Record Retailers Face Music, Plan Closures

Are the wrong people suffering here ?



Courtesy of the latimes.com....


January 8, 2003

Record Retailers Face Music, Plan Closures

Best Buy, Wherehouse and Trans World are expected to shut outlets as CD sales decline.




By Jeff Leeds, Times Staff Writer


Record store operators are pleased to report that rubber duck toys, talking Ozzy Osbourne action figures and CD storage cases are flying off the shelves.

But a boom market in knickknacks won't keep hundreds of stores from closing in the next few months as buyers shun their core product -- recorded music.

Best Buy Co. is expected to announce on Thursday the closure of about 150 of the roughly 1,300 Sam Goody and other stores in its Musicland division, according to insiders.

The move by one of the country's largest record store chains is only one in an anticipated round of closings prompted by last year's 11% decline in album sales.

Torrance-based Wherehouse Entertainment Inc. is expected to close 30 of its approximately 400 stores in the coming weeks, company executives said. Trans World Entertainment Corp., owner of FYE and other stores, plans to shutter about two dozen of its 900 locations.

Albany, N.Y.-based Trans World said Tuesday that its holiday sales declined 2% to $406 million on a comparable-store basis from the year-earlier period. Executives said an even steeper decline in CD sales was offset by revenue from other merchandise.

The new store closings accelerate a trend that already was underway because of back-to-back annual declines in record sales.

The problem has been aggravated by price wars with mass merchants such as Wal-Mart and Best Buy's own discount electronics outlets.

"The music business as a whole is in disarray," Best Buy Chief Executive Brad Anderson recently told investors.

Badly damaged chains, including Best Buy's Musicland, could begin closing unprofitable stores even before their leases expire, analysts and executives said.

Worse, some industry executives are convinced that several retailers will fold completely in the coming months. Because music-based retailers stock more older, "catalog" albums -- which generate bigger profit margins for labels -- their disappearance would be especially troubling, record executives say.

"This could be the worst year for bankruptcies the industry has seen," said the head of a major music distributor.

Even some major players were obviously caught off-guard by the rapid deterioration in record retailing. Only two years ago, for instance, Best Buy bought the Musicland chain for $685 million. The company has said it expects the division to post a loss of at least $80 million for the year ending Feb. 28.

"The best solution for Best Buy is to exit as much of this business as possible as quickly as they can," Goldman Sachs analyst Matt Fassler said.

During the late 1990s, the five major record labels helped bail out already shaky retailers by subsidizing advertising costs for chains that agreed to price albums under company guidelines.

But in 2000 federal regulators forced labels to halt the practice on the grounds that it was anti-competitive.

Several state attorneys general also sued the major labels and music retailers over the practice, which prosecutors said illegally inflated the price of CDs. In late 2002, five major record companies and three retailers agreed to a $143 million settlement.

Record executives warned that without the advertising subsidies, music retailers would slip into oblivion. Now, "it's absolutely coming true," a label executive said Tuesday.

So troubled chains are pinning their hopes on such extras as toys, concert DVDs and video games.

"You have to diversify if you want to stay alive today," said Alayna Hill, who co-owns two record stores in Rochester, N.Y., and sits on the board of the Coalition of Independent Music Stores.

"If there's a big release, people do react and people want to buy that record," Hill added. "But as far as people just going into record stores for the heck of it, it's not the case anymore."

Kevin Cassidy, senior vice president for retail operations of West Sacramento-based Tower Records, said his company muddled through the Christmas season by relying on sales of toys, music accessories and music-oriented DVDs.

In addition, he said the chain -- which plans to close four of its 100 stores in the next two months -- had improved its staff's sales skills and begun more promotions based on older albums that big-box stores might not stock.

But Cassidy said the slow holiday is only a prelude to more bad news: "The first 90 days of the year are a desert for new releases."


http://www.latimes.com/business/la-fi-music8jan08001500,0,909268.story?coll=la-headlines-business

 

I've thought the strip and mall stores Transworld has either bought or marketed has shown the consumer just how badly price gouging can be. Uh, what do you expect? People can be stupid sometimes, but not in this economy....

I still don't get why a CD has to cost $19.99. I'm sure other people feel the same. I buy used, especially with the fact that many OOP Cds exist only this way. Many chains are going into Used Cds and used DVDs. It may be too late for many of them.

I remember when even corporate record stores were fun, usually inexpensive, diversive and educational. I don't think it's that way anymore.

I'm not going to post WHY I'm upset at corporate retail record outlets, because it's been said. I'm just a bit tired of people saying it's only (or mostly) online downloading and CDRs. It's NOT. It's much, much more than that..... blah blah blah....

 

I guess the possibilities are limitless, here.

But then, ultimately, the Music Artists, will be forced to go into business for themselves, and use the internet and market directly to their Fans...like they should have been doing all along.

 

It seemed like not too long ago, you could go into different stores in different locations of, lets say the Listening Booth chain, and it was like going into completely different stores. You'd always find some obscure prize or new import that wasn't at the store back in your home town. And there were always tons of different chains, all unique in what they stocked, and in their focus.

As the chain stores started consolidating and merging in the 90's, I was rather saddened to see that the variety of record stores had pretty much boiled down to one. It seemed that "The Wall" chain had taken over everything, locally, and in the surrounding towns of my area, to the point of getting ridiculous. I recall one mall in the area that had two different record store chains, both taken over by The Wall's parent company. Instead of closing one of the stores, or leaving one of them alone, they turned them BOTH into identical stores, separated only by a hallway. The real joke was, like all The Wall stores, they had the exact same product, and more importantly to me, they didn't have the same things as well. All cookie cutter, you've been in one, you've been in them all stores. This all got boiled down even further when Trans-World bought out The Wall stores, as well as Camelot Music and if I'm not mistaken, Coconuts.

One thing these chains can do is to try to bring back a bit of what used to make each record store unique from the other locations in its chain. You want me to stop into a FYE location when I'm on a shopping trip out of town? Then give me something there that I'm not going to find at it's twin back home. FYE's prices are bad enough, but I already know what's going to be in there, and what's not going to be in there when I see the sign on the door. That's enough to make me skip stopping there in the first place, and go look for a good cup of coffee instead. There's no excitement anymore in going into a new record store that you've never been in before, with the exception of whatever independent mom & pop places still exist. When I was a kid, I could browse for hours in those places, even the mall chains, while my mom did her shopping elsewhere. I don't think today's kids know that feeling. If the record store chains could bring back a bit of that, it might solve at least part of their problem.

 

It comes down to dollars and sense. These chains simply charge too much for CD's. I never shop at any of them. I always support the little guys. Their selection is better, their prices are cheaper, and they stocked used discs(and vinyl, in the case of a store here).

$19.99 for a single disc is a rip off!!!

 

I wish I had an independent record store in this area but the only choices here are pawn shops, CD Warehouse, thrift & consignment shops, Wal-Mart, K-Mart, Pamida, Target stores (all of these are mass merchant stores), and FYE and Sam Goody. BPM Records hasn't opened yet but the owner will let me know when it will be opened so I can support little guys in this community.

 

The only thing I don't understand is how FYE, Sam Goody, etc. have survived this long. Crummy selection and sky-high prices don't seem like a recipe for success to me. I'm willing to pay more if I can get something I can't find elsewhere (most independents), and I'm willing to put up with skimpy selection if I can save $$$ (Target, etc.), but I'll be darned if I see the attraction of the mall store -- the worst of both worlds. For them, I'm reminded of Blade Runner: "Time to die."

Ryan

 

The Internet really has changed the world...as predicted. No matter how hard they try nothing will stop progress on any level. Heck, we wouldn't have this wonderful forum....Can you imagine that! The future is here and moving fast...I'm trying to keep up with a losing battle. So, I'm sticking with my Cee Dee's for now with a few important SACD's in the mix, plus a few DVD-A's...I'm sure havin fun!

 

There was no mention of Tower in this story. I wonder if they'll survive or be one of the sad casualties.

The Sam Goody and FYE stores in our mall are sickening. The music selection is literally shabbier than Wal-Mart, the prices are insane, and the DVD selection is worse than their CD selection. I've never bought a single thin in those stores.

Fortunately, for a town this size we have a decent indie new/used store that seems to be doing good biz. My friends who love music routinely shop there, as do I. I'll pay an extra $3 on a big release there rather than Wall-Mart just out of principle. However, I did buy the Elvis #1 CD at Wall-Mart for $8. It was a giveaway as far as I'm concerned.
Dan C

 

Most of these stores are located in malls and/or large shopping centers. Their target customer is NOT a dedicated music purchaser, but the shopper on his or her way from one store to the next. Y'know - "I'll just pick up the new Christine Agu wha's her name CD to go with the blazer I bought for Sally's birthday. OOOOhhhhh $18.99. Well her birthday is only once a year."

 

Amen, Ryan...my thoughts exactly!

Take note of what Phish are doing. I think this is a GREAT way to spend my hard earned dollar. No, it doesn't help the retailers, but for the consumer it is very enticing.

from www.livephish.com:

Welcome to the latest incarnation of Live Phish. A natural extension of the popular Live Phish CD program, Live Phish Downloads offers high quality, unedited soundboard recordings of select shows in the form of MP3 and Shorten digital music files via a state-of-the-art delivery system. All four of the New Year's shows will be available via Live Phish Downloads no later than two days after each show.


All download files are compatible with Windows, Mac and Unix operating systems, allowing for maximum flexibility and ease of use. Once downloaded, shows can be burned to disc, transferred to portable players, or played through your computer. Each show also comes with printable booklets, inlay trays, and labels if you elect to burn your files to CD.

Thanks for all the feedback—we have updated our FAQ to address the most common problems users have had over the past couple weeks.

Live Phish Downloads is a work in progress. We plan to offer both new and archival shows throughout 2003, including some or all of Phish's February 2003 tour -- stay tuned for more announcements in the coming weeks. Be sure to register so you will be notified by email each time a new show is available for download.

Thanks for your support and Happy New Year!

 

Tower has already announced 4 store closings, with probably another 20-30 to come. They are in debt and probably won't survive. I agree with this analysis:

1. Record companies offer different wholesale prices to different distributors and retailers.

B. These inequities put "mostly music" outlets at a disadvantage to "big box" stores.

3. Economic pressures from a soft economy, high prices, competition from DVD and video games, no singles, shortsighted, grift-driven labels, etc. force prices to stay too high for product to be attractive to consumers to purchase at MSRP from mostly music retailers.

4. Music retailers slice off limbs in hopes of staying alive, but inevitably will slide into oblivion, leaving only mass market retailers, for whom music is either a minor component or loss-leader, remaining.

 

I agree totally. I walk into one of these stores, and an "on sale" price on a new CD is $15.99. Gimme a break!

Sometimes, FYE is good for some good blowout sales of out-of-print CDs -- I found both Ringo's "Time Takes Time" and the CD single of "Weight of the World," and the Carl Perkins tribute CD that contains John Lennon's version of "Blue Suede Shoes" from the Live Peace in Toronto album, for some outrageously low price -- but otherwise I rarely buy there.

The mom-and-pop store where I buy most of my vinyl LPs charges $14.99 as his regular CD price. Interestingly, I find that the more discs in the CD box, the more likely that nearby indie shop is to be cheaper than Best Buy et al. For example, he sells Universal Deluxe Editions at $23.99 or $24.99; the regular price at Best Buy is $27.99. The same was true with several other two-disc sets -- his price was better than the "big guys" without him even trying to be. He also sold the limited edition George Harrison Brainwashed for a dollar less than Target did.

 

Sad, but I agree with your analysis.
However, I still believe that there will be room for indie music only stores to survive over the years. Any trip to Twist and Shout in Denver or Rockin' Rudy's in Missoula on a Saturday afternoon will confirm that. In fact, the many music fans who no longer have a Tower to shop at will probably go to the mom and pop store. They do business on a much smaller scale than any major retailer, but they fill a niche.

Or maybe I'm just in denial...
Dan C

 

Schoolkids, which used to be a nice big indie store in this town, closed a couple of years ago. Used to be Schoolkids and SKR Classical a few blocks away. Now all that's left is Schoolkids In Exile, a little shop in the basement of an outdoor outfitters.

There's no place around here that I can find where I can walk in and buy anything Steve's mastered.

 

Being a former "A-squared" resident, I'm sorry to hear about Schoolkids' demise. I wonder how much of this was self-inflicted. When I lived in Ann Arbor (and when I was a teenager driving into Ann Arbor to buy records), Schoolkids had (a) great prices and (b) a vast and eclectic selection for a store its size. It was also known as a store where at least one employee would know about any band someone might ask about. (I remember a newspaper article that joked that a customer could make up a namd of a band and some employee would actually know a band with that name.) I know they expanded a fair amount after I left. Did they try to become too big too fast? Did they change their business strategy?

The reason I wonder is that many indies have definitely thrived in the San Francisco Bay Area. Streetlight Records consistently does a brisk business in its many stores. Amoeba Music was so popular in Berkeley that they opened a huge store in San Francisco (and, I understand, another in Southern California). Amoeba always has far more customers than any of the three Towers in town, and I think it's because they have such an extensive stock, they have good prices for new discs (but also sell used), and the people who work there actually enjoy music.

 

Those stores are very fortunate...positive proof things can be done right!
Wish I could frequent those...maybe someday.

 

Another former Ann Arbor/U of M alum here who loved hanging at Schoolkids a long time ago. Was planning on going back this summer and checking them out. Not to be. Sad.

 

Record Company's panoia about copying and revenue is killing the music industry!They better start rolling out titles on the new formats soon or else they're going to see bigger and bigger losses with each passing year.Warner Bros actually made a profit last by CUTTING BACK on their new release schedule and reducing promo costs.That will help in the short term but do nothing for them in the long term

Oh and BYTW I predict Tower will declare bankruptsy by March

 

Greed is killing them...Lower the prices before it's too late...probably is....

 

Yet another former A2 resident...

I think Schoolkids got double-whammied by Tower and the Internet... The Tower records which used to be on South University is gone now, but I know they drew a good chunk of SK's business away in the mid-'90s. Furthermore, they had a harder and harder time competing on price with the growing online retailers. Even back in the early part of the decade, it was not uncommon to see imports priced at least a couple of bucks higher than what was pretty available elsewhere.

Too bad, though - I agree their staff was excellent. Even the owner was a standup guy and a huge music fan. I kept in touch with one of their buyers for a couple of years after I moved away, too.