Scratched – Downloads, discounts are lacerating record shops |

Scratched – Downloads, discounts are lacerating record shops

As pop’s superstars strutted down the red carpet in Los Angeles Sunday night for the Grammy Awards, there was something close to panic brewing in the retail trenches of the music business. The record store is in serious trouble, and the pinch is being felt by megastores and local shops alike.

Sales have been hammered by Internet piracy as well as competition from big-box retailers, such as Best Buy and Wal-Mart, which are two of the nation’s leading music vendors. Online CD stores, such as, are gaining momentum, too – 3 percent of the market in the most recent survey by the Recording Industry Association of America, up from zero eight years ago.

The Record Connection at 455 Sutton Way in Grass Valley has felt the impact of Internet sales.

“Sales are dropping substantially,” owner John Hess said.

With a total stock of more than 85,000 albums, Manifest Discs & Tapes was a music lover’s mecca in the North and South Carolina towns where it operated. And despite an industry-wide downturn in CD sales in recent years, all five Manifest stores were turning a decent profit right up until the end of 2003.

So there was shock all around when chain owner Carl Singmaster announced in late December that Manifest would close all locations and lay off all 100 of its employees. There were still plenty of consumers eager to browse the bins, Singmaster explained, but his company’s prospects looked bleak and were getting bleaker.

“I felt like I needed to take this opportunity to exit,” Singmaster said. “Indies in the smaller markets face a very risky environment.”

It’s not just the indies, and it’s not just the smaller markets. On Monday, MTS Inc., the privately held parent company of the Sacramento-based Tower Records chain, filed for Chapter 11 bankruptcy, according to news reports, having failed to find a suitable buyer. In September, the bankrupt Wherehouse Entertainment chain was acquired by a company that promptly said it would close 35 under-performing stores. Mall chains such as Sam Goody are hurting, too.

Now a new threat looms. The market for legally downloadable music is tiny today, but the success of Apple’s iTunes online music store and the rush of rival services to the marketplace is expected to gobble up an ever-larger share of the pop music pie. A recent study by Forrester Research, which examines technology trends, predicts that in five years, fully one-third of all music will be delivered through modems, and the CD itself will be passé, if not obsolete, in the years after. This isn’t necessarily bad news for the record labels, but it could be lethal for brick-and-mortar stores.

That’s exactly why The Record Connection began to diversify about 10 years ago. The locally owned business branched out into electronics. When Hess first started selling electronics, he did so to supplement music sales.

“At this point, our electronics area is surpassing the music area,” he said.

When The Record Connection moved into its large Sutton Way facility, electronics became the main thrust. The store offers a variety of electronics, including custom design and installation of home theater systems.

Josh Bernoff, the Forrester analyst who wrote the report titled “From Discs to Downloads,” said business owners need to realize music is moving away from being a product on a shelf.

“Two-thirds of the people who currently download say that when it comes to music, it isn’t important to them to hold a physical object,” Bernoff said.

But Hess is not as quick to agree.

“People still like to come in, see it, touch it and feel it,” he said.

At The Record Connection, customers can listen to a CD before buying it and do music research. Strong customer service is another thing the store can offer that Internet sites may not, Hess said.

In Nevada City, Herb Shop Records targets a smaller niche – the area’s musically eclectic residents. The small operation sells what those residents like, not necessarily blockbuster hits, employee Job Brother said.

Local artists, folk music and Hawaiian sounds are some of the Herb Shop Records inventory. Most of its customers do not have mainstream tastes, Brother said.

End of an era?

If people really are finished with CDs, the album is doomed and the industry is headed back to its roots in the ’40s and ’50s, when the single was the most popular format. It’s already moving that way. Last week, the punk trio Green Day released a cover of the rock classic “I Fought the Law” through a promotion advertised on the Super Bowl and available exclusively on iTunes. That’s a peek at the future: Hear the song one minute, own it the next.

That’s a transaction that doesn’t require a record store, of course. As a precedent, consider the airline ticket. Thanks to online travel sites and the advent of ticketless travel, millions of flyers no longer think of tickets as physical objects that must be printed and brought to the airport. And that’s been brutal for travel agencies: In the past three years, 30 percent of them have closed, according to Airlines Reporting Corp., which keeps tabs on the industry.

Plenty of stores like Manifest have surrendered, while others believe the end is inevitable, if not yet near.

“The fat lady is warming up, but she’s not exactly singing,” says Mike Dreese, who runs Newbury Comics, a music chain in Massachusetts. “We’re five to seven years from a complete meltdown. The only question is whether our death is in seven years or eight. Everybody’s lights are out in 10.”

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