Best Buy hastens extinction of the CD
Amid falling sales, electronics giant will eject the 1990s staple from stores
The shiny compact disc, once as essential to every living-room music system as a copy of Michael Jackson’s
Thriller album, is quickly going the way of the eight-track and cassette tape.
The rise of streaming music services such as Apple Music, Spotify and Pandora, as well as the availability of digitally downloadable tracks and albums, are making the CD extinct.
The latest nail in the coffin comes from the nation’s largest store-based electronics retailer, Best Buy, which is reportedly planning to quit selling music CDs at its stores by July 1, according to a report in Billboard.
Another retail giant, Target, is also considering a change in how it acquires CDs, which could reduce inventory in its stores and leave fewer choices for music fans, Billboard also reported.
Best Buy declined to comment on the report, but CD sales have fallen at its stores. During the retailer’s 2017 fiscal year, which ended Jan. 31, entertainment (gaming, music and movies) accounted for 7% of domestic revenue
($36.2 billion). But entertainment sales were down 13.8% from the previous year, while overall domestic sales revenue dipped only 0.3%.
Target denied news reports that it might quit selling CDs but hinted in a statement that it is exploring a way to make sales more cost-effective.
“We are committed to working closely with our partners to bring the latest movies and music titles, along with exclusive content, to our guests,” its statement read. “The changes we’re evaluating to our operating model, which shows a continued investment in our entertainment business, reflect a broader shift in the industry and consumer behavior.”
Target has historically had exclusive versions of new CD releases, including Taylor Swift’s most recent album Reputation — a savvy sales strategy to increase store traffic.
The music CD, which first made a dent in the U.S. market in 1983, is admittedly showing its age. More than three decades old, the format eventually was embraced by music lovers for its convenience and quality, amounting to $13.2 billion in sales in 2000 — far outpacing Hollywood’s box office of
$7.7 billion that year.
But physical sales of CDs has been on the decline since then and currently
account for less than one-tenth of sales, making the case for some stores to eventually abandon them altogether, says Neil Saunders, managing director of Global Data Retail.
“While some retailers like Best Buy and Target still stock CDs, trends dictate that over the next five years, this category will deliver diminishing returns,” he says. “As such, it makes sense to look at how the space CDs occupy can be put to better and more profitable use.’’ Saunders adds that CDs typically offer retailers a meager profit margin of at most 9 cents on the dollar, “and it’s likely a player like Best Buy may (take) a slight loss when all overheads are accounted for.”
Getting rid of CDs can free up space for laptops and tech-related gear that yield stronger profits and a more engaged in-store experience, says Sean Maharaj, a director in the retail practice of consultancy AArete. “This move is long overdue,’’ he says.
Maharaj added that Best Buy’s departure from CD sales might spark similar moves by others. “I believe the likes of Target, Walmart and Guitar Center could follow suit, if they haven’t already,” he says.
Music CD sales fell 20% to $1.2 billion in 2016, the most recent year’s sales available from the Recording Industry Association of America.
In comparison, paid music subscriptions nearly doubled to $2.3 billion, RIAA says. Digital downloads of albums fell 20% to $876 million.
Subscriptions to music services “is what is driving the growth in the industry,” said Josh Friedlander, the RIAA’s senior vice president for strategic data analysis.
“People have been talking about the decline of the CD for quite a long time now. But CDs are still a billion-dollar business in the U.S.,” he said. “It’s still a pretty significant business.”
Vinyl is a format that, having gone dormant for nearly two decades, has re-emerged and accounted for $430 million in sales in 2016, RIAA says. Sales of vinyl LPs rose 9% to 14.3 million last year, up from 13.1 million in 2016, Nielsen Music says.