Can Music Stores, Indie Labels Survive The Big Distribution Debacle?

As the key holiday sales season begins, US music stores are in crisis after months of late, inaccurate and missing shipments from Direct Shot, the exclusive physical goods distributor of UMG, Sony and UMG that’s putting the entire independent music eco-system at risk.

Op-Ed from Jay Gilbert‘s Your Morning Coffee by Terry Currier, the owner of indie music store Music Millennium

I can remember Jim Caparro, former president of PGD and WEA distribution, making a comment in the early 2000’s that someday all distribution from the majors would most likely be out of the same warehouse. The reason? A cost savings by each, with not having to have their own backroom and staff. He was a bit ahead of the game but in April of 2019, this became a reality.

Direct Shot, a third-party warehousing system, already distributed Universal Music and Sony. This also included goods from their independent arms, the Orchard and In-Grooves. Around the beginning of the year it was announced that WEA and its independent distribution arm ADA would join the club and also be distributed through Direct Shot. This was after a year of offering buy out packages to staff involved in physical goods and a good 50% of them taking the packages, as they were not guaranteed jobs if they stayed.

WEA distribution’s last task was making sure the Record Store Day product for April was shipped out of the building before they shuttered the door and to also get out all the last orders that they stated they would ship by the closing date. There were problems with both but we all survived.

“There will be retailers and labels going under due to the negligence of this problem in the months ahead.”

To retailers, WEA distribution was a better distribution system than Direct Shot. Due to their previous dealing with Direct Shot, our receiving staff was not looking forward to the change. Little did they know, or any of the rest of us know, this would become the biggest debacle involving physical goods ever in the history of the record industry.

8 months later and just a week before the retail holiday shopping season begins, retailers are struggling to get product to sell. There were problems in the beginning but mostly with WEA product. They changed their ordering system to be in line with their European system. It was an inferior system to the old system from a retailer’s point of view. On top of that, Direct Shot was rarely including packing slips. With the old system, you could go to the B2B and print one but not with the new system. Problems mounted. You might order 40 of a title and 1 each would show up in 40 different boxes. You could order 2 of something and 2 boxes of a title show up.

WEA was hoping by the end of May for all the kinks to work their way out. It was reasonable that there was going to be a few problems in the change over. To compound problems, WEA’s customer service reps all took the buy out packages. That was known by mid 2018 but nothing had been done to put some new ones in place and with the amount of problems that were happening with shipments, most of the problems remained unsolved. Customer returns were not being processed at all.

“It perplexes me that WEA, Sony and Universal have not jumped in earlier to find solutions to this matter.”

September was then looked at as a reasonable time lime for getting everything in order. Several open letters were written including one by Michael Bunnell of the Coalition of Independent Record Stores around the 1st of June. It motivated WEA, Universal and Sony to go to Direct Shot to see what was going on because it was now effecting the shipments from all three. New Release orders were showing up late at accounts, turn around time in getting orders was taking longer, overall the quality of Direct Shot’s shipping was deteriorating. It was not only hurting retailers, it was affecting most labels and many of the artists on those labels as those artists were having problems getting their product shipped to them to sell on their tours.

Then some things came to the surface. Direct Shot’s parent company had wined and dined WEA to move their distribution to Direct Shot. Their intent? To raise the stock value of the parent company after the bank had taken over the CD manufacturing plant that they owned. Stock value in the company went down and this would be the way to raise it back up. They also had the intentions of selling off Direct Shot once WEA came on board, as stock would go back up. Direct Shot never added any staff when WEA came into the fold.  More product was shipping with the same amount of overhead. They also got hit with having to ship to all the Target stores at that time instead of just the Target depots…. yes, with not adding any more staff. And they succeeded in finding a buyer with a company called Legacy, who had been in distribution business for over 40 years.

“Little did they know… this would become the biggest debacle involving physical goods ever in the history of the record industry.”

There was thought that hopefully Legacy could turn it around but the problems have escalated to the point that WEA, ADA, Sony and the Orchard have asked independent retailers to buy their product from one-stop partners. They have offered some compensation to the retailers through these partners. However, none of these have all the product either due to the same Direct Shot inefficiencies.

It perplexes me that WEA, Sony and Universal have not jumped in earlier to find solutions to this matter. Most of retail is not able to do the business they should be doing and their numbers are down. We are bracing ourselves to experience a 10 to 20% shortfall of the business we did in 2018 and we are having to work extra hard to be able to do that. Our customers are starting to get impatient with Music Millennium’s inventory, something we prided ourselves in for the past 50 years we have been in business. They think we are slipping in being a quality record store and they are correct. They have no idea it’s some warehouse that is run so inefficient somewhere else in the country that is causing the problem. The same thoughts are Direct “Direct Shot’s shipping was deteriorating. It was not only hurting retailers, it was affecting most labels and many of the artists on those labels.”

It perplexes me that WEA, Sony and Universal have not jumped in earlier to find solutions to this matter. Most of retail is not able to do the business they should be doing and their numbers are down. We are bracing ourselves to experience a 10 to 20% shortfall of the business we did in 2018 and we are having to work extra hard to be able to do that. Our customers are starting to get impatient with Music Millennium’s inventory, something we prided ourselves in for the past 50 years we have been in business. They think we are slipping in being a quality record store and they are correct. They have no idea it’s some warehouse that is run so inefficient somewhere else in the country that is causing the problem. The same thoughts are happening from customers all over the country: Soundgarden in Baltimore, Waterloo in Austin, and Electric Fetus in Minneapolis. Their customers are getting tired of coming in the store and not finding what they are looking for.

“Direct Shot’s shipping was deteriorating. It was not only hurting retailers, it was affecting most labels and many of the artists on those labels.”

It’s up to the big three, WEA, Sony and Universal to step up to the plate now and find a solution. Physical goods are in danger of losing their luster to customers, at a time when we have succeeded in bringing in new customers over the past decade, interested in vinyl.

CDs are still a viable format if we can just get them into the store.  We have seen new physical retailers sprouting up over the past decade. Most artists depend on selling physical goods on the road to sustain the financial side of their careers. There is still a decent demand for physical product. Tool just proved that compelling product will sell with new single CD with innovative packaging sold amazingly well at a price of $45 to an interested fan base.

“It’s up to the big three, WEA, Sony and Universal to step up to the plate now and find a solution.”

There will be retailers and labels going under due to the negligence of this problem in the months ahead. There will be artists that will be forced to do something else besides pursue their musical dreams because they can not sustain their chosen career path and dreams. No more time can be wasted in fixing the problem. We need a viable solution now and it has to be done by WEA, Sony and Universal.

Your Morning Coffee 11.22.19