Manage for Success: Loss of Tower, Newsletter #66, October 2006


"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.


Copyright 2006 by Keith Holzman, Solutions Unlimited. All rights reserved.


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The demise and liquidation of Tower Records, announced this past week, is evidence of the sorry state the retail record business finds itself in. Once one of the largest domestic and international retailers of LPs, CDs, and cassettes, Tower was the ultimate record chain -- the epitome of the full-line record store. If a title existed, they probably had it -- or at least that was the case during their heyday in the seventies, eighties, and early nineties. They also had a knowledgeable and helpful sales staff who were true music lovers.


There was a time when the 46-year old chain was the dominant U.S. record retailer. With 89 locations, it was the largest customer of most labels, particularly independents, representing a significant percentage of their business, often as much as forty to fifty percent! Unfortunately, there is minimal likelihood of that business ever being replaced, at least at retail bricks and mortar stores.


Tower's closing also creates cash-flow problems for the industry. The majors had some level of protection in that, for some months, they had insisted that Tower pay for new product with cash. Indies were not as well protected, and many of them will take a big financial hit.


Independent labels will have to find or develop new ways of selling packaged CDs. They can't rely on the big-box retailers to help them. Stores such as Wal-Mart, Target, and BestBuy deal primarily in hit product, and they sell at very low prices, occasionally using hit CDs as loss leaders. TransWorld and Hastings are found mostly in malls, and they're also hit-driven. That's not where indie music is routinely found. Yes, we still have Borders, but they don't stock the breath of titles Tower was historically known for. We also have Virgin, but they have only about twenty stores, and they're in little more than a dozen cities.


Further exacerbating industry problems, Tower's liquidating buyer will be selling off some $200 million worth of inventory, placing additional pressure on all labels either as a result of returns, or in non-receipt of accounts receivable.


Yes, the industry can place lots of effort in increasing its paid downloading business, but that's essentially a business of single tracks, onesies and twosies, as it were. Although downloaded album sales are increasing, it's a far cry, and not a replacement, for the business we used to achieve at retail.


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Do you need help sorting out your distribution situation, with starting a label, or solving business or administrative problems that your label may be experiencing? Take advantage of my four decades in the record business and contact me by phone or email. As a trusted advisor to many record companies over the years, I treat all clients and all assignments confidentially. I look forward to helping you solve your business crisis.


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So what can independent labels do about this loss of a major customer?


First, increase your attention on the remaining retailers, as well as on your distributor. For example, it might be a good idea to pay a visit to key buyers reminding them of the fine music you have available. Make use of the squeaky wheel theory, and stay in their face.


If you're one of the many labels who are finding your distributors to be less effective than in the past, you might consider reducing your reliance on them, or even eliminating them, as drastic as that might initially seem.


I know of some labels -- particularly those with niche or specialized music -- who are avoiding the standard methods of selling to retailers via distributors. They're setting up direct relationships with key accounts, particularly those who customarily devote a fair amount of inventory space to the kinds of music they're selling.


This puts a lot of work on a label in terms of needing someone on staff to stay in close touch with accounts. It also adds considerable extra work to billing and accounts receivable. There's a lot more that the label has to keep track of, but it might be something very worthy of consideration.


An aggressive label might also increase its focus on selling directly to the consumer via its website, and possibly even sending a printed catalog to former customers (an expensive and time-consuming, but frequently worthwhile effort.) Many labels make great use of their database of known customer email addresses, sending monthly bulletins about new releases along with artist touring schedules.


Finally, don't neglect that great store on the web -- Amazon.com -- with probably the largest listing of available music in the world, and the preferred store of many busy people who find going to local retail stores no longer a fun prospect.


If any of you are willing to share other methods of getting your music to the public, I’d be happy to post them on my website,
http://www.HolzmanSolutions.com, or in a future newsletter.


Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2006 by Keith Holzman, Solutions Unlimited. All rights reserved.