A pick-up head runs along a record in the 'Black Plastic' record shop in Dortmund, Germany, 13 April 2016. Record Store Day 2016 will take place on 18 April 2016 in record stores worldwide, offering music fans and record collectors exclusive vinyls in very limited editions. Photo by: Ina Fassbender/picture-alliance/dpa/AP Images
Ina Fassbender — picture-alliance/dpa/AP

Retail prices surge as demand for vinyl outstrips supply.

By Robert Gray
April 16, 2016

Saturday marks the ninth annual Record Store Day, a big event for the music industry and the growing legion of vinyl fans, in particular. Carrie Colliton, a co-founder of Record Store Day, says 1300 U.S. stores and approximately 1000 more worldwide are participating this year, up from about 500 in 2008 and 2009.

The event’s first eight years appear to have succeeded in its goal of raising the profile and revenue of independently owned music shops, helping send sales of vinyl albums surging to generational highs.There were nearly 12 million platters sold in 2015—the most since Nielsen Music began counting in 1991—almost doubling 2013’s total and more than six times the 1.88 million purchased when the event debuted in 2008.

But the record renaissance may become a victim of its own success, with industry insiders citing production backlogs and price hikes.

“My concern is that it’s ‘too much, too fast’, that we haven’t allowed the vinyl resurgence to grow organically… the marketplace cannot bear the cost and volume we are expecting it to have,” asserts Stephen Judge, a 25-year music industry veteran who owns three Schoolkids Records shops and Second Motion Records in North Carolina after serving as general manager of the parent company of Redeye Distribution and its sister Yep Roc Records.

The biggest pain point for vinyl consumers and retailers is clearly price.

Newcomers to vinyl, or those returning after extended absences, will be excused for their sticker shock. Prices have jumped by as much as 75% for new major label releases since last summer after the major labels began raising prices on new releases last spring. Store owners point out the three vinyl releases by Tame Impala on Universal Music Group’s Interscope Records imprint, which have risen in succession from $19.99 to $24.99 and finally to a $29.99 suggested retail for last year’s “Currents” as the band became increasingly popular.

Lana Del Rey’s 2015 release “Honeymoon”, also on Interscope, has become the poster child for aggressive pricing as it listed for $39.99 with some editions at $49.99.

“If that last Lana Del Rey album had come out priced like before” — her earlier records priced from $19.99 to $24.95 — we’d have sold 800 or 1,000 as a wholesaler, instead we sold 60,” says Randy Boyd, who has been in the record business for four decades and with Cobraside Distribution for the past 15 years.

The price hikes have left shop owners choosing between charging higher prices or cutting their own profit margins to keep current titles stocked.

“Our sales are equal or better than last year, but our margins, however, have dropped,” Sebastian Mathews, owner of Touch Vinyl in Los Angeles tells Fortune. “I can’t pass on price increases and be competitive with other shops and online retailers. Making $5 on a new record gets tougher, and the customers are starting to feel the price increases.”

Adjusted for inflation, 2015’s average price of $24.59 is not far from the $26.18 commanded at the height of the disco and vinyl craze in 1978, but on far fewer sales, according to data from the Recording Industry Association of America (RIAA).

Judge says sales at Schoolkids in 2014 were the best in a decade and 2015 started out gangbusters until the music label price hikes in May. When 2015 was done, he went from a 22% gain to down 13% versus the prior year.

And this year? “I’m seeing a drop in new vinyl sales,” he says. “My used vinyl sales have gone up and will continue [to rise] but you’re not making up for cash flow when new records are $25 and used is $7. You have to sell four times as many or mark down inventory.”

The price increases follow vinyl’s growing sales, but also its expanding share of physical music sold at retail since CDs generate less revenue per album and those sales are dropping.

Press Play

“This is the tenth straight year of vinyl growth, but supply is not meeting demand,” notes David Bakula, senior VP of industry insight for Nielsen Music.

“If I’d have told you 10 years ago that I have a format that will grow by 1100% over 10 years and I’d told you it was vinyl, you’d have laughed me out of the room.”

Bob Irwin grew up in the music business and has run Sundazed Music with his wife, Mary, pressing and distributing albums on vinyl since 1989. Along the way he has picked up vinyl catalog rights for Bob Dylan, Otis Redding, and The Byrds to help fund passion projects including “the deeper end of the pool ’60s garage, psychedelia, surf, and soul.”

Where he once had trouble convincing labels to make vinyl, now he says “the challenge is getting the actual physical record made. It’s extremely frustrating because you have to be able to predict the future because the pressing plants are six to 12 months out in front, so you have to predict what you’ll need or what the market will be doing in six months. It’s a concentration puzzle I play every single day.”

Irwin says added capacity from expanded and new pressing plants is helping the supply chain disruption, but “it’s still a pain in the ass to get records made.”

Boyd at Cobraside Distribution works with 300 to 400 stores nationwide and says his sales are down 20% to 30% from last year. “The buying public is rebelling at the new, higher prices,” he says. “I think over the last 12 months we’re trying to sell into a headwind. When the vinyl resurgence started 10 years ago, new vinyl was $16 and so was a CD. Now the CD is $10-$12 and the vinyl is $30. Many people aren’t that committed to vinyl.”

Higher prices are also squeezing Sundazed’s Irwin: “I could sell it easily under $20, that was the secret to our early vinyl success. Now our cost prices have in some cases tripled or quadrupled for what we’re charged for those catalog licensed records…you’re making $1.50 to $2 [profit per album] on a good day.”

Industry insiders say retail below $20 is still the ‘sweet spot’ while above $30 kills sales.

Barsuk Records lists most of its vinyl below $20 and the indie label’s Grant McCallum explains:“People are price sensitive…once you’ve made it clear that $18 is a fine price to pay for a single, standard-weight LP, it feels disingenuous to charge them $25 for the newest Nada Surf or Ra Ra Riot just because you can.”

So can the vinyl revolution keep on spinning higher? Despite the delays and price increases, Nielsen’s Bakula says vinyl sales are trending about 12% ahead of 2015’s 11.9 million, which is still a far cry from the 1977 peak of 344 million albums shipped, according to RIAA data.

Sundazed’s Irwin is cautiously optimistic: “I see another doubling but can’t predict beyond that. It can’t keep going the way it’s going. I see growth on our end but whether the infrastructure can keep up with it is still a question.”

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