Record Retailers Face Music, Plan Closures
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.
