Advertising Age had an article last week about the big increases being seen in private label, “Don't Blame Private-Label Gains on the Recession”.
Not only have private label brands been gaining share for the past decade, experts say these gains are the single-biggest problem facing branded packaged goods players. House brands, once a staple of lower-income households, now enjoy roughly equal penetration among demographic segments. Improvements in quality and packaging have helped removed the stigma attached to buying a no-name product.
The recession has accelerated the growth of private label, but it is a long term trend that was happening before the recession and will (presumably) continue, though at perhaps a reduced rate, when the recession is over. The increasing concentration of retail, and the increasing power of the surviving retailers, virtually ensures it.
That’s an interesting thing about recessions – they speed up trends that already exist, especially speeding up the effects of secular decline. Besides private label, we see similar effects from the recession in media and retail. (I did a similar post on this point almost exactly a year ago).
Some of the biggest (or at least most publicized) hits in this recession have been felt by the big media, especially newspapers. But media watchers have been warning about the effects of media fragmentation for the past few years (I did a presentation on its effects on trade promo at a TPMA meeting three or four years ago – and I wasn’t first), and newspapers have been in decline even longer. The recession has merely exacerbated existing problems.
In retail, department stores are hurting, and several chains (including Linens ‘n Things and Circuit City) have liquidated. But the consolidation of channels has been killing off the also-rans in each channel for years now, and department stores’ market share has been dropping for decades. Again, the recession has just sped up processes that were already in action.
It’s convenient to blame recessions for business problems. But often the recession merely exposed the problem, it didn’t create it.
Some brand marketers may want to believe that the recovery will solve their problems with private label, and media people and retailers may have similar dreams, but the recovery will solve nothing if the underlying problems are not addressed.
Not that folks who read TPMtoday don't already know, but just for the record: Circuit City is closing down. The first thing to do is to offer best wishes to the 30,000 people who will be losing their jobs.
Beyond that, it is time to reflect again on the narrowing of distribution channels. A few years ago, the toy channel consolidated down to only Toys R Us (and Walmart), and now consumer electronics (which lost CompUSA and Tweeter in 2008) consists of Best Buy (and Walmart).
I've often advanced this theory (as have others), which says that we are moving toward a retail landscape in which there will be only two significant outlets in each channel. I've used as examples:
Best Buy/Circuit City
Home Depot/Lowe's
Barnes & Noble/Borders
Target/Wal-Mart
Kroger/Super-Valu
etc.
There are a corollary and a variant to this theory. The Manufacturers’ Corollary holds that there will be only two suppliers in each product category. The logic behind this is that suppliers will have to be large enough to deal with the retail giants, and is supported by the tendency of the retailers to want to improve efficiency by winnowing their supplier base. Supporters of this corollary point to P&G’s acquisition of Gillette. They argue that P&G was already bigger than its competitors, so the acquisition was not intended primarily to strengthen their hand vis-à-vis Unilever, but rather its purpose was to allow them to sit at the table with Wal-Mart as equals.
Which brings up the Wal-Mart Variant to the Two-Per-Channel Theory. It holds that the final two in each channel will be:
Best Buy/Wal-Mart
Home Depot/Wal-Mart
Barnes & Noble/Wal-Mart
Target/Wal-Mart
Kroger/Wal-Mart
etc.
It's certainly beginning to look like the betting should be on the Walmart Variant.
I write often about the effects of retail concentration, but something that I sometimes don't mention often enough is that the same is happening among the retailers' suppliers. In fact, it can be argued that vendor consolidation is perhaps an inevitable corollary -- vendors must consolidate to be able to deal with their huge customers.
As we watch retail bankruptcies in the recession speed up the trend to channel consolidation that has been going on for decades, we can expect to see vendors following the same path:
Slowing purchases of clothing and accessories may spur consolidation in the fashion industry, Liz Claiborne Inc's chief executive officer (CEO) said on Friday [...]
He said there could be more consolidation among department store vendors than among the stores themselve
It’s been a while since last I ranted about the increasing concentration of retailing, but current events dictate that we’re about due for another such rant.
The graph illustrates the levels of retail concentration (the share of market held by the four largest players in each category) in four major channels – the ones where people buy the essentials: food, medicine, clothing, and similar items. (Other channels – such as books, sporting goods, electronics, hardware – all show similar patterns). The data is from the Census Bureau's Economic Census, conducted every five years (another such census was done in 2007 but, this being the government we’re discussing, the results won’t be known until 2009-10).
As you can see, the degree of concentration increased significantly in most channels. Although department store concentration dropped slighly in 2002, since then #3 Marshall Field was bought by #2 May Company, which was then absorbed into #1 Federated/Macy’s. I have no doubt the 2007 results will show far greater concentration in all categories, and the recent wave of bankruptcies, liquidations, and store closings ensures that those results, when they finally arrive, will greatly understate reality.
The drug channel has seen the recent takeovers of Eckerd and Osco; discount obviously has reached a point of absolute concentration, at least by this measure.
The big increase in the relatively unconcentrated (on the national level) grocery business between 1997 and 2002 reflects the entry of Wal-Mart into that channel and their immediate rise to dominance – the 2007 figures will be interesting. Despite the national numbers, the grocery industry is extremely concentrated at the local level: Concentration in Chicago in 2003, for example was 68.5%, Los Angeles was 61.8%, Phoenix was 84.7%, Boston was 70.8%, and so on. No major city except New York was below 60%.
Take another look at the chart and then reflect that the rule of thumb in antitrust is that 60% concentration is the point at which free competition begins to suffer, and 80% is the crisis point. When everything shakes out, how concentrated do you think the consumer electronics channel, as one example, will be?
We most often hear references to the dangers presented by too few sellers (oligopoly), who control a market and thereby set prices unfairly. There can, however, also be a problem with too few buyers (oligopsony), who can also control a market and dictate prices.
This problem already exists in some categories, as I hear endlessly from various vendors (though they are, to be sure, not unbiased sources). But I’m fairly sure that we will come out of the current economic turmoil with more channels impacted and with some channels in severe situations.
I have often advocated that manufacturers undertake efforts (through their trade promo programs, or perhaps by other means) to nurture their smaller customers. While such efforts might not pay the immediate dividends that can be gained by running promotions in the big boxes, the long-term interests of the manufacturer are advanced by having a thriving channel and lots of smaller customers to serve as a counterweight to the few big ones. Unfortunately, in some channels, it may already be too late.
It will be interesting to see if the new administration will pay any attention to this problem.
Analysts have calculated that the liquidation of Tweeters and the closure of 20% of Circuit City's stores means that $2 billion in consumer electronics business will be contended over by the remaining players.
According to Piper Jaffray analyst Mitchell Kaiser Sr., Best Buy could conceivably pick up as much as 30 percent of the approximately $2 billion that will be up for grabs, the Associated Press reported.
Looking at Circuit City alone, Credit Suisse analyst Gary Balter believes Best Buy will capture “well above” its 21 percent market share from the 155 liquidating stores, aided by the chains’ close proximity within the affected markets, he wrote in a research note.
Certainly in markets like Phoenix and Atlanta, from which CC is withdrawing completely, Best Buy should gain quite a bit. Where else can buyers go? (Though WalMart and Target will certainly grab a piece of the pie). In other markets, Circuit City will grab up some of Tweeters' former customers.
I think, though, it's time for me to write again about the longer-term effects of retail consolidation. This time I think I'll bring in some thoughts about whether a new administration might seek to reverse the trend. Give me a few days to ponder.
Wednesday, I sent out a newsletter dealing with channel developments affecting the two-per-channel theory (posted here Thursday, immediately below this one).
Barely was it mailed and posted than there were further developments.
One of the channels I didn't use as an example, office supplies, nonetheless demonstrated that the same principles apply to it -- according to this report, #3 Office Max may be bought by Staples or Office Depot.
OfficeMax Inc., the third-biggest U.S. office-supplies retailer, may be a buyout target for rivals Staples Inc. or Office Depot Inc. in an industry "that only needs two large players," a Credit Suisse analyst said.
The office-supply sector may follow supermarkets and department stores in consolidating as revenue growth slows, Gary Balter, a Credit Suisse analyst, said today in a research note.
And Tweeters said it may follow up the closure of a third of its stores by going Chapter 11.
The Dallas Morning News has a good summary of the rapid consolidation of the electronics channel:
All over Dallas-Fort Worth, consumer electronics chains CompUSA and Tweeter are closing stores after losing turf battles to two powerhouses – Best Buy and Wal-Mart.
Soon their easy-to-identify but empty stores will join the unmistakable shells of former Ultimate Electronics locations around North Texas.
Consumer electronics retailers are reeling from the faster-than-expected price drop last Christmas for their hottest product. On Thanksgiving weekend, prices for flat-panel TVs dipped below $1,000.
"The flat-panel TV pricing collapse last Christmas set a chain of events in motion. The television is the pillar of business for consumer electronics chains," said Alan Wolf, retail editor of Twice Magazine.
It's a lengthy article with lots of good info on the channel (I didn't know that Wal-Mart is now #2 in electronics, though it isn't a surprise).
Update (Monday):USA Today reports that Wal-Mart is going to ramp up its efforts in the electronics channel (not satisfied with being #2?) and, no surprise, Circuit City will suffer as a result:
"This is not good news for other people and is great news for Wal-Mart," says John Champion, a retail analyst at consultant Kurt Salmon Associates. "Any time Wal-Mart moves the needle a little bit, it's a tidal wave for everyone else."
Circuit City, trying to recover from a missed bet on wide-screen TVs and other challenges, could be hit hard.
This is going to be, to some extent, a repetition of previous items I’ve written. But there have been some interesting developments that indicate that it is time for an updating and review of the Two-Per-Channel Theory.
I've often advanced this theory (as have others), which says that we are moving toward a retail landscape in which there will be only two significant outlets in each channel. I've used as examples:
Best Buy/Circuit City
Home Depot/Lowe's
Barnes & Noble/Borders
Target/Wal-Mart
Kroger/Super-Valu
etc.
There are a corollary and a variant to this theory. The Manufacturers’ Corollary holds that there will be only two suppliers in each product category. The logic behind this is that suppliers will have to be large enough to deal with the retail giants, and is supported by the tendency of the retailers to want to improve efficiency by winnowing their supplier base. Supporters of this corollary point to P&G’s acquisition of Gillette. They argue that P&G was already bigger than its competitors, so the acquisition was not intended primarily to strengthen their hand vis-à-vis Unilever, but rather its purpose was to allow them to sit at the table with Wal-Mart as equals.
Which brings up the Wal-Mart Variant to the Two-Per-Channel Theory. It holds that the final two in each channel will be:
Best Buy/Wal-Mart
Home Depot/Wal-Mart
Barnes & Noble/Wal-Mart
Target/Wal-Mart
Kroger/Wal-Mart
etc.
Neither version, of course, takes into account channels that utterly disappear, as the music stores have, and as has seemed possible at times with toys.
I've expressed my concern frequently for anybody running third in their race, but it seems that perhaps running second may be little better, and that the Wal-Mart Variant might be the stronger version of the theory, based on recent rumblings from two prominent #2s.
Circuit City: This chain’s problems have received a lot of press lately. Even after the negative publicity on their big layoffs,the bad news has continued:
… Circuit City Stores Inc., the nation's second-largest consumer electronics retailer, said it expected a pretax loss of as much as $90 million this quarter and revised its forecast for the first half of 2007.
The news sent the company's shares down more than 7% in after-hours trading.
Sales in April were "substantially below plan," the company said.
Problems in this channel go beyond Circuit City, asBusinessWeek's summaryof both cause and effect make clear:
Last "Black Friday," for its annual post-Thanksgiving sales blitz, Wal-Mart Stores decided to slash the price of one of the hottest electronics items for the holidays—the 42-inch flat-panel TV—to $988. The world's largest retailer had staked similarly audacious positions before, in numerous product categories, as part of its quest to remain U.S. retailing's "low-price leader." In turn, Wal-Mart's move caused a freefall in prices of flat-panel televisions at hundreds of retailers—to the glee of many people who were then able to afford their first big-screen plasma or liquid-crystal-display model.
Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.
The fallout is evident: After closing 70 stores in February, Circuit City Stores on Mar. 28 laid off 3,400 employees and put its 800 Canadian stores on the block. Tweeter Home Entertainment Group, the high-end home entertainment store, is shuttering 49 of its 153 stores and dismissed 650 workers. Dallas-based CompUSA is closing 126 of its 229 stores, and regional retailer Rex Stores is boarding up dozens of outlets, as well as selling 94 of its 211 stores.
It’s so bad that Radio Shack’s CEO said that he has no idea how the chain manages to stay in business: Well, okay, he didn’t really say that, butThe Onion, as is true of the best satire, captured the mood of the consumer electronics channel in a few paragraphs:
"I'd like to capitalize on the store's strong points, but I honestly don't know what they are," Day said. "Every location is full of bizarre adapters, random chargers, and old boom boxes, and some sales guy is constantly hovering over you. It's like walking into your grandpa's basement. You always expect to see something cool, but it never delivers."
Added Day: "I may never know the answer. No matter how many times I punch the sales figures into this crappy Tandy desk calculator, it just doesn't add up."
Borders, which reported a loss in the quarter, announced a dramatic shakeup of its business -- it plans to cut its number of Waldenbooks stores in half, to about 300 by the end of next year, and is considering the possible sale of most of its international businesses.
Why?:
Competition from discounters such as Wal-Mart Stores Inc., which can afford to slash prices on books, has squeezed profits at Barnes & Noble and Borders, which have responded with their own discounts.
In this channel we see the clearest parallels to the record biz, and the possibility is strong that bookstores may likewise just go away. Harry Potter tells us why (in case you were wondering when I was going to finally get around to justifying the title).
The book world has been eagerly anticipating the publication of the newest Harry Potter book, but indications are that booksellers will see no profit from it,as reported in the UK's Times:
HMV Group gave warning yesterday that Harry Potter would not fly to the rescue of the ailing retailer this summer as it revealed further sales declines at its Waterstone’s bookstore chain.
The seventh and final adventure of the young wizard, Harry Potter and the Deathly Hallows, comes out on July 21 and Simon Fox, the chief executive, said that Waterstone’s had already sold nearly as many by preorder as were sold in total of the sixth Harry Potter book.
He said that it was vitally important for Waterstone’s to offer the book at a competitive price but because it was selling it at £8.99 – half price – it would be “hard to make money”.
So why are they selling a product for which there is great demand at a no-profit price? Glad you asked:
Mr Fox’s comments reflect the fears of Kate Swann, the chief executive of WH Smith, and Philip Downer, the retail director of Borders, as the high street prepares for a Harry Potter price war with the supermarkets and online stores such as Amazon, which is already offering the book for £8.99. Asda and Tesco will deliver the Bloomsbury publication for 12p less, plus postage and packing.
The retailers admit that the preorder price may fall to a 55 per cent discount closer to the publication date.
The big boxes are skimming off the cream, the bestsellers, and leaving the remainder to the booksellers – which is almost exactly what killed off the record stores (digital music and piracy were the other ingredients, but those factors aren’t far off for book stores – we await only a good reader for e-books to fill the role of the iPod). It’s also not dissimilar to the effect on Circuit City, et al. of Wal-Mart’s flat panel move.
As I look at these examples, I move more to the idea that the Wal-Mart Variation may be more likely than the original Two-Per-Channel Theory. Or perhaps the final two, in every channel, will be Wal-Mart and Amazon. That would be interesting.
The effect on trade promotion? We know what has happened to trade spending in the last couple decades, as retail concentration has grown. Presumably, we would see a continuance – to the point where we would equal Australia, where two huge chains have dominated for a long time. There, trade spending has topped 30%.
Women's Wear Daily says that Foot Locker, which has close to 4,000 stores is planning to pick up another 1,700 or so by buying Genesco.
Genesco has a bunch of shoe stores, including Journeys and Johnston & Murphy, but apparently the main interest for Foot Locker is the hat business.
Foot Locker has previously said it would open a chain of athletic hat stores called "Champs Sports Just Hats" to try to take market share from Genesco's Hat World chain. At the time, an analyst said the hat business had operating profit margins of 12 percent to 13 percent, higher than the average for specialty retail.
The Los Angeles Times is planning to kill off its Sunday book review section, according to the Wall Street Journal, joining a trend:
Sometime this spring, the Los Angeles Times is expected to announce that it is folding its highly esteemed Sunday book review into a new section that will combine books with opinion pieces. That would reduce to five the number of separate book-review sections in major metropolitan newspapers still published nationwide, down from an estimated 10 to 12 a decade ago. The reason: not enough ads.
Book publishers in recent years have moved away from buying ads in standalone book-review sections in favor of paying to stack mounds of books in the front of chain bookstores. Some small literary publications, such as the New York Review of Books, are showing growth, but the book review as a separate section is endangered not only at the Los Angeles Times but at other major newspapers like the Washington Post, Chicago Tribune, San Francisco Chronicle and San Diego Union-Tribune.
The trend toward in-store is, of course, not unique to the book biz, as we all know.
In an era of targeted marketing, publishers say the best time to reach readers is when they are in the stores with money in their pockets looking to make an immediate purchase. But with a sea of titles in the stores ... the only way for publishers to stand out is to pay for real estate in the front and pile those books up high.
"You want to see your books in prominent places," says Tom Perry, associate publisher of Bertelsmann AG's Random House Publishing Group. "Such co-op advertising is where marketing dollars are going that might otherwise have been spent on advertising." ...
One publisher says that chain bookstores can charge $1 or more per book to stack titles in desirable locations, such as on a table at the entrance or in a display featuring new nonfiction titles.
This is one of those items where we see the confluence of so many trends -- media fragmentation and the death of newspapers, retail consolidation, the increase in in-store merchandising, and the spread of CPG marketing tactics to consumer durables.
Toys R Us and K-B are trying everything to stay alive. I've often argued that the outcome of retail consolidation will be two players in each category, but toys may be the channel that disappears entirely (along with music stores, of course).
Put together a 5% decline in category sales over the past two years and the fact that 58% of toy sales are now through the mass/discount channel, and things look bleak for the last two toy chains (a similar combo of circumstances killed Tower and other music chains).
One attempted solution is to expand the definition of "toys":
Toys "R" Us recognized the importance of youth electronics over the past year. The new strategy: Add coveted merchandise, such as Fisher Price's digital camera (for ages 3 to 10), and get as many exclusives as possible, including a Black & Decker Jr. electronic workbench and a pink version of the VTECH Nitro notebook, a laptop with learning activities and music lessons aimed at young children.
"We were late to be on top of youth electronics and slow as an industry to innovate," acknowledged Ron Boire , US president of Toys "R" Us ...
"We got pigeon-holed in our view of what a toy was," he added. "We let ourselves be defined as a place that sells molded plastic."
It's the end of the line for Tower Records. We've reported on their troubles here and here, and on the general sad state of music retailing here.
The company was sold off to a liquidator, who outbid rival music retailer Trans World Entertainment, which had planned to continue to operate the stores.
The sell-off of Tower's inventory, valuations of which run as high as $200 million, could have a wide-ranging impact on the music business at large. The company's West Sacramento, Calif., warehouse is filled with product from the vendors of its independent distribution company, Bayside Distribution, and its accessories suppliers. Companies with a high degree of exposure could be dealt a serious blow when their product is returned for full wholesale cost.
The closure of Tower further narrows the retail marketplace, especially as it relates to "genre" music and non-hits in general.
The Dallas Morning News says that Grupo Carso, the Mexican conglomerate controlled by billionaire Carlos Slim, is trying to find a buyer for CompUSA.
They dumped their CEO last week, or rather, he is leaving "to focus on his family and new professional endeavors." And they brought in a new CMO as well.
The 230-store consumer electronics chain posted its strongest operating results in a decade in 2005, but it wasn't able to keep up the momentum and needs additional capital to remodel and build new stores.
According to industry sources familiar with the offer, Mexico's Grupo Carso SA has asked Credit Suisse to quietly approach people who might have an interest in buying the company.
Over the last two years, private equity firms flush with cash have turned to the retail sector to find companies that are poised for growth or ripe for a turnaround.
CompUSA's problem is that retail is going to the two-per-channel model, and they're a poor #3. CompUSA's sales of $4.6b are less than half of Circuit City's $11.6b, and only about a seventh of Best Buy's $31b.
Estee Lauder is putting their Clinique line into the drug channel:
Estee Lauder is going mass by expanding distribution for its prestige Clinique cosmetics brand to include Shoppers Drug Mart, the largest drug store chain in Canada.
My first reaction was that this is a disastrous move -- that going mass will destroy the brand image. Some analysts quoted in the story disagree, however:
Industry analysts did not seem particularly concerned that distribution in an "assisted self service" channel would harm Clinique's image.
It's good to test different channels, said Suzanne Grayson, industry expert and president of the consultancy Grayson Associates. "If it's executed well -- and I'm sure it will be -- with the mix of other high end brands already [in the shopping venue], it won't affect the brand image."
On reflection, though I'm not convinced that the move will not damage the brand, I'm also not certain Lauder had a lot of choices. With the continuing constriction of the department store channel, the fact is that they (and many other "department store brands") are running out of places to sell their products.
Some of the best-known clothing and accessories companies, such as Jones Apparel and Liz Claiborne, are dealing with fewer outlets to sell in, thanks to department store consolidation. Federated Department Stores bought May Department Stores last year, and on Sept. 9 former May stores across the country will become Macy's. Meanwhile, Saks has sold several of its non-Saks department stores to Belk and Bon-Ton.
The mergers leave clothing brands looking for new outlets, opening their own retail stores and trying to quickly make friends with new buyers for the remaining department-store names.
The article lists some anticipated winners and losers from the coming shake-out:
Winners:
Polo Ralph Lauren
Liz Claiborne
Philips-Van Heusen
Losers:
Jones Apparel
Kellwood
Tommy Hilfiger
Some thoughts on how to adapt to the new market:
... smart brands also will form partnerships with the strongest retailers and customize their offerings the way some already have with Macy's. Along with heavily promoting its private labels, Macy's will have exclusive merchandise from Elie Tahari and Martha Stewart in fall 2007. Vera Wang announced a deal last week to create an apparel line for Kohl's, just as Isaac Mizrahi did for Target.
Rigby says shoppers will benefit from some of the likely improvements made in a downsized retail environment. Among them: Apparel companies will need to shorten their lead times to help get the trends and fashions consumers want into stores.
My hometown seems to be getting a lot of attention in the retail sphere lately, with the disappearance of Marshall Fields and the anti-big box law.
And this weekend it was announced that Carson Pirie Scott will be closing its downtown location. The closure of the 600,000 square foot store is part of the long decline of State Street, once one of the world's premier shopping districts:
State was once studded with department stores. Among the names gone forever are Montgomery Ward & Co., Rothschild & Co., Schlesinger & Mayer, the Fair, Mandel Bros., Goldblatt Bros. Inc. and others.
Sears left, then came back. Marshall Field's remains, though it is about to become Macy's. Others are long gone.
Rite Aid's strategy was praised by the New York Times: "Analysts said that Rite Aid is poised to thrive, citing stronger sales and a boom in generic prescription drugs."
But some negative opinions were raised as well. Toronto's National Post questioned the deal:
A deal by Jean Coutu Group Inc. to sell its 1,858 U.S. drugstores in exchange for cash and a 32% holding in Rite Aid Corp. has left both stock investors and bondholders nervous, with some credit watchers predicting a revolt by holders of US$850-million worth of high-yield Jean Coutu debt that is part of the transaction.
Meanwhile, Moody's indicated they might downgrade Rite Aid:
Moody’s Investors Service has put Rite Aid Corp.’s credit rating on review following the drug giant’s announced purchase of Eckerd this week, and said a downgrade is possible.
The buyout puts Rite Aid at risk of taking on an additional $2.3 billion in debt, in addition to the burden of the leases that had been paid by Eckerd’s parent company, the Jean Coutu Group.
Tower Records is in Chapter 11. As we noted a couple weeks ago, they had been cut off by their distributors for nonpayment.
According to their press release, they are seeking a buyer:
"Tower Records has conducted an extensive sale process and this step will allow buyers to complete a sale in time for the holiday season while maximizing the value for stakeholders." In March of 2006, the Company retained Houlihan Lokey Howard & Zukin as its marketing and sales agent. The Company is evaluating Letters of Intent from parties interested in acquiring the Company. Mr. D'Amico stated, "Potential parties seeking to acquire Tower Records recognize the strength of the brand and its unique position within the marketplace, making it a very attractive opportunity."
The amusing part of the press release was this:
Last week, Tower was voted 'Retailer of the Year' (Large Division) at the 48th annual National Association of Recording Merchandisers (NARM) convention for the third consecutive year.
How bad are conditions in an industry when the "Retailer of the Year" is in Chapter 11?
The major music distributors have cut off shipments to Tower Records, apparently because the company has stopped paying its bills.
The move comes just days after Tower Records named a new chief executive: crisis management and bankruptcy specialist Joseph D'Amico. Tower executives informed record companies this week that they would not pay outstanding invoices, according to sources familiar with the conversations.
Tower executives, including D'Amico, did not return phone calls. A Tower spokesperson declined to comment.
Industry insiders and analysts said it was unclear whether Tower Records had run out of money or was attempting to pressure the record companies to extend better terms.
If the music companies suspend shipments for long, Tower Records could be forced to shutter its 89 locations, including the famous store on Los Angeles' Sunset Strip, analysts said.
Tower Records confirmed Thursday that it was working with a Los Angeles investment bank to sell the company.
The retailer reportedly received at least five bids this year from private equity firms. When a sale failed to materialize, D'Amico was hired in what is the third management shuffle in four years.
We wrote on the long, sad decline of the music business in general and music retailers in particular a few months back, when Musicland went belly-up. The loss of music retailers is partially the result of conditions peculiar to that category (music downloading and piracy) and partially the result of conditions common to all of retailing -- the increasing concentration of power in the hands of a few retailers.
The problem is one consumers should be concerned about, because the closing of specialty outlets for music narrows choices dramatically -- a condition that will be repeated in other categories.
It should worry manufacturers, because the closing of alternative outlets reduces their marketing options and increases still further the power of the few remaining retailers.
Britain's Office of Fair Trading has asked the Competition Commission to launch an investigation of the supermarket industry.
The Office of Fair Trade (OFT), in a statement to the London Stock Exchange, cited concern about a number of factors among them the country's planning system and supermarkets' increased buying power which may be presenting barriers to new entrants.
It added that there was evidence that the rapid development of the convenience store sector may be harming consumers in local markets in terms of product variety and choice of fascia.
"The convenience sector has changed rapidly, and given our evidence and theimportance of this market for consumers, our provisional view is that it wouldbe appropriate for the Competition Commission to investigate," chief executive John Fingleton said.
There was an investigation in 2001, which found no problems. However, an article in Bloomberg notes that "specialist food retailers in the U.K. such as butchers and bakers closed at a rate of 50 a week from 1997 to 2002 ..." As important, no doubt, there is political pressure to investigate, coming from (among others) a 32,000-member trade group of small retailers.
The top four UK supermarket chains control 75% of the market.
