I’m sure most of you caught the news in mid-May that Guitar Center served Behringer walking papers, dropping its products and terminating the business relationship. It seems our industry’s largest brick-and-mortar chain is fed up with, as the quote read, “Behringer’s revision to untenable business terms late last year and a continuous history of attempting to force unfavorable changes”…and so on in corp-speak.
I won’t dwell too much on the fact that this hardball play came up shortly after the whole change-in-ownership re-fi deal that might have rescued GC from the swirling vortex of the MI toilet. One speculative scenario would present Behringer playing hardball with the retailer when things were tougher, only to get b-slapped now that the fiscal kryptonite has been removed from the scene.
Were this so (and—of course—I’m only speculating), it’s also possible that other supplier relationships will be subject to the same, shall we say, calculation of benefits. Such is the interesting dynamic between big retailers and their suppliers, particularly when the retailer (speculatively speaking) has just had the handcuffs removed and has turned to face its tormentor. Metaphorically, of course.
So, perhaps a lot of supply companies are feeling a little queasy, particularly if most of their eggs are in a Big-Box basket. Others might shrug it off either because their brand identity outshines any single retailer’s, or because (as I heard from contacts a few months ago) their company has cultivated other channels to reduce dependency. After all, so much shopping is moving online; and the biggest box is a shipping box that has “Amazon” printed on its side.
Oh, wait. If you haven’t been following the book publishing industry, you should hear about another retailer/supplier dustup that involves Amazon and several publishers, most recently Hachette. Here’s where the fun begins, folks.
It seems that a point of ongoing dispute is the revenue for e-books: how much, and how it’s divvied up. Although it’s not important for us to analyze the mechanics of the arrangements, the conflicts have passed through scrutiny from the Department of Justice for antitrust taint. Sure enough, the DOJ ruling told the publishers they couldn’t set prices and Amazon could charge whatever they choose. We’ve been through the drill in our industry, and that isn’t the issue on my mind. The dispute has turned into a siege of sorts and, unlike the GC/Behringer story, they haven’t severed relationships…per se. After all, the products the publishers provide are not interchangeable commodities. No one looking for a Jonathan Franzen novel will instead buy a book by Snooki and call it even.
No, Amazon’s tactic has been more like aggressive mischief. In 2010, all the “Buy Now” buttons disappeared from all McMillan titles. More recently, “Pre-Order” buttons disappeared for many upcoming Hachette titles, and “ships in…” info went from one to three days to three to five weeks. You can see how this might affect sales (and, for the powerless authors, royalties) when Amazon reputedly controls up to 60 percent of e-book sales and as much as a third of all book sales.
The war of words (so to speak) continues, but the message for our industry should be clear to all suppliers: if your products are placed with Amazon, they, not you, hold the power. I might liken GC, by comparison, to a neighborhood bully stealing lunch money. They still need music products. Amazon doesn’t need or care about MI unless our goods meet its goals in revenue and traffic. When the Eye of Bezos turns to your company wielding the One Site to Rule Them All, you will stand naked and cold before it, enslaved or vaporized at its whim.
Perhaps I’m being a little dramatic; I’m sure any resemblance between Jeff Bezos and Sauron is purely coincidental. Nevertheless, Amazon’s 2013 revenues were reported as $74.45 billion, approaching 10 times the size of our whole industry. Even if Amazon sold as much MI product as Guitar Center does, it’s less than five percent of its revenue.
If I lived on the manufacturing side of things, I’d be looking to have strong relationships with effective smaller retailers. We’ve all heard the arguments supporting Community Music Stores as both the creators and nurturers of the market. Frankly—assuming the products I made were items about which I was passionate, rather than commoditized widgets—I’d rather have my products sold by someone who believed in my company and would be out in the field proselytizing for me (and for whom my goods were a significant source of revenue). You can work all your social media magic, but when the customer looks for you and, instead, is presented with an offer of “similar items at a lower price” (yeah, Amazon did that, too), what happens to your sweat, toil and passion?
And manufacturers, I hear your side, too: not all music stores are “Community Music Stores.” Many are mercenary market harvesters, lacking in work ethic or simply clueless. But there are more good stores than ever before, in spite of e-commerce giants and market pressures. If anything, those stresses have made it more likely that a surviving store is a viable choice. Certainly, the percentage is significantly higher than when I entered the industry 30 years ago. Thankfully, I see some companies getting out in the field looking for dealers again—so I don’t think I’m alone in this viewpoint.
Folks, we’re not Silicon Valley here. We won’t have the grotesque success of creating an app like Snapchat and seeing it valued in the billions before it even makes a profit. We have to work for a living. So, all of us—suppliers and dealers alike—need to think about where this is all going. Thinking has to replace hoping, coping and grasping at straws, the dominant tactics of the last 15 years. And perhaps, at last, enough of us can start thinking about making a better industry so that we can actually make it happen.