In the Groove
The soothing melody of “Miracle” by the dance electronica group Olive wafts through the air. The relaxing aroma from 100 different varieties of incense calms the nerves.
It’s a warm and lazy Monday afternoon at the CD Listening Bar, and the tranquillity is especially evident at the Irvine music store’s cash register. Between 4 and 5 p.m., only six customers make purchases.
But the store’s owner, Upsilon Corp., can afford a bit of down time. Thanks to spectacular weather and a strong economy, the company’s annual Thanksgiving Day used-CD sale was its best ever. Upsilon’s three small stores brought in $89,770 that day--50% more than a year ago and the highest one-day total in its eight-year history.
At one point, more than 300 people jammed into the CD Listening Bar, the company’s biggest store. In Huntington Beach, Upsilon’s Cool Stuff store sold 432 used CDs, nearly half of its inventory.
But the retail music business is fickle. Because music tends to be a last-minute purchase for many shoppers, sales probably won’t pick up steam again until around Dec. 15.
For Upsilon, the next two weeks will be similar to ones facing many of its teenage customers: cleaning their rooms to get ready for company.
“Right now, we’re pretty much focused on making sure we have all the right product in our stores, and that everything is in its right place,” said Upsilon President Jeff Walker.
With the Southland economy in its best shape this decade and consumer confidence at its highest level since 1969, Upsilon’s biggest foes in the coming weeks figure to be competition from the giant discount chains--and maybe the weather.
The early indications are somewhat daunting. Best Buy and Tower Records rolled out two big color newspaper advertising sections over Thanksgiving weekend. (Upsilon ran no ads.) And the first major storm of the seasonis supposed to blow into the region this evening, bringing 1 to 3 inches of rain through Sunday.
Nestled among the gobs of advertisements in the Thanks giving Day newspaper was a 24-page circular from Best Buy offering $2 off any CD priced at $9.99 and up. The discount was good only from 8 a.m. to noon last Friday.
The ad irritated Walker not because it was a good deal, but because he suspected the Minneapolis-based chain was violating the record industry’s minimum advertising policy, known as MAP.
Fearing that heavy discounting by big chains was driving many independent music retailers out of business, the record industry in 1995 adopted pricing guidelines that seek to punish retailers who mark albums below a label’s suggested minimum advertised price.
The record industry punishes offending merchants by refusing to pick up some of their advertising costs.
The stakes are huge because “in the music industry, 90% of all advertising is paid for by the labels,” said Geoff Mayfield, director of charts at Billboard magazine. “Those ads you see aren’t paid for by the retail chains.”
The ad dollars are critical for Upsilon. This year, the company plans to spend about $145,000 on advertising, but record labels will pick up about 90% of the tab, Walker said. Without that kind of support, Upsilon’s fiscal 1997 operating profits of $210,000 would have shriveled to $79,500.
The pricing policies of the six major record labels--WEA, Sony, Universal, EMD, Polygram and BMG--vary depending on a variety of factors. Sony Music Distribution, for example, has 20 separate pricing categories, ranging from $11.88 to $26.88. Wholesale prices that retailers pay for albums range from $6 on an older album from a defunct artist or group to $100 for a popular boxed set such as Pink Floyd’s “Shine On” 8-disc collection.
Making sure competitors adhere to industry guidelines is virtually impossible for Upsilon’s Walker and partner David Hurwitz. In addition to running the three stores, they also own a wholesale music distributor that serves 600 customers nationwide. Their company employs 48 people and had annual revenue of $6.8 million.
“We’re just don’t have the time to spend with the record labels to try to police that kind of thing,” Walker said.
Best Buy spokeswoman Laurie Bauer said the company’s day-after Thanksgiving sale did not violate the pricing guidelines. The chain’s $2 discount on CDs applied to albums that the chain was carrying at record labels’ full list price, not the minimum advertised price, she said.
The industry pricing guidelines have allowed Upsilon to be competitive with far-bigger companies. This week, for example, the 285-store Best Buy chain is selling the new Hanson Christmas album “Snowed In” for $12.99. Sacramento-based Tower Records, which has 184 stores, is selling it for $13.99, the same as Upsilon.
Low prices are what lured Paul Tomlinson of Lake Forest to the Thanksgiving Day sale for the second consecutive year.
“You can buy 50 CDs for the price of three new ones at other stores,” said Tomlinson, who spent more than $100 on 50 used CDs on sale.
Walker’s hopes for record-breaking sales over Thanksgiving weekend were sagging last Wednesday. Looking out his office window to the loading areas in Upsilon’s Irvine warehouse, he noticed that the rain was falling hard--and sideways.
“Rain is usually good for retail because when people want to leave the house, they go shopping because they can’t go outside,” Walker said. “But we’re going to hurt a little more than others if it rains really hard because all our stores are in strip malls, and there’s no cover.”
And the downpours forecast for this weekend could be just the beginning of a rainy period, according to WeatherData Inc., a Wichita, Kan., forecasting service.
Walker isn’t worried, though.
“If this turns out to be a bad weekend, it will be that much busier that next weekend,” he said with a chuckle. “People will have only two weekends left to get it all done.”
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* MODEST SALES: Retailers reported moderate sales growth in November. D3
