Death to Discounts?

Thursday, June 4th, 2009
By Russ Crupnick, Vice President, Senior Industry Analyst

“Death to Discounts” a recent Wall Street Journal article about the designer clothing business, got me thinking about the continuing decline in CD sales. According to the article, clothing designer Eileen Fisher is rethinking the way her clothes are sold:

“In department stores these days, Eileen Fisher clothes ‘get marked down before they even have a chance to sell,’ she told me recently. Perhaps it no longer makes sense to give Saks, Bloomingdales and other department stores so much control over the brand, she posited. She has asked her staff to consider a new model: renting department-store space in order to control prices and inventory.”

What if music sellers, video distributors, and game publishers could rent their shelf space from retailers? The question may, of course, be moot. After all, it’s hard to imagine all of the sellers cooperating on leased space. It’s equally difficult to imagine separate kiosks for EMI, Sony, Universal, MGM, and Nintendo, not too mention the various independent labels. But imagine if “Mother Entertainment” could really own that space, and manage the assortment, the pricing, the presentation. Could we slow or even reverse the decline of CDs and DVDs, hasten the adoption of Blu-ray, and optimize games sales? Perhaps there’s an expanded role for kiosks, ala the very successful Redbox model.

The WSJ article also discusses “scalpel pricing,” in which a company slashes prices on slow sellers, while maintaining a premium price for the top sellers. Brilliant! I don’t understand the deep discounting of new releases, which supposedly drives impulse purchasing. It seems to me that Green Day fans who want the group’s latest CD would gladly pay a few extra bucks to get it during its initial week of release. I’m an unapologetic fan of premium pricing for new releases, and of compelling discounts on catalog titles or promotional bundles geared toward increasing register ring.

Over time, the aging process for packaged entertainment will be accelerated by cutbacks from many retailers; in the form of less space, less appealing floor positions, and less funding and effort exerted on product presentation.

And that’s not a great place to be. After all despite the digital revolution, brick-and-mortar retail stores are still a primary place for product discovery, so the de-emphasis on space and merchandising simply accelerates the product’s death spiral, as less selection and less promotion translates to fewer reasons to shop the section.

Ultimately a lot of the solutions distributors are using to survive the transition from physical to digital rely on a significant amount of retailer cooperation. You can’t blame retailers for maximizing the value of every square foot of selling space. Perhaps the entertainment industry needs to take back control of their physical distribution while forging new models for the digital age.

1 Comment

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  By Olga, June 9, 2009 @ 12:09 pm

  Very interesting approach to managing your product line. Managing CDs/DVDs/Games space shouldn’t be too hard. Thanks for the post.

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