Music chains on the rebound

Discount Store News, Nov 3, 1997 by Earl Paige

SPECIAL TO DSN -- The United

States' giant music chains and

their wholesale suppliers, several

of which have been in and out

bankruptcy, are finally turning

around as they move through the

critical fourth quarter.

Wall Street is watching the

recovery, and recent music chains'

stock price highlights are evidence

of the trend.

Trans World's stock price was

$32 in late October, up from a

52-week low of just over $5;

Musicland Group was up to $6

recently from a low of 69 cents

last December; and National

Record Mart was up to $2.69

from $1.13.

One factor in the recovery is

that music chains are depending

more and more on merchandise

sales of goods other than music,

including video.

At Trans World, chairman

Robert Higgins said video sales

are 20% of the company's total

gross. Trans World's executive vp

Jim Litwik said this Christmas

season will be the all-time best in

the video category.

A lot of theories are offered as

to why the music business got

itself into so much trouble, but

the growing importance of video,

books, computer software, and

other entertainment media are

often mentioned. Too few of the

music specialty chains have

successfully combined categories

the way Barnes & Noble and

Borders have, industry

observers said.

Books and magazines continue

to bulwark music sales, and

Best Buy has been doing its

homework. In nine of its stores,

books have been added on a trial

basis, a move many see as

reflecting the growing competition

from Borders and Barnes &

Noble, both of which are steadily

expanding in music and video.

Wall Street analysts such as

Riam Fried of Clean Yield think

that one large reason music

chains are rebounding is that

they are closing unproductive

locations and are gaining better

competitive positions, reducing

over-storing. CE chains such as

Best Buy, that have used CDs

as a loss leader, are already

showing signs of pulling back

from music.

"There is just too much retail

out there," Fried said, referring to

Circuit City, Best Buy and other

similar chains, though not The

Good Guys, which differentiates

itself by nestling next door to a

Tower Records in some locations.

Notable exceptions to the financial

problems that have faced

nearly every U.S. music chain are

the British-based chains.

Virgin keeps opening stores and

is about to invade Miami, which

will put them into direct competition

with Spec's. HMV is slowly

expanding, and W.H. Smith, after

purchasing Wall To Wall outside

Philadelphia a few years ago, is

now coming in to rescue giant

Camelot through a merger.

But amid this turnaround, first

glimpsed this past summer by

Billboard's retail guru Ed Christman,

there is caution. Christman

saw the current quarter as all

critical, especially since music

chains have slashed overhead,

are closing unprofitable stores

and selling hit audio titles below

cost during their debut weeks.

The combination could still prove

disastrous for many stores.

Optimism about the improving

fortunes of music retailing

was reflected at the recent fall

gathering of the National Association

of Recording Merchandisers

in Dana Point, Calif., that

drew 450 attendees.

The meeting came immediately

after a Fortune magazine article

blasting the industry for its

previous downturn.

NARM chairman Robert

Schneider, who also is executive

vp at Anderson Merchandising, a

wholesale service firm that

serves Wal-Mart and Kmart,

took special aim at the Fortune

piece for its tone.

"[Fortune] called it a crazy

record business: the weakness of

pop releases, the end of the

compact disc boom, disappearance of

the music cassette, three years of

discount stores bleeding the

record stores blind. All this

bringing on a wave of vast downsizing

and mergers," Schneider said.

"What Fortune doesn't tell you is

that as an industry we had 15

years of fabulous growth and

that our cash registers reflected

a 7.3% increase in sales the

past six months."

Not every U.S. music chain

has had serious problems.

Tower Records has long

branched out from its Sacramento,

Calif., base to other

countries, although it has

stopped expanding as quickly

in America.

Randy Davidson, president

of Sound Shop, a Nashville,

Tenn.-based chain of 77

stores, said, "We have weeded

our garden every year." Not

wanting to depend solely on

malls, which have been ravaged

by over-storing, Davidson

opened in factory outlets

with a Music For Less format

that has grown to 29 stores.

But competition for sales is

not only coming from discounters,

CE chains and book

stores selling music. Anderson

Merchandising's Schneider

said he is alarmed to see the

film studios and music labels

enlarge their Internet Web

site marketing efforts. "They

must ask what their company

gains by competing in the

retail business," Schneider

said. "Now, some--Disney,

Warner and Paramount--direct

the consumer to the

local stores, but Fox, MGM

and Columbia Tri-Star advertise

at full list price, plus

shipping and handling."

It's not coincidental that

Schneider pointed directly to

video rather than music

suppliers. Video is growing

enormously important for music

chains, so much so that Trans

World looks to it for 20% of

total volume, Higgins said.

Trans World's success has

never depended on video