"Stop me if you think that you've heard this one before." That line may be a classic one from The Smiths, but it's fitting, given word from Tower Records this week. Over the weekend, the venerated music seller said it was filing for Chapter 11 bankruptcy protection. Again.
Tower Records, also known as MTS Inc., is filing for bankruptcy protection from its creditors and hopes to sell its assets (89 stores in 20 states) through a court-supervised auction Oct. 5. We last heard this tune in 2004, although this time around, the scenario is even more serious.
Things were bad enough in 2004, but Tower emerged from bankruptcy quickly that time. However, back then I pointed out the pressures that face even venerable companies like Tower. Those same pressures continue to plague the company and its rivals in the brick-and-mortal music-store business. Back in January, Musicland, the name behind Sam Goody, filed for Chapter 11 bankruptcy protection and sold its assets to Trans World Entertainment (NASDAQ:TWMC). (Many people cite Trans World as one likely buyer for Tower's assets.)
Although Tower was trying new initiatives as recently as this past March, I was skeptical about ideas like an online bookstore; that concept originally took off in the '90s. I also heard that Tower launched a digital downloading service and dabbled with podcasting, but again, none of those seemed likely to differentiate Tower from its competition -- which the company called "intense" in its court filings.
No kidding. There's Amazon.com's (NASDAQ:AMZN) wide selection of music, not to mention discounters like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) and big-box retailers like Best Buy (NYSE:BBY) and Borders (NYSE:BGP). And let's certainly not forget Apple's (NASDAQ:AAPL) iTunes Music Store, which represents the ultimate in instant gratification and is tied to a wildly popular product. (When it comes to selling music, iTunes hit the big time last fall, in fact.) Against such competition, trapped in a slowing market niche, and laden with debt, Tower said that sales dropped 10% to $430 million in its most recent fiscal year, while same-store sales declined 9%.
There's a lot of hand-wringing in the media about the possibility that Tower might go away. It's certainly an iconic brand, but on the other hand, it's been a long time since I've felt compelled by Tower's selection. Given Tower's declining sales and its continued financial difficulties, it appears many people feel the same way. The right kind of buyer, with ample resources and imagination, might be able rejuvenate Tower, but for now, it seems an apt lesson that even icons can't quit innovating.
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Alyce Lomax does not own shares of any of the companies mentioned.
