Those catchy tunes that retailers play to enhance their customers’ shopping mood are popping up with more frequency at checkout counters this holiday season on custom-made music CDs.
Many of the largest retail chains Pottery Barn, Starbucks, Banana Republic and others are putting out musical compilations emblazoned with their own names and selling them as impulse buys. And they’ve become hot sellers.
“When the stores have these CDs displayed at the checkout counter, they catch your eye,” said Kathy Hale, senior vice president of special markets for L.A.-based Universal Music Enterprises. “It totally is an impulse. You’re standing there, you’ll look at the disc and say, ‘I’m having this Christmas party and that’s going to sound great.’ ”
While such discs were rare just a few years ago, CDs created to capture certain moods holiday festivity, swank dinner parties, winter mornings are now a must-have for retailers.
Among examples of this sampler craze: Ella Fitzgerald and Billie Holiday for Pottery Barn’s “Divas,” Dean Martin and Nat King Cole for Eddie Bauer’s “Be Merry,” and Lenny Kravitz and Iggy Pop for Banana Republic’s “Road Trip.”
Not surprisingly, these CDs do very well during the holidays. “If you were to break the year out, almost 50 percent of the products we do for retail outfits like Pottery Barn and Ralph Lauren are Christmas-related,” said Harold Fein, executive vice president and general manager of Sony Music Special Products in New York.
And because they are compilations of previous releases, the production and marketing costs are much lower than those for original-recording CDs. As a result, the profit margins are fat, which is music to the ears of retailers, record companies and recording artists alike.
Industry executives will not discuss specific numbers, but it’s estimated that while a new CD costs about $9 per disc to make and market, compilation discs typically run less than $5. And business is believed to have doubled over the past year.
Helping fuel that growth is not only the impulsive nature of the purchase but the limited selection, which makes it easier for customers to make up their minds.
“It’s not like walking into a record store and having all the music to choose from,” said Eli Okun, president of EMI-Capitol Records Special Markets in Los Angeles.
One successful CD often serves as a springboard for more specialized compilations, generating repeat business. “They’re all coming back for more,” said Gary Newman, executive vice president of BMG Special Products. “That leads me to believe that it’s working and working well.”
Record companies first realized the market potential for retailers after Victoria’s Secret sold 1 million copies of its promotional classical music compilation CD in the early ’90s. Fein, who was then working at Sony Classical and helped compile that disc, said, “Victoria’s Secret was the one that turned it around. It really was a light bulb going off in our heads.”
The compilations are based on discussions between retailers and record companies to ensure that the CDs fit the store’s image, a particular theme, and have appropriate packaging and artwork. Retailers order anywhere from 10,000 to 200,000 copies of the discs, and they may give them away as promotional gifts or sell them for as much as $18.99. The retail price is based on several factors, most especially the number of tracks. That’s a key variable because each song can require two licensing payments, one to the record company and one to the publisher. Also, recording artists receive royalties from those payments.
The lucrative business has fostered a spirit of cooperation among the otherwise fiercely competitive record companies.
“We all license back and forth to each other. Every one of us does business with Starbucks, and we all want to help Starbucks continue to do this,” Hale said. “If Sony is putting together a disc of mainly Sony tracks, and I have one track that would make it a great package, then I’d go ahead and license it because of my relationship with Starbucks. And Sony will do the same for me.”
