCartney’s “Memory Almost Full” last year. Though it shifts titles regularly, its sales of a CD over, say, six weeks typically accounts for 5 to 10 percent of the album’s overall sales, according to music executives who do business with the company.

Mr. Lombard said that since taking a broader approach in the shops, “we have done nothing but continue to add value to the credibility that we’ve been able to build around the Starbucks voice.”

Anyone who expects Starbucks (or any other corporation) to stock and sell fewer discs for the love of the music is a fool, but there was certainly a discernible shift when Lombard took over from Don MacKinnon, who originated the Hear Music line, and ran a mail order music catalog prior to the big gig. MacKinnon brought in the Ray Charles project which vaulted Starbucks into the music biz full time, but was shuffled aside when the potential profits became too difficult to ignore. A sad story, if somewhat predictable. That being said, anyone who has spent a minute or two managing a music store would be impressed by the deals Lombard has pulled from the record labels.

But last year, Starbucks began pushing for another discount on its purchase of new releases, lowering its price to $8 from $8.25, even while seeking the right to return up to 20 percent of its orders, according to people briefed on the company’s negotiations. Those terms can equate to $2 or $3 a CD less than the price paid by other retailers, these people said. And for emerging talent, it has raised the price of entry. When Starbucks merely stocks an album by an emerging artist on an outside label, it routinely seeks up to 50 percent of the total profit, including sales at retailers. “What they were asking was not commensurate with what they were giving,” said Gary Borman, the longtime talent manager behind acts like Faith Hill and Keith Urban, who has discussed deals with the chain. “We just walked away,” Mr. Borman said.

To think, the stores I worked at asked for a few cleans and concert tickets to promote acts. It honestly never occurred to me to try to grab a percentage of the total profit. I should have dreamed bigger.

Does This Latte Have a Funny Mainstream Taste to You? [NY Times]