In even bigger news than whether Target switches to buying on consignment terms, Best Buy has just told music suppliers that it will pull CDs from its stores come 7/1. At one point, Best Buy was the most power music merchandiser in the U.S., but nowadays its a shadow of its former self, with a reduced and shoddy offering of CDs. Sources suggest that the company’s CD business is nowadays only generating about $40 million annually. While it says it’s planning to pull out CDs, Best Buy will continue to carry vinyl for the next two years, keeping a commitment it made to vendors. The vinyl will now be merchandised with the turntables, sources suggest.
Sources say that Target has demanded to music suppliers that it wants to be sold on what amounts to a consignment basis. Currently, Target takes the inventory risk by agreeing to pay for any goods it is shipped within 60 days. With consignment, the inventory risk shifts back to the labels.
According to those sources, Target gave the ultimatum to both music and video suppliers in the fourth quarter of last year that it wants to switch to scanned-based trading, with a target date of 2/1. But while it is proceeding to push DVD vendors to switch to scan-based trading terms (i.e. the chain would pay for DVDs after they are sold or scanned while being rung up at the register), it has moved the deadline back to music suppliers to either 4/1 or 5/1. So far, music manufacturers are not sure what they are going to do, but sources within the various camps say that at least one major is leaning no, while the other two majors are undecided.
If the majors don’t play ball and give in to the new sale terms, it could considerably hasten the phase down of the CD format.