Although many of us saw the writing on the wall a month or more ago, it became official this week – Tower Records, the one-time 800-pound gorilla of music retailing – has gone kaput. On Friday, October 6th, Tower’s fate was sealed after a lengthy and competitive 29-hour auction overseen by the bankruptcy court saw Great American Group emerge as the victor. The noted liquidation firm purchased Tower’s assets for a reported $134.3 million, outbidding front-runner Trans World Entertainment by a marginal half-mil.
According to an Associated Press report, Tower’s web sales portal (Tower.com), the company’s 33rd Street Records label and its real estate holdings (including leases and a distribution warehouse) were sold separately for around $15.7 million. The infamous Tower Records store on Sunset Boulevard in Hollywood – a record industry hangout for bands and label personnel alike – was also sold separately for around $12 million. Early reports of the chain’s total debt load seemed to have been somewhat understated, as stories of Tower’s sale report that the company was closer to $200 million in debt, a ridiculous number considering that the company was virtually debt-free a couple of years ago following its first bankruptcy reorganization.
The good folks at the Great American Group wasted no time in plucking the carcass, with "going out of business" signs appearing in store windows across the country early Saturday morning in time for busy weekend traffic. These sales will continue for 8 to 10 weeks, probably through mid-December, milking the most out of the holiday season. Then the legendary Tower Records name, as well as its familiar red and yellow sign, will become part of music biz history.
The repercussions of the Tower bankruptcy and liquidation will send shock waves across the entire industry. The company’s $900 million in sales over the past two years represents between 4% and 5% of the music biz’s total annual sales for the period…a major loss for an industry already in desperate retreat. The vast majority of those sales (and profits) won’t be made up by any other company since the largest players – big boxers like Best Buy or discount chains like Wal-Mart and Target – have pretty much maxed out their CD sales and are asking for deeper wholesale discounts from the industry. Because Tower had a long-held policy of stocking every store with deep catalog titles from the major labels along with a large selection of indie releases and niche label product, a lot of old, rare and odd music is going to become much less available for music lovers. According to the AP report, "one veteran industry observer noted that Tower might have accounted for 40%-50% of some niche-genre labels' business."
Worse yet is the inevitable house-cleaning of the company’s Bayside Distribution warehouse. Sometime in the near future, Bayside will return tens, if not hundreds of thousands of CDs to labels at full wholesale price for cash or credit. The major labels, which are collectively owed tens of millions of dollars by Tower, will uneasily absorb the returns. However, for many indie labels, the returns will be more difficult, if not crippling. I predict that at least one indie label will be dragged underwater by Tower’s sinking ship.
Tower Records should go down in business textbooks as a perfect example of how not to expand a business. The chain’s demise leaves only the Virgin Megastore chain, with twenty stores, as the largest "deep catalog" retailer, a situation that will turn even more consumers towards online music sellers like Amazon.com. Trans World’s various brands and the Hastings Entertainment chain are the largest surviving specialty music retailers.
Personally, I’m going to hate seeing Nashville’s Tower stores close. When the chain’s West End Avenue store opened nearly twenty years ago, it offered a truly eclectic selection of vinyl, CDs and various publications. For a long time, Tower was the only store in town where you could buy indie label punk and heavy metal and the store’s blues selection included a lot of very cool albeit obscure artists. Tower’s Nashville store always carried a good selection of zines, the Atlanta store even more so, including many weird books and small imprint titles. Tower had its faults, mostly due to gross mismanagement from the executive suites down to the store level. The store’s "carry everything" philosophy made a lot of different kinds of music available and I discovered a lot of cool bands while browsing through the store’s shelves. With the recording industry determined to drag the retail sector down with it, we may never see another store like Tower again.
