Retail Track: Wea's Catalog Strategy: More Promotions, Higher Return Rates

WEA HAS realigned its catalog marketing efforts by moving toward programs that encourage purchases more frequently and in smaller quantities, a trend that has been promoted by many of the large music merchants that have embraced just-in-time inventory replenishment.
In a June 5 letter to accounts obtained by Billboard, WEA established a best-sellers list of catalog titles, which numbers about 400 albums, sources say. WEA will now make those titles available one week a month, every month, for the remainder of the year. Front-line CDs and cassettes will carry a 5% buy-in discount, while Super Saver CDs on the list will have a 7% discount. Previously, WEA ran three catalog sales promotions a year; the discounts were slightly less, depending on the time of the year.
Retailers contacted by Billboard appear to unanimously endorse this aspect of WEA's policy. What they appear divided on is the policy's second component, in which the returns penalty on CDs on the company's best-sellers list goes from 5% to 25%, effective July 6. For retailers‹who get a buy-in credit of 0.7% on each unit purchased‹that means that the break-even goes to 2.8%, as opposed to the previous break-even of 14%. For wholesalers‹who get a credit of 0.9% for each unit purchased‹the break-even is reduced from 18% to 3.6.%
Jerry Kamilar, director of music purchasing at Albany, N.Y.-based Trans World Entertainment, says his company has no problem with the WEA changes. "We fully support things like this that allow us to make smaller buys on a more frequent basis and still have price reductions," he says. "Things like this create a need for us to be better buyers so as to avoid paying penalties. In fact, we have asked for deeper discounts for purchasing on a one-way basis."
On the other hand, another merchant says that while he likes the front end of the WEA announcement‹which allows for more frequent purchases at a higher discount‹the back-end adjustment to the returns penalty creates a price increase.
"Even if I keep my returns under 2.8%, I am still paying a higher penalty on the returns I make," he says. "It means I am not being as rewarded as I once was for buying more efficiently."
WEA executives were unavailable for comment. But the policy letter says the best-sellers list "contains many of the most successful albums in the history of the music business, and as such, they represent the core of most stores' basic catalog stock. We believe these are titles that should always be in stock and should never be returned."
Meanwhile, return charges on the top 100 cassette titles in WEA's best-seller list stay the same. For retailers, that's a 1.6% credit and a 10% penalty, carrying a break-even of 16%. Wholesalers get a 2% credit on buy-ins and a 10% penalty charge on returns, with a break-even of 20%.
CHANGING TIMES: Reacting to the marketplace, Columbia House has started a new record club, Play From Columbia House, which changes the way it markets music to members. Since record clubs came into existence, the backbone of their marketing has been a concept called negative options. In that strategy, members get a notification every month saying they will receive a certain selection unless they decline it, usually by returning a card.
The new club eschews that marketing approach and instead embraces a positive-option approach that lets members place orders only when they want.
Columbia House CEO Richard Wolter says the negative-option scheme has been used since the 1920s and isn't in tune with the times. Today's customer is more likely to buy at home; hence, the new strategy.
"The negative option," Wolter says, "is not convenient. It leads to member fatigue and member attrition. Today, you have to give the consumer a compelling reason to buy." Wolter says he believes the positive-option approach will supply the compelling reason.
MAKING TRACKS: At the Mercury Records sales department, Midwest regional sales director Jim Saliby has been promoted to senior director of national accounts. Replacing him is Ketrena Scoggins, who previously was the label's national manager of urban independent stores.