Almighty Press

May 9, 2007
High Fidelity

How Local Record Stores Weather the Digital Storm


Itís 5 p.m. on an unseasonably warm Tuesday in April, and Papa Jazz is busy. In a lot of ways, Papa Jazz embodies the stereotypical independent record store ó itís housed in a relatively small storefront in a cool part of town, and despite its small size, the walls are lined with 12-inch vinyl records and narrow aisles are defined by racks of new and used CDs. Consumers mill about the store sifting idly through crates of old, dusty vinyl records while some scour the DVD racks for a cheap score. Many are conversing with the staff; co-owner Tim Smith is ordering a record for a customer. Many of the customers have been here before; some might never come again. But most leave with something.

If it seems like this could have been a scene out of High Fidelity, the 2000 film adaption of Nick Hornsbyís classic encapsulation of the record store experience, itís because it could have been. But High Fidelity hit theatres almost seven years ago, and a lotís changed in the record store business since then. National chains like Tower Records and Sam Goody are pulling out of once-fertile markets. Big-box retailers now control a majority of the compact disc market. In the midst of a seven-year CD sales decline, a paradigm shift in music sales from brick-and-mortar shops to point-and-click web stores and cutthroat price slashing at the Wal-Marts of the world, some people are starting to hear rumors of the demise of the independent record store. Local shopkeeps like Smith have heard it, too. Most donít believe the hype. In fact, theyíre disproving the myth simply by existing.

"If youíre going to open a hamburger shop across from McDonaldís, youíre going to get killed," says Papa Jazz co-owner Tim Smith.

The Seven-Year Itch

But thatís not to say the hype isnít valid. The fact is CD sales are in a downward spiral thatís only getting worse. More and more online stores are opening each year and many famous record stores ó independent or otherwise ó have lifted the needle out of the groove.

In High Fidelity, fictional record store owner Rob Gordon was an obsessive list maker, particularly obsessive when it came to making top five lists. In order to understand whatís going on in the record store industry, letís break it down into the top fives.

Top five battles record stores are facing:

1. CD sales are sagging.

2. The Internetís emerging presence.

These two go hand in hand: CD sales are tanking, and itís hard to say the Internet hasnít played a hand in that.

"The Internet has changed the way everybody buys music," says Randy Dunn, whoís now at Earshot Records in Greenville but was a longtime Manifest employee and opened Acme Comics and Records. "The last five years have been the rise of file sharing and post-Napster digital music. Anyone that wants to can find a place that will let you get free tracks and rare tracks."

Itís indisputable that more and more people are venturing online to purchase (and, in some cases, purloin) music. Nielsen SoundScan, which tracks music sales, recently reported that digital sales of songs have risen 54 percent over first-quarter figures from last year, while physical CD sales have dipped sharply ó 20 percent from where they were a year ago. This is not a new trend, but rather a sharp acceleration of the seven-year sales decline that has taken its toll on both the music industry and on record stores.

"Itís going down," says Sounds Familiar store manager Will Kahler. "Thereís no question. Obviously when Napster was the new thing and everybody got involved with that, that was an effect. But I think the thing that started hurting us early is when every computer you would buy would have a CD burner in it. Now thatís just the way of life."

"When [former Manifest owner] Carl [Singmaster] closed the Manifest in Clemson, it was right after the kids got DSL in their dorms," Dunn says. "The height of Napster and DSL on campuses ... Iím surprised any college stores really survived, unless they were a full independent store."

"Itís been a long, steady decline," Kahler says.

The decline has gotten sharper in recent years. Billboard reported that record stores saw a 27 percent sales drop in 2006 on top of a 28 percent drop in 2005. Global music sales ó both online and in brick-and-mortar stores ó fell an estimated 2 to 3 percent last year, according to a Merrill Lynch research report, and a slow start in 2007 (U.S. music sales are down 10 percent) suggests another down year is likely. Indeed, the Enders Analysis firm predicts that overall music sales will fall to $23 billion by 2009, about half of the $45 billion peak of the CD boom in 1997.

With the compact disc market in decline, many brick-and-mortar stores have been closing. The Wall Street Journal reports that roughly 800 music stores closed in 2006, including all 89 locations of corporate music retail monolith Tower Records. Trans World Entertainment, which owns chain stores such as FYE, Sam Goody and Wherehouse, reported a sales decrease of 6 percent in 2006, despite operating almost 300 more stores.

Indie retailers have felt the crunch, too: The Almighty Institute of Music Retail, an industry research group in Studio City, Calif., estimates that 900 independent record stores have closed since 2003, leaving 2,700 nationwide. One such store was Uptown Sounds, a locally owned shop that concentrated on urban and hip-hop music. Its Dutch Square storefront is now dilapidated and its phone line disconnected.

3. New CDs are expensive.

Cheap just canít compete with free. But most records donít even approach cheap. When he sold Manifest in 2004, Singmaster told Free Times that one of the biggest mistakes the record industry made was killing off the single.

"We sold billions of singles," Kahler says. "And [losing the single] hurt us, too. But we adapted."

The record labels dumped the single because its profit margin simply wasnít as high as a CDís. Many see the move as shortsighted because singles served as teasers for albums. Many customers would purchase two or three cheap singles ó and then buy the traditionally expensive album, too.

"$15 is an awful lot [to spend on a CD]," says Acme Comics and Records owner Phil Crouch. "And in some places youíll spend $16 or $17. Thatís crazy. I would rather lose money on a CD than sell it for $17."

4. Big-box retailers are tightening their grip on the CD market.

As music stores fold by the hundreds, big-box retailers have tightened their grip on the new CD market. Big-boxes such as Best Buy, Target and Wal-Mart account for at least 65 percent of music sales in the United States, up 20 percent from a decade ago. Wal-Mart alone accounts for nearly 20 percent of all music sales in the United States.

The rising pressure from big-box stores has only added to the squeeze. Big-box retailers are able to sell new CDs as loss leaders ó a common practice in which retailers slash prices on hot new CDs, sometimes well below the wholesale price, in hopes of getting the customer to stick around and buy bigger-ticket items like televisions and refrigerators.

"There arenít any big Christmas bonuses any more," Kahler says. "Those days are gone."

"If itís a huge title, a lot of people are probably going to download it, and thatís no more of a challenge than having a big-box retailer down the street," says Manifest store manager Jonathan Steude.

5. Capricious youth.

The rise in digital music has also coincided with a precipitous decline in younger customers, many of whom are more savvy with the Internet and often opt for the cut-rate prices of big-boxes.

"Your average older person is not necessarily going to buy an iPod and never set foot in a record store again," Kahler says. "Itís the high school kids and college kids weíre not seeing. They donít know [the record store]. Thereís no connection. Theyíve never had a pleasant experience or an occasion to do it."

"A lot of people know about music and listen to a lot of music, but theyíre not buying it," Crouch says.

Dry the Rain

So whither the indie record store? Despite the gloomy forecast, the independent record store is doing just fine ó whether itís a small local operation such as Acme or Scratch N Spin or a larger store such as Manifest (locally owned until 2004 by Singmaster but now operated by Value Music Concepts).

"Theyíre sticking around," Kahler says. Despite closing all of its out-of-town locations, Sounds Familiar still operates two stores in Columbia.

"I would imagine that people who have been working for independent stores are probably like me and if they had sense, theyíd go look for another job," Kahler laughs. "But theyíre invested in it and itís what they love."

Some stores, such as Papa Jazz, are even thriving. "[This year] has been better than last year," Smith says. And Smith told WLTX last year that 2004 and 2005 were "two of the best years" heíd ever had.

"Weíre definitely doing good because weíre here and weíre surviving," says Eric Woodard, owner of Scratch N Spin in West Columbia. Woodard is even in the midst of expanding his store to 5,000 square feet, up from 2,000 when it opened just three years ago.

Still, independent record stores face the challenge of staying relevant as the digital revolution point-and-clicks the brick-and-mortar stores out of business. The problem, according to Dunn, is not keeping the old customers, but attracting new ones.

"The people that still buy records are total music nerds," Dunn says. "The independent store has now approached the idea of going back to the basics and theyíre trying to attract the fan ... who will go to iTunes and buy 10 tracks that they donít want to buy the CD for."

"The labels are the ones trying to sell the digital music," Dunn adds. "Itís not necessarily the fans that are looking on the Internet for it."

Historically, thatís not been the case ó labels were slow to jump on the Internet bandwagon. But they have often offered exclusive content online, and the labelís embracing of digital music has soured some of the relationships with record stores.

For the record store to stay competitive ó or to even stay relevant ó it has to offer something unique.

"Itís tough," Crouch says. "I hate selling CDs for $15, but you have to. And the mark-up on CDs isnít a whole lot, so you want to have other things people come in for. Used vinyl is a good thing to have. Used CDs are nice."

"If youíre going to open a hamburger shop across from McDonaldís, youíre going to get killed," Smith says. "It doesnít matter if youíre cheaper or better because no one knows who you are and everybody knows who they are. So if youíre going to open up across from [a big-box retailer], youíd better be doing something different."

And independent stores do many things quite differently.

"People that donít have the convenience of going to their local mall have to search out independent record stores. And thatís why weíve been able to survive and grow as rapidly as we have," says Scratch N Spin owner Eric Woodard.

Top five ways the independent record store has offset sagging CD sales and stayed relevant during the digital revolution:

1. The used CD market.

One of the things that put Manifest on the map in the 1990s was its titanic selection of used discs, and the used market is undoubtedly one of the biggest feathers in the record storeís cap. Chain stores and big-box retailers are able to offer new CDs as loss leaders, but the used market, which yields a sizable profit margin for locally owned stores, helps offset the decline in sales of new CDs.

"Youíre always fighting for that [casual] customer," Manifest store manager Jonathan Steude says. "[Used discs] keep the customer here."

Indeed, many storesí focus is still on used discs.

"The used business has become a big part of everyoneís business," Kahler says.

Itís how Woodard got Scratch N Spin off the ground. "When we first started, all we did was used and trade-in stuff," Woodard says. "As weíve grown, weíve expanded our selection. The main focus is used stuff and DJ vinyl."

2. The resurgence of vinyl.

Vinyl, too, has helped keep stores afloat.

"Vinyl is a viable media," Steude says. "Itís getting a resurgence. The true music fans want the vinyl."

Recent years have seen a resurgence in the CDís older brother. Audiophiles praise the vinyl LP for its warm sound, and independent record labels and artists have started marketing vinyl as a commodity to their customers.

"[People] love to have the nostalgia of vinyl," Woodard says. DJ-specific and 12-inch vinyl records have become Scratch N Spinís calling card. "Itís our bread-and-butter, and itís something no one else is really doing. And of course vinyl never went away, itís just that so many of the big retailers have chosen not to carry it. [Indie stores] are where you find that kind of thing."

Vinylís also historically been one of Papa Jazzís biggest sellers.

3. Catalog, catalog, catalog.

Another area where indie stores outshine big-box retailers is in sheer selection ó many stores stock the full catalog of artistsí releases, which big-box retailers often donít. Catalog sales help offset the loss of new-release sales the indies lose to the big-boxes and the Internet.

"It was nice back in the days when we could sell 3,000 copies of something, but those days are gone," Kahler says. "So weíre relying more on the non-mainstream market. Weíre still trying to have an interesting selection of music and basically just knowing and working with the customers."

But no matter how wide a storeís selection, itís hard to imagine not being able to find what you want on the Internet. Still, Dunn thinks that the emphasis on non-mainstream music makes the prevalence of digital music almost nonexistent.

"I always think that itís pop stuff that people want to go online and buy," Dunn says. Indeed, seven of the top 10 iTunes song downloads occupy slots on Billboardís Hot 100 chart ó including Maroon 5, which tops both.

At Papa Jazz, Smith believes the Internet can actually be a blessing in disguise when it comes to non-mainstream artists.

"Britney Spears is going to be downloaded a lot more times than, say, Bright Eyes," Smith says. "When Britney Spears comes out, theyíll lose some sales. But when Bright Eyes comes out, itís more like advertising."

Steude, too, is unsure of the Internetís overall effect.

"If itís a huge title, a lot of people are probably going to download it, and thatís no more of a challenge than having a big-box retailer down the street," Steude says. You never really know where someoneís going to buy something from, so I donít know that that necessarily hurts. Thereís a lot of indie stuff you canít download, and thatís why we thrive ó we offer the whole catalog of independent artists and things that arenít in the big-box stores or the things that havenít made it to iTunes or LimeWire."

Steude approximates that there are 105,000 unique titles on Manifestís racks. The irony, of course, is that stores have to maintain their diverse selection while developing a unique identity.

"I think one of our strengths is that weíve just had a broad selection," Kahler says. "Itís harder to do now because thereís so much more music now and our business is not what it was. And itís hard for me to afford to do that. Itís rough finding that line."

But finding that line is important, as itís important to offer something for everybody.

"Your average consumer buys all kind of music," Woodard says. "Thatís why we stock all kinds of music."

"I think the deeper the catalog or the more obscure things you have, thatís what makes your store a good store," Steude says.

4. Stocking a variety of accessory items.

In addition to diversifying their record offerings, stores have also found themselves needing to supplement their music sales with non-music-related items.

"When you have declines in CD [sales], you have to make it up somewhere else," Steude says. Manifest is the ultimate example ó while every store stocks some combination of DVDs, T-shirts, magazines and stickers, Manifest has branched out into other miscellaneous items such as iPods, music-related figurines and action figures and other assorted memorabilia.

"This is a whole shift in the culture," Kahler says. "To financially get back to where we were, Iíd have to turn the store into a convenience store. Iíd have to sell beer and have aisles of trinkets, and a lot of retailers have done that. We sell more non-music stuff than we used to, and I probably should be selling more, and I probably will. But I donít want to work in a convenience store. I donít know when the tipping point is for that."

"You do what it takes to get people into the store," Woodard says. "Thatís why we have used CDs and VHS tapes."

At Acme, itís ó obviously ó comics. "I try to stock all this stuff, and itís nice and it sells, but itís comics," Crouch says. But having both has been a boon.

"They come for one or the other [comics or records], and stay once they see we have the other one," Crouch says.

Woodard is quick to emphasize that the music comes first. "Weíre not going to be selling toys or novelty items or doodads ó weíre a music store. We are a record store."

5. Superior knowledge base and emphasis on customer service.

In High Fidelity, the record store clerks are repeatedly boorish, rude and condescending to any customer that doesnít share in their tastes. One of the more famous scenes is where Jack Blackís character denies a customer the right of buying Stevie Wonderís "I Just Called to Say I Love You." Asked why he cannot purchase it, Black replies, "Well, itís sentimental, tacky crap ó thatís why not. Do we look like the kind of store that sells ĎI Just Called To Say I Love Youí? Go to the mall."

Such interactions donít really happen in real record stores (at least, not that often). Many stores have found that the interaction with record store clerks keeps the customers coming back.

"Itís the old-fashioned sort of thing weíve always done," Kahler says. "We try to help people out and hold their hands and have a relationship with them."

That interaction and that level of assistance is rarely seen in big-box retailers.

"Iíve never had a conversation about music in a big-box store," Steude says.

"I think as a rule, independent stores have always operated more efficiently and always been a lot more responsive to what the customers are looking for," Kahler says. "Weíre trained to do that, weíve always done that, and I think thatís a big reason why weíre still around."

"Thereís more interaction between the customer and the people in the store," Smith says. "I think thatís the successful model of any small business."

Woodard believes the human connection also provides an advantage over the impersonal Internet.

"People would rather deal with a person than have that cold interaction with a computer," he says. "What makes any good business is personal interaction."

Perfect Sound Forever

If it doesnít sound as if record stores are doing anything revolutionary to stay in business, itís because most of them arenít. Manifest, Papa Jazz and Sounds Familiar have been offering used discs, vinyl and complete catalogs of independent artists for years. Acme and Scratch N Spin are building and expanding upon that successful model. Overall, itís the record store experience that keeps stores relevant and, most importantly, in business.

"Itís a broader sort of experience that keeps people still with us," Kahler says. "That they can come in here and not really know what it is theyíre trying to find and we can find it for them, theyíre not used to getting that at Target or FYE."

"Itís refreshing to be able to come in to a store and discover something," Woodard says. "Itís all about digging through the crates and finding that hidden treasure."

"[Downloading] doesnít have the same pull that buying a record does," Steude says. "A huge amount of our business comes from that customer that sees the CD as a tangible object."

So have reports of the death of the independent record store been greatly exaggerated? At least in Columbia, it seems that they have. The five stores in Columbia donít appear to be going anywhere, and if anything, the Internet has had more of an affect on Columbiaís big-box retailers.

"Youíre going to have [big-box stores] go by the wayside," Woodard says. "With Tower going out and with so many of the chain stores going out of business, it just goes to show the dynamic of how the music business is changing. And I donít think [record stores] are going to go away. Ultimately, people are tactile ó they want to come and they want to see it, touch it, feel it, taste it. And weíre here to keep the human element in it."

There currently are no retail music chains in Columbia, and the closest Trans World-owned entity is an FYE store in Sumter. Meanwhile, big-boxes Best Buy and Wal-Mart have been slowly reducing the shelf space dedicated to CDs.

"People that donít have the convenience of going to their local mall have to search out independent record stores," Woodard says. "And thatís why weíve been able to survive and grow as rapidly as we have."

"One of the best things about Columbia is that itís able to support more than one independent record store," Smith says.

But that doesnít mean itís going to be smooth sailing from here on out for local independents.

"Itís hard to fight free [digital music]," Kahler says. "And itís really hard to narrow down some sort of route to go or some long-term kind of plan because [the technology] is constantly changing."

"Digital is looking for the next level," Dunn says. "You canít deny that thereís so much digital music out there that the options are almost too numerous to conceive what it will do in two or three years."

But record stores can ill afford to stay the course.

"The people who are trying to buckle down on what theyíre known for, you know, thatís a common sense strategy, but itís not [a matter of] riding the storm out and then youíll be OK again," Kahler says.

Hence the emphasis on adapting.

"You have to be flexible," Smith says. "Itís human nature to complain when things change. But a certain percentage of all retail is on the Internet. But as long as people are buying hard copies of things, weíll be around."

And whether itís selling DVDs or adding Internet listening stations or offering niche genres, the indie retailer is keeping customers in the stores by doing business smarter.

"The savvy indie retailer is on the rise," Dunn says. "Against digital music, itís going to rely on you having to adapt the way you sell music."

"As long as we can stick around and pay our rent, I think [record stores] are viable," Crouch says. "Itís priorities, you know? If I were in it to make money, I probably should get out of it. I enjoy what I do, and the people that do shop here and come back enjoy where they shop."

Still, the danger facing record stores is very real. And while itís conceivable that many indies could close up shop, a world without record stores seems unlikely.

"If you want to say ĎThere will be no record stores left,í thatís like saying when the Internet caught on, there would be no stores," Kahler says. "And that hasnít happened either. Thereís a social component ó you have to get out of the house sometime."

"There might be [fewer] record stores." Woodard concedes, "But the ones that are there are going to be awesome."

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Article List

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August 13, 2010 - The Tennesean - Anita Wadhwani: Nashville indie record stores' sales spin in right direction

January 3, 2010 - Delaware News Journal - Delaware music shops get creative to compete with downloads, chain music stores

September 24, 2009 - Los Angeles Times - L.A. independent record shop is still in a groove

August 20, 2009 - CNN Money - You can make money off online music

June 14, 2009 - New York Times - Retailing Era Closes With Music Megastore

May 13, 2009 - Medill Reports - Resurgence in vinyl helps record store in recession

April 26, 2009 - Los Angeles Times - In a digital age, vinyl albums are making a comeback

April 18, 2009 - Charlotte Observer - Record stores band together

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June 23, 2008 - New York Times - For Tom Petty Fans, the True Sound of Vinyl, Also Captured on a CD

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April 19, 2008 - New Jersey Star Ledger - It's Record Store Day. Play it again, Sam!

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April 16, 2008 - Timeout New York - Platter Up

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December 3, 2007 - Detroit Free Press - The same old song: Music store closing

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November 4, 2007 - The Ledger - Two Young Entrepreneurs Unafraid of Risk of Going on Records

August 20, 2007 - Billboard - Almighty Taps Hans As VP

June 29, 2007 - ABC News - Long Live the Record Store

June 28, 2007 - Orange County Weekly - Locals Only

June 13, 2007 - Reuters - McCartney's Starbucks album heats up U.S. charts

June 9, 2007 - Billboard - Commentary: Retail Recovery

May 9, 2007 - Columbia Free Times - High Fidelity

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November 20, 2006 - Austin 360 - In Austin, Niche Indies Rule

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October 14, 2006 - Sacramento Bee - Small labels lose valuable ally in Tower

October 6, 2006 - Desert Sun - Record Alley remodels

September 27, 2006 - Music & Copyright - Niche Marketing of CD albums continues to rise in the US and Physical Sales overall decline

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September 19, 2006 - New York Newsday - 34 years, and that's not all, folks

August 18, 2006 - The Roanoke Times - Plan 9 Music puts new spin on 5 Record Exchange stores

August 3, 2006 - The Hollywood Reporter - Nervous music retailers face hazy digital future

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July 13, 2006 - Rolling Stone - The iTunes Holdouts

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May 10, 2006 - Detroit MetroTimes - Out of the Groove

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January 16, 2006 - Los Angeles Business Journal - Slipped Discs

January 6, 2006 - Los Angeles Times - Indie record stores doing slow fade out

December 26, 2005 - Los Angeles Times - The Music Stops for Indie Shop

December 1, 2005 - Rolling Stone - Fall Sales Dry Up

October 13, 2005 - Desert Sun - Music snobs rejoice: Independent record stores still thrive in desert

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June 18, 2005 - Billboard - NARM Noms Announced

March 21, 2005 - CMJ - Hart of the Matter

February 16, 2005 - MSN - Genius Loves Company

October 12, 2004 - Rolling Stone - Wal-Mart wants $10 CDs

July 10, 2004 - Billboard - Almighty Institute To The Rescue

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October 6, 2003 - Reuters - Stones Paint It Black For Retailers

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