B & C in the news

Stores Say It Uses Unfair Business Practices

Billboard August 23, 2003

BYLINE: ED CHRISTMAN

A group of independent music retailers has filed a class-action lawsuit against Best Buy that cold lift the veil on how record labels deal with the Minneapolis-base company.

The suit alleges that the consumer electronics chain’s business practices violate U.S. law and California state law.

According to the lawsuit, filed Aug. 6 in the U.S. District Court for the Central District of California, Western Division, the plaintiffs charge that Best Buy uses its clout to extract discounts and advertising allowances from the major labels that are not generally available to its competitors.

The plaintiffs are Mad Rhino, Boo Boo Records, Lou’s Records, Dimple Records and Rand Foster of Fingerprints. Maxwell Blecher, of Blecher & Collins in Los Angeles, filed the suit.

The lawsuit says that Best Buy is "able to extract from the major record companies and additional 10% discount vis-à-vis other purchasers." It also says Best Buy gets advertising and other allowances that are not generally available to other purchasers.

According to the complaint, these favorable prices, terms and conditions enable Best Buy to sell new albums as loss leaders, which diverts massive amounts of business from competitors.

The discovery process could permit the plaintiffs to examine Best Buy’s business records to see if the chain does, in fact, get favorable terms from vendors.

"It will certainly be interesting to see what’s under the kilt," says Mike Dreese, CEO of Newbury Comics.

The lawsuit was main topic of conversation at a Aug 8-12 retail summit in New York. The Retail Summer Camp summit was put together by the Music Monitor Network, the Coalition of Independent Music Stores, the Assn. of Independent Media Stores and Newbury Comics.

Label and distribution executives who are aware of the lawsuit say they are dreading it. That’s not because they are guilty of anything, those sources say, but because it likely means that their business records will be subpoenaed and that some of them might have to testify.

The complaint alleges that Best Buy has knowingly received favorable and discriminatory prices on new albums, which violates Section 2 (a) of the Robinson-Patman Act.

The complaint also charges that Best Buy’s below-cost pricing is for the purpose of injuring or destroying competition and is in violation of Section 17043 of the California Business and professions Code.

California state law holds that merchants must price product at least 6% above cost.

The lawsuit asks for treble damages and legal costs.