What happened to Tower Records?

Tower Records is a retail music franchise operating mostly online founded by Russell Solomon in 1960. After enjoying 40 years of continuous growth, the company filed for bankruptcy in 2006 and 2008. Tower Records’ aggressive expansion strategy was based on CD sales remaining high indefinitely. Market share was first eroded by big-box competitors and then by the digital music revolution.

Background

Tower Records is a retail music franchise and online store operating internationally. The company was founded in 1960 by Russell Solomon, who opened the first standalone store in the Arden Arcade district of Sacramento.

At its peak, Tower Records operated more than 200 bricks-and-mortar stores across fifteen countries with sales exceeding $1 billion. It became the destination of choice for cassettes, vinyl records, and CDs. Stores in Los Angeles were frequented by celebrities such as Mick Jagger, Bruce Springsteen, Elton John, and Jack Nicholson. If nothing else, consumers came to associate the brand with the simple joy of browsing for new music and a core staff of passionate music devotees.

Tower Records filed for Chapter 11 bankruptcy on two separate occasions, with the first occurring in 2004 and the second two years later. Every U.S. location was closed in December 2006 after 46 years in operation. A solitary store still operates in Tokyo today.

What happened to Tower Records?

Aggressive expansion

When Tower Records embarked on an aggressive expansion strategy in the 1990s, the company accumulated a lot of debt.

To some extent, the strategy was based on the continuing sales of high-profit margin CDs and four decades of continuous growth. However, it lacked forward-thinking and due diligence. 

In a 1994 promotional video, Solomon spoke about the future of the company. “As for the whole concept of beaming something into one’s home, that may come along someday, that’s for sure. But it will come along over a long period of time, and we’ll be able to deal with it and change our focus and change the way we do business. As far as your CD collection – and our CD inventory, for that matter – it’s going to be around for a long, long time.

In 1998, the company took on a $110 million loan to finance its strategy as the very nature of the music industry began to change. 

Competition

With the blueprint for success laid out, big-box retail stores such as Best Buy, Target, and Walmart entered the fray.

These large organizations could use economies of scale to sell CDs at lower price points. They could also sell music at a loss offset by the sale of unrelated, high-margin products in their department stores.

Digital music revolution

With sales volumes at record highs, Tower Records failed to identify the impending digital music revolution. 

Consumers stopped buying music from physical stores, instead preferring to purchase albums from iTunes where it was cheaper. Some consumers also relished the opportunity to buy individual songs online rather than paying full price for an album they might not enjoy.

Napster was also emerging as a platform allowing music fans to download and share music for free. By the time Apple introduced the iPod in 2001, digital music had gained critical mass and the demise of Tower Records was inevitable.

Bankruptcy, hiatus, and return

Laden with debt and facing dwindling revenue, Tower Records was forced to file for bankruptcy in 2006 and then again in 2008. 

After a twelve-year hiatus, the company returned as an online store in November 2020 selling vinyl records, CDs, cassettes, and branded merchandise. There are tentative plans to open several pop-up stores to take advantage of the resurgence in vinyl sales.

Key takeaways:

  • Tower Records is a retail music franchise operating mostly online founded by Russell Solomon in 1960. After enjoying 40 years of continuous growth, the company filed for bankruptcy in 2006 and 2008.
  • Tower Records’ aggressive expansion strategy was based on CD sales remaining high indefinitely. Market share was first eroded by big-box competitors and then by the digital music revolution.
  • After a hiatus of more than a decade, Tower Records opened an online store where die-hard fans can purchase products of yesteryear and branded merchandise.

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