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July 21, 2005

Starbucks Quickly Becoming A Force To Be Reckoned With

post-gazette: Starbucks, already the world's largest chain of coffee shops with about 9,500 global locations and close to 6,900 in the U.S., is slowly emerging as a potent force in the music business, carrying such diverse big name artists like Ray Charles, Alanis Morissette, Coldplay, and the Dave Matthews Band...Surprisingly, most CDs hit the coffee shops at the same time that they reach traditional music outlets...To put the chain's impact in perspective, the article reports that when Starbucks carries an album, its stores often account for 20 to 30 percent of the record's weekly sales - sometimes as much as 50 percent. Placement on Starbucks shelves and store playlists can also be an advantage to some lesser known bands who have little radio support and limited touring schedules...

Starbucks is reportedly planning to install media bars in most of its traditional coffee shops in the near future so more customers can burn on-demand CDs. The company also says it has heard from movie studios and television networks about someday setting up online video downloads, which makes sense once the infrastrucure is set up. However, it isn't clear yet if selling music is profitable though as the company declines to publicly disclose CD sales revenues. Restaurant-industry analyst John Glass of CIBC World Markets in Boston estimates that music will account for less than 2 percent of Starbucks's U.S. retail sales of $4.5 billion during fiscal year 2005. Starbucks's customer base is constantly expanding, reflecting an increasingly young, multiethnic, transclass mix that will surely continue to buy music and coffee...13 percent of the company's customers are between 18 and 24, 37 percent are people of color, 56 percent are college graduates, and they earn on average $55,000 a year. "Record companies like doing business with the chain because its stores don't return unsold merchandise, as traditional retailers do. Dealing with returns is costly and logistically cumbersome, and can make for unpredictable accounting, since revenue evaporates with each returned CD. Starbucks says it shifts unsold CDs to other stores or keeps them in a warehouse if it thinks they can be sold at a later date..." Great article if you have a few minutes...

Posted by Todd in General | Permalink


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