(Twenty Years) Part 8: The Fog Of War

November 30, 2007 marked 20 years to the day since I started at Record Den, which has inspired some thought and reminiscing on the person I was then, what the job was like as the years went by, and what has kept me around until now ...

From the time I started until the end of 1994, unfriendly competition was rare in our little neck of the woods. There were dozens of record stores of varying shapes, sizes and ownerships scattered around the area, from the monoliths (Camelot Music, HMV) and mid-sized chains (Coconuts, Record Exchange, Repeat The Beat, Record Den) to little niche indie shops (My Generation, Chris' Warped Records, Ultrasound, Shattered Records, Record Revolution, Music Vault), yet there was enough business around for everyone to eke out their own slice of the pie.

While the occasional new release "scoop," midnight sale, or in-store appearance (Lita Ford at Camelot, Michael Stanley at our "grand re-opening") might drive some fickle shoppers from one location to another, no one was really at each other's throats back then. At the Den, we had been friendly with most of the employees in both of our competitors stores for years, even going so far as hiring a couple of ex-Camelot workers (namely Dale and Nate) on occasion. In the 80s, when Record Carnival was still around and a few doors down the mall from our old Newberry's location, we would often do trades with them when we needed something they had in bulk (or vice versa). As for NRM, well, I'd been harboring a bit of a crush on the manager of the location down the mall from us, but alas, she was married, and I wound up instead in an intense, yet disconnected dalliance with a younger clerk (who had ostensibly been going to set me up with her boss) as a kind of consolation prize.

Eventually, the low-key, eased relations between our stores began to change when "big boxes" began to arrive in the area under the names of Wal-Mart, Best Buy, Target, Media Play, and Circuit City. Wal-Mart was the first of these new outlets to arrive (1991, if memory serves), but had very little impact on anyone's music business due to a company-wide policy of refusing to sell any "stickered" (parental advisory) product. The mass-merchant did present a bit more of a problem when it came to competition on the growing country music market, of course, but this was a genre we had never considered a cornerstone of our business and we were willing to cede that area to them and concentrate on the alternative and classic rock market (where we were doing very well indeed) instead. Thus, there was a peaceful, if tense, co-existence possible between us and Wal-Mart as long as it was only them we had to deal with. Sadly, it wasn't that way for very long.

When Best Buy appeared on the scene, things started to get a little bit hairy. The big blue box's first area location appeared in Mayfield at the end of 1994, and we started feeling the shock waves of that landing very soon after. Even though it had opened over 10 miles away, the chain's much-ballyhooed new-release pricing policies, the enormous amount of floorspace dedicated to CDs, and simple human curiosity to check out the new kid in town quickly shifted some of our local clientèle their way.

It didn't help matters much that Best Buy's weekly circulars advertising the forthcoming week's bargains ran in the Plain Dealer, whose circulation covered the entire suburban Cleveland area and thus served as a powerful lure for anyone outside of Mayfield to head on over and join the jamboree. Worse, the customers who didn't feel like hiking to Mayfield in order to land a cheap copy of the new Cranberries or R.E.M. albums started wanting us to match Best Buy's prices anyway, and they didn't seem too sympathetic when you tried to explain that if we started selling new release CDs for $9.99 a pop just because someone in another freaking county was doing so, we weren't going to last very long in a mall that was charging us five figures a month for rent.

The above got even harder to explain about two weeks later when NRM decided to take a different approach on how to handle this intrusion into their customer base by flipping into panic mode and matching all prices quoted in Best Buy's circulars. This, of course, forced our hand to follow suit, and eventually Camelot stepped in and started slashing prices as well. It was sheer business insanity ("why continue selling CDs at a nice clip for a decent profit when you can sell a lot more and make absolutely jack shit on them?"): an emerging electronics chain that at the time averaged about 8 locations per state had precipitated a full-on Christmas price war that had swept up the entire music retail base. For us, the ridiculousness of trying to compete head-on with a store about three cities away was obvious, and this silliness had to stop. With hotly-anticipated albums by Nirvana, The Eagles and Tom Petty coming to market and no one making a flippin' cent on them, eventually our assistant manager headed over to NRM to tell them, in effect, to calm the hell down and get a hold of themselves. I'm not sure if her words or a dispatch from corporate talked some sense into NRM as they backed off selling their whole inventory at cost, though the price war itself didn't exactly abate so much as head into a temporary cease-fire mode that would wane off and on over the next three years as our new competition continued to spread their wings.

Despite the critical damage being done to the perceived value of music following the 1994 price war, the industry refused to back down from front-lining new and hot releases at a list price of $18.98 and record stores found their margins beginning to shrink as they were being forced to sell their hottest stock at little or no profit and relying on aging catalog to take up the slack, if possible. This was new territory for a many stores as they had been able for a decade before this point to sell CDs at almost any price they wished without customers accusing them of being ripoff artists (unlike your average clothing store or friendly neighborhood Starbucks).

List prices are, of course, only "suggested" by the labels, and stores are free to price them however they see fit, but there is a floor to this practice as most of these new CDs were sold directly to accounts by the labels for about $11 and change (with stores that dealt with middle-man "one-stops" paying an additional $1-$1.50 per unit), which made them profitable from about $14 and up after covering operating costs and payroll. Being forced to sell huge amounts of these same titles for $11.99 (or even lower, as became custom at the big boxes by the end of the decade), would eventually have serious consequences on the rest of the retail base.

We had never had a particularly hard time beating Camelot and NRM at the pricing game and we had never tried to consciously undermine their sales strategies since the idea back then was that Best Buy was going to be our common enemy and we were a united front (or something like that). However, once Camelot closed their old store in 1995 and moved down the mall into a spiffy, lifestyle-themed, cacaphonous "superstore" sized location (which, ironically, happened to be the very slot abandoned by J.J. Newberry's 3 years earlier) and then started regularly and aggressively trying to steal Best Buy's thunder by offering new CDs at highly discounted rates, and then entered our territory by carrying imported CDs and music magazines, the gloves started to come off at last.

Camelot was also starting to come after us on other fronts, the most risky of which for us by far was the area of bootleg CDs. These weren't the kind of bootlegs you see being sold on city street corners (basically inferior copies of contemporary hit albums) but instead live recordings of illicit origin, and often dubious sound quality, that had become a sizable portion of our profit over the years as they were often sold for nearly two to three times their cost. In 1994, we were selling these "import live CDs from Italy" (as we obliquely referred to them) hand over fist as the market for these recordings seemed to explode in conjunction with the rise of alternative rock (though boots by classic rock artists remained a major attraction as well). In time, though, these titles became high-risk for us as trade laws were being amended in late 1994, effectively changing these items from "gray area" product to something a little more unpleasantly black-and-white. Suppliers such as Oxygen, Vigotone, The Swingin' Pig, Condor, Pyramid, KTS, and Great Dane began to regularly go in and out of business as each country they were based in (Italy, Germany, Australia, Japan) began aggressively going after bootleggers to bring themselves in line with the refurbished GATT treaty.

Even to this day, I still haven't gotten over the fact that we not only carried these CDs for years, but also sold truckloads of them in a freaking suburban shopping mall. These were usually the kind of thing you'd expect to come across in a fanzine mail-order form, the back room of a mom and pop store located next to the adult book shop, or from some shady character at a record swap. Yet, here we were, in effect giving these boots their own display area at the rear of the store by filing them in with our import section (I'd wager the boots outnumbered the legit imports by a 7-1 margin at their peak).

Incredibly, these recordings survived the Great Lakes Mall era of Record Den, though seem to I recall a few of our outlying locations running into problems carrying and selling these discs from time to time, largely due to other stores narcing on them to whomever would listen. With Camelot sending their district people over to us every single time they were in town (we had a couple of sales reps giving us heads-ups whenever this was imminent), we had to be on our toes in order to keep our little operation away from prying eyes. I'm sure most of the reason our boots survived as long as they did was that we were always in a constant state of paranoia whenever someone in a business suit started poking around the imports section, and we would often resort to silly diversionary tactics like blocking off the section with a ladder so we could "repair a light fixture" or throwing down a heap of t-shirts across the bin and faking an inventory check if we suspected that we were being scoped out. There were, I'm sure, several occasions when we were mistaken about our visitor's intentions, but I'm also confident we managed to duck a bullet a few times as well.

Another skirmish in the hostilities breaking out between us and Camelot was our increasingly frequent violations of street dates on new releases, which was a gambit to not only undercut Camelot's sales on Tuesday, but to also make a little extra money on our own as we could usually get a little more dosh for a hot album release if it was being sold early. While we tended to play this game quietly most of the time, there were instances once in a while where we decided to flaunt it a bit, which would seriously piss off Camelot's then-manager (who looked a bit like a dyspeptic Chris Elliott), especially when the Bone Thugs-N-Harmony album The Art Of War arrived in late July 1997 and we'd plowed through dozens of it over the weekend before street date, including a copy sold to one of his employees (whoops!). A few minutes after that Sunday morning transaction occurred, the manager stormed down to our front counter in a righteous fury, with a copy of the CD in his hand and dramatically read us the riot act:

Camelot Manager: (angrily) "I called down here a few minutes ago and you said you didn't have this album for sale yet!"

Me: "Yes?" (I'd had a pretty good idea that phone call had been from another store and was a little amused that I was being confronted over this.)

Camelot Manager: (incredulous) "Why did you lie to me?"

Me: (A tight smile) "I didn't think you were really interested."

Camelot Manager: (ominous tone) "Do you have any idea what can happen to this store for doing this? Or your job?"

Me: "Yup." I knew perfectly well what could and would happen: nothing.

Incensed, the manager stormed out and apparently made a phone call later that day to his District Manager, who then called the local Sony branch first thing Monday morning. The call was then routed directly to their Sony salesman, who was also our Sony salesman, and who also happened to be a friend of Greg's for twenty years. "Hello, Sony Music! What? Record Den was selling the Bone album early? Well, I'll get right on it! Thanks for the call!" Ha ha haaaa...

Our little turf war with Camelot continued until Chris Elliott was shown the door a few months later, and the new manager seemed a bit more amenable to leaving us alone and concentrating on his own business. By then, we all had our hands full with more pressing concerns: Best Buy and Circuit City had both arrived in Mentor during the spring of that year. Worse, they had both opened directly across Plaza Boulevard from the Great Lakes Mall ... in fact, if you walked out the emergency exit in the back room of our store and then walked out into the shipping dock five feet to your left, you could actually see their front doors and that big crooked sign of theirs looming in the distance. Tweaking Camelot's nose was just a little pissing contest in the grand scheme of things: the real war was just now getting started.

From the industry's figures-obsessed standpoint, Best Buy morphed from a fearless agent provocateur into a true power player at the end of 1995. Armed with the first new song released by the group in 25 years, the first volume of the The Beatles' Anthology series was released during the Thanksgiving week kickoff to the Christmas season and sold an eye-popping 800,000-plus copies in five days, with over a quarter of those sales coming from Best Boy stores alone. The key to this powerhouse performance was an exclusive deal struck by the chain with Capitol Records to offer customers a little something extra (in this case, an interview CD containing new photos and the like) that could not be had by shopping at any other chain. From there, simply factor in the baby boomer drawing power of the biggest band of all time, and a tie-in with the biggest multimedia event of the year, price low, have the labels pay for the ads, mix well and serve.

The Anthology debut was an astounding flexing of muscle from what was then a 300-store chain, and the industry quickly began to institute new sales and advertising policies designed to cater to this emerging titan and grant Best Buy and its peers V.I.P. status in regards to certain key releases, ensuring that this handful of accounts would set the pace for sales and marketing over the rest of the decade. Over the next few years, Best Buy, Circuit City and Wal-Mart began to regularly feature "exclusive" bonus content with key releases as they were increasingly feted for their power to blow these new albums right out the door. In a business completely in thrall to who was #1 on any given week (or owned the biggest market share each quarter), this was all that mattered, any long-term effects be damned.

The problem with this thinking, of course, was that the music industry was making a classic mistake of placing all of its eggs in one basket. Contrary to popular belief, "big boxes" are not record stores, and the only reason they carried as many CDs as they did in the middle of the 1990s is because that's where the sales were. Blinded by greed, the major distributors were only too happy to keep these titans supplied with cheap music until a point was reached somewhere around 2002 when it wasn't really apparent anymore exactly which party was calling the shots. By then, the sales picture was changing rapidly, with the big boxes were slowly beginning to back away from CDs and looking into DVDs, cell phones, mp3 players, and video games instead, and the increasingly worried record labels being forced, in effect, to pay the big boxes to carry their music.

Perhaps the most glaring sign of the power the big boxes wielded over the music industry came during the third quarter of 2003, when Universal was readying its JumpStart pricing campaign. Increasingly alarmed at the mushrooming downloading problem and mindful of widespread customer complaints of corporate price gouging, Universal took the unprecedented step of dropping list prices across the board on most of its best selling catalog. Retailers may not have been exactly thrilled with this idea since it actually ended up squeezing their margins (the list prices dropped downwards, sure, but the vendor costs didn't move very far), but they had also been screaming for years for a level playing field with which to compete with the big boxes, and this appeared to be exactly what they were looking for. Thus, reaction to JumpStart was nearly unanimously positive ... until it emerged that the only way Best Buy and Wal-Mart would participate in this campaign would be for Universal to offer them an additional discount on their product, or else they weren't interested. Initially, Universal held firm on the idea that no one would get special discounts anymore, but the big boxes were playing hardball now, and it was suddenly apparent just how much the tables had been turned against the record companies by the very accounts they had built up over the previous ten years. It was a giant game of chicken, but in the end Universal had to capitulate or potentially lose not only a huge amount of business, but eventually a sizable chunk of their roster: artist managers would almost certainly waste no time seeking to extract their clients from their contracts and spirit them to a distributor that would sell to the big boys. To say this was a disheartening development would be an understatement, but it was certainly no surprise, either.

Back to 1997: customers voted with their feet for lower prices instead of service and selection, and the rest of the music retail base slowly began to disintegrate. This slow attrition of record stores was noticeable at first in the malls, which (due to their high rents) generally forced these locations to sport the highest CD prices of all. Almost weekly, new closings and "reorganizations" were reported in Hits and Billboard, but very few people running the labels seemed to give a shit since these stores, individually, were mere blips on the radar when it came to a quarterly earnings report. So it was that when Best Buy waltzed into our backyard at last, we knew then that it was "do or die" time and the odds were stacked in their favor.

What we didn't know then was that we were about to be completely blindsided by some earth-shattering news, yet that awful development would turn out to be the best thing that could have ever happened to us.