Wax on the Come Back? Best Buy is Giving Vinyl a Spin?

The consumer-electronics giant, which happens also to be the third-largest music seller behind Apple's iTunes and Wal-Mart, is considering devoting eight square feet of merchandising space in all of its 1,020 stores solely to vinyl, which would equate to just under 200 albums, after a test in 100 of its stores around the country proved successful.

Though vinyl represents less than 5 percent of Best Buy's music sales, the format is growing while CD sales continue to shrink.

Vinyl sales grew 15 percent year-over-year in 2007 and 89 percent in 2008, making the 1.9 million vinyl albums purchased last year the most since Nielsen SoundScan began tracking sales in 1991. This year is shaping up to be even better, with 670,000 vinyl albums sold through mid-April.

By contrast, CD sales have fallen at a roughly 20 percent clip for the past few years.

To be sure, the growth in vinyl, even when combined with digital sales, isn't enough to offset the decline in CD sales. But it does show that consumers haven't abandoned the physical format.

And the fact that a retailer of Best Buy's size is willing to expand vinyl offerings is an incremental positive for the beleaguered music industry. A typical Best Buy store features about 16 square feet to 20 square feet of music merchandise and displays about 8,000 CDs.

"Our goal is to occupy as much square footage as possible with music products," said Atlantic Records CEO Craig Kallman, whose personal vinyl collection numbers more than 300,000, making it one of the largest private collections in the world.

Hoping to capitalize on the renewed interest in vinyl, all of the major record labels have combed through their catalogs to remaster and re-release marquee titles with their original artwork and packaging -- both of which are essential elements for the vinyl consumer.

For instance, EMI in September 2008 launched its "From the Capitol Vaults" vinyl initiative with such titles as The Beach Boys' "Pet Sounds," Jimi Hendrix's "Band of Gypsies," and Radiohead's "OK Computer."

Compared with a CD, vinyl costs more to make and retails for a higher price -- $22.95 vs. around $13.99 for a CD -- but has lower margins.

Both Kallman and Jason Boyd, EMI's senior director of catalog sales, said profits made from vinyl were acceptable enough to warrant producing the format.

The situation is the reverse for Best Buy. Chris Smith, the company's senior music merchant, said margins on vinyl sales are "healthy enough" to mitigate the risk that comes along with not being able to return unsold inventory like it can with CDs.