Retail Track

PREVENTING BURNOUT: The theme of the recent CD World convention was "Do You Feel the Burn," which had a good news/bad news connotation. "It has a double meaning," CD World president David Lang told employees attending the event, held Sept. 18-19 at the Oyster Point Hotel in Red Bank, N.J. "We expect a hot fourth quarter in terms of product, [which should be good for sales]."

But the downside the theme implies is that CD burning continues unabated, with album sales down 10.4% this year, according to Nielsen SoundScan, with no end in sight to the bottom.

In the music business, "one thing constant is change, and CD World does its best to anticipate rather than react," Lang said in his keynote address. Since the last convention, CD World has undergone a merger with Streetside Records and has almost doubled its store count to 19 units. "The merger allows us to run 19 stores instead of 10," he said, "with very little addition to our corporate payroll."

Lang noted that there is still work to be done in order to make the merger successful. For instance, the two chains have completely different computer systems, which have to be combined. "Also, there is a cultural difference, which we will try to bridge," he said. "We won't try to impose ours on theirs or theirs on ours. We will take the best of both."

In addition to CD burning, another thing the chain has to contend with during the holiday selling season is a price war that he predicted. In fact, "the price war this year will be worse than it was in 1994," Lang said. "Make no mistake: This will be the toughest fourth quarter ever. I won't be surprised if one of the [discounters] have the top 20 at $9.99."

He pointed out that most new releases are already being priced by discounters below cost, and despite that, store traffic is still down. He lamented, "Price is down, sales are down, and margin is down."

The price war is being driven by what Lang referred to as "the big four" —Wal-Mart, Target, Best Buy, and Circuit City—"all companies that use music as a price identifier." He says these companies represent CD World's main competitors, not music specialty retailers like Trans World or Musicland.

Another major CD World competitor nowadays "is the customer" because of their CD-burning and file-sharing. But Lang warned CD World store managers, "The customer is our competitor, but we can't compete with them. We have to attract them into our stores."

He said that one way they are doing so is by lowering prices. "We sold 3,500 Springsteen albums at $10.98, but we lost $3,000 on it, which we will have to make up somehow."

Another way to bring customers in is through exclusives, Lang added. He pointed out that until recently, the mass merchants were the main beneficiary of exclusive product, as well as obtaining superior versions of albums. But he said a concerted effort by independent retailers and their coalitions and music specialty chains has been successful, and consequently the discounters are not getting as much superior product nowadays.

Nonetheless, Lang pointed out that Target recently had an exclusive Hoobastank item. "Can you imagine that our target customer, our bread-and-butter customer, the music fan, is going to Target for their music?"

But while CD World is fighting the discounters through price and by obtaining exclusives through its participation in Music Monitor Network, Lang noted that the main thing that separates the chain from the big boxes is "customer service." Also, CD World carries used CDs and videos, which distinguishes the chain as well. Moreover, CD World has a broad offering of pop-culture accessories, which "makes us cool," as well as providing higher margins.

"So we are fighting with price, promotions, added values, and, let's face it, we have cool stores," Lang said. "Two reasons we have great stores is that Rita [Donato Edward, VP of stores] and you guys are taking special pride in your stores and are working on them. The best tool we have is you and the way you merchandise and organize your store and interact with the customer."

Lang urged managers to "never be satisfied with the way the store looks." If a manager should finally get the store the way they want it, they should still change something. "The only constant about your stores should be change, and there is always something more you can do."