The Tumbling of Tower Records

story by Virgil Dickson
image by Zarah Delrosario

On Friday, October 6, Kate Hunter was expecting to have a quiet night in. Then her phone rang — and her world collapsed.

She threw her food into a zip-lock bag and headed to the place she had called work for the last six years. When she saw her co-workers they all tried to hold back tears, but the news was undeniable: Tower Records would cease to exist. It was at that moment that the hope she and her co-workers had been holding onto for weeks began to melt into tears that would flow well into the night. “We all thought the music industry would try to save us,” Hunter said.

Hunter, who works in one of Tower Records’ flagship stores in Nashville, Tenn., was one of the nearly 3,000 people nationwide who found out they would be out of work in a matter of weeks. After several days of bidding in a California courtroom, a liquidation company called Great American beat its closest rival bidder, Trans World Entertainment, by $500,000 — ultimately shelling out $134.3 million for the purchase. By October 7, Great American began the liquidation process by having all of the stores host a going-out-of-business sale. They also sent field officers to many of the stores to ensure that things would transition smoothly until the stores close. This has made some Tower employees uncomfortable.

“I’m not sure if they understand that this liquidation feels like a form of prostitution to the employees,” Adam Ahmed, an employee at the Burlington, Mass., store said. “Tower will exist only as long as there is still product left in the store, so in a sense we’re selling our own death,” he added. Hunter is not too keen on having chaperones present either. “They treat us like conniving thieves — like we want to rip the store off any way we can. No one at my store plans to steal,” Hunter said.

Though many believed that Transworld would have saved some of the stores if their bid had won, Harvey Yellen, CEO of Great American, said that was not the case. “We were led to believe they were closing the same as we were,” Yellen said. “The other group didn’t say that they would have kept the stores open. If they did, the folks making the decisions would have chosen them.” Transworld could not be reached for comment on the issue.

Some Tower Records employees have trouble believing this. “He’s just a CEO trying to cover his own ass and escape public scrutiny,” Ahmed said. Other employees just seem confused as to why all the stores had to be closed. “Why would a company who’s fighting to compete in the music industry liquidate such a large inventory and forfeit so many key locations?”, Michael Console, an employee at the Northridge, Calif., store asked.

Yellen said that the general public, and even most employees, were in the dark about how seriously in debt the company really was. “The truth is they ran out of money. They were broke and they couldn’t reorganize,” Yellen said.

When Tower Records filed Chapter 11 in August, it was revealed that the company was $200 million in debt. This was the second time the company had filed for bankruptcy in two years. The first time resulted in Tower Records closing several stores. It also resulted in store founder Russ Solomon giving up 85 percent of his company in exchange for bondholders forgiving millions of dollars in debt. Solomon founded Tower in Sacramento, Calif., in 1960. The company went on to open 89 stores in the U.S., with an additional 144 stores run by licensees in nine different countries.

When called for comment abut the recent sale, Solomon’s wife, who chose not to provide her first name, said that her husband was doing fine and that he hadn’t really been involved in the store over the last couple of years.

Though employees had no idea how large the debt was, they did notice the store was in serious financial trouble when many record labels stopped shipping them CDs. Shea Earle, who works at the Chicago store located on Clark Street, said that his store had to shell out cash to some record companies in order to get new releases. It was because of this that it was a struggle to keep CD prices reasonable. Things got worse in September, when the company had to pay employees in cashier’s checks to ensure the checks wouldn’t bounce. “They told us if we had any other checks around we might want to go on and cash them,” Earle said.

This isn’t the first music store chain that Great American has had to liquidate or reorganize. According to a press release from the company, they also assisted in the downsizing of Sam Goody/Musicland and Wherehouse Music. Other companies who have also struggled in recent months include Virgin Megastore and Coconut Records. Both have been forced to close several stores throughout the United States due to sluggish sales.

Joe Bruce, owner of Groovin High Records on Chicago’s North Side, expects a lot more closures in the years to come…and even predicted that his own small store would be closed in three years. Over the three years his store has been open, he has seen half a dozen music stores that were only blocks from him going out of business.

“You have a generation coming up where they will never physically own a CD or a record,” Bruce said. He went on to say that in the new age, the only record stores that may survive are the independent ones that have developed a niche of customers, such as Chicago’s independent record hub Reckless Records.

“As it stands right now, we’re able to function in the little world we have set up for ourselves. It is a somewhat tenuous situation,” said Bryan Smith, manager of Reckless Records. Stores who cater to a causal listening audience are the companies most in danger of closing, according to Smith. “It’s the causal listener who has sort of bailed on physical music media,” he said.

The sales of physical CDs have continued to drop. In the first half of 2006, according to The Recording Industry Association of America, overall shipments of physical units (CD, DVD videos, etc.) to retail, direct and special markets decreased 15.7 percent compared to the first half of 2005. The suggested retail value of physical product units shipped was $4.1 billion, which represents a 15 percent decline from 2005.

Despite the recent turn of events, many people are reluctant to blame downloading sites for the problems the industry is facing. “It’s just a shift in tastes where after a solid decade of musical homogenization, with no banner band that everyone can get behind like a Nirvana or a Beatles, people are seeing music as a commodity and not an essential product,” said Matt Snow, employee at the Tower Records store in Atlanta. “Being a music fan has never been less fun than it is now.”

Others are worried that as digital sales grow exponentially, people will forget what it is like to have a physical product. Robert Thompson, professor of popular culture at Syracuse University in New York, said that in today’s times, young people don’t see the big deal in choosing a digital product over a physical one. “They don’t see this as a villain at all,” Thompson said. “They see it as the glorious march of technology.”

CI Special Report #013