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"If [a price war] starts all over again, people will start to close stores."
—Anonymous Retailer

BEST BUY DECLARES WAR!

Retail Between Limp And A Hard Place
A "Rerap" exclusive by Mark Pearson

Best Buy has fired the first volley in the post-MAP era. Ads in last Sunday's newspapers had the retailer selling Interscope's new Limp Bizkit CD (which hit the streets Tuesday) for an advertised sale price of $9.99.

With the retailers' wholesale price of $12.02, the usual initial 3% discount and another 2% for "early pay," the cost is down to $11.42. Add to that the limited edition bonus CD the label offered to every retailer at a price of 50 cents apiece and Best Buy is losing almost $2 a unit.

The price point stunned retailers nationwide. Best Buy reps had been quite vocal at last spring's NARM, stating that they would not be the first to sell below cost as the longstanding MAP policies were being dropped by all of the majors under intense pressure from the FTC.

Industry insiders speculated that Circuit City or Wal Mart would be the first to push the pricing envelope. But Circuit City has the Bizkit priced at an aggressive $11.99, basically selling it at cost. Most other retailers have it priced much more like Musicland, which priced it at $12.99 at their freestanding Media Play superstores, and $14.99 at their Sam Goody mall outlets.

Meanwhile, Best Buy have extended their pricing policies, selling the new "Toy Story 2" DVD some $6 under cost at $19.99, while most retailers, like Circuit City and The Wiz, are selling it for $29.99.

No one at any of the major retail chains (or major labels) is willing to talk about pricing issues. In the current litigious climate, retailers are being included in the mix of defendants in any number of "price fixing" lawsuits nationwide spawned by the FTC's consent decree regarding MAP.

This could be the prelude to a massive retail price war. Inside sources claim Wherehouse (which has Bizkit priced at $13.99) might be looking for legal recourse in California, where it is illegal to sell something for less than 3% over cost.

One retailer told us: "If [a price war] starts all over again, people will start to close stores." Most observers think that the target of Best Buy's pricing campaign is Circuit City, with many wondering how the latter will retaliate. With the lead times necessary for creating Sunday circulars, it may take Circuit City until the 11/21 street date that includes the much-awaited Backstreet Boys release to respond to Best Buy's pricing volley. Will a third player be pricing the Ricky Martin below cost the week before that? Stay tuned. This one's far from over.

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