Better Buy

Best Buy is giving vinyl a spin (ow, that pun hurts).

The consumer-electronics giant, which happens also to be the third-largest music seller behind Apple's iTunes and Wal-Mart, is considering devoting (a whole) eight square feet of merchandising space in all of its 1,020 stores solely to vinyl. That only equates to slightly under 200 albums, but after a successful test in 100 of its stores the format which represents 5% of Best Buy's music sales is growing while CD sales continue to shrink. Vinyl sales grew 15% year-over-year in 2007 and 89% in 2008. The 1.9 million vinyl albums purchased last year were the most since Nielsen SoundScan began tracking sales in 1991, and 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% 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 and nostalgic nerds like myself haven't abandoned the format. And the fact that a retailer of Best Buy's size is willing to expand vinyl offerings is an positive for the beleaguered music industry. A typical Best Buy store features about 16 to 20 square feet of music merchandise and displays about 8,000 CDs.

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. 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. Companies like Atlantic and EMI Capitol say extending their catalog and the profits made from vinyl warrant producing the format. The situation is the reverse for Best Buy, but the margins on vinyl sales are still "healthy enough" to mitigate the risk that comes along with not being able to return unsold inventory like it can with CDs.