October 20, 2006
Tower brand could survive
Trademark, stores, Web site might outlive collapse.
By Dale Kasler - Bee Staff Writer
Story appeared in BUSINESS section, Page D1
Even as its stores are being liquidated, Tower Records and its famous trademark will likely survive -- through a few stores, its Web site, or both.
Joseph D'Amico, a turnaround specialist from Chicago who became Tower's chief executive in mid-July, said Thursday he's received interest from people who want to buy the Tower trademark and acquire some of its store locations.
"It'll be a smaller Tower, but it'll live on," he said in his first interview since joining Tower. "There are people who are interested." He wouldn't identify them.
D'Amico said he's far more certain that the Tower.com Web site will be sold and kept going, even though a pending sale to a San Francisco company is dragging on.
His disclosure came a week after Tower founder Russ Solomon told The Bee he's trying to put together financing to open one or two stores under the name Resurrection Records.
The interest in reviving Tower in some form reflects the deep emotional ties between the West Sacramento-based retailer and the buying public. But analysts say reviving Tower wouldn't just be an act of nostalgia. A small chain backed by one of the most powerful brands in retailing could work.
"If you're picking and choosing the markets carefully and the locations carefully, I think there's still room for the physical store," said Joel Oberstein, president of Southern California consultant Almighty Institute of Music Retail. "If they want to keep the Tower brand and the Tower philosophy ... they would be a welcome addition, a welcome old friend to those neighborhoods."
But success wouldn't be guaranteed. Investment analyst Joe Gomes, who follows retailing for McGinn Smith & Co. in Albany, N.Y., said a successor to Tower would be "facing a lot of head winds."
He noted that Tower is simply the latest in a series of music retail chains to go under. "Competing against Wal-Mart and Best Buy is not easy," Gomes said. "Competing against free (digital) downloads is not easy. Competing against Apple iTunes is not easy."
Tower's 89 stores are being liquidated by Great American Group, which bought the company's inventory at a bankruptcy auction. It's expected that the last of the stores will close sometime in mid-December.
A Great American affiliate also acquired the rights to most of Tower's leases, meaning anyone wanting to open a record store at a Tower location would have to negotiate with Great American.
Regardless of whether someone reopens any Tower stores, the company name is sure to survive in the form of its Tower.com Web site. The site, along with a license to use the trademark, was sold at the bankruptcy auction for $3.8 million to Norton LLC, a San Francisco company that owns and markets a huge inventory of rock 'n' roll memorabilia accumulated by legendary rock promoter Bill Graham.
The Web site sale hasn't been completed yet, D'Amico said. At one point last week Tower accused Norton of trying to back out of the deal, but then it appeared things had been resolved.
D'Amico said Tower is still trying to finalize things with Norton, but if the deal falls apart he's confident someone else will buy the Web site. In the meantime, Tower will continue operating the site.
Bob Sagan, owner of Norton, said Thursday he couldn't comment.
D'Amico, 57, is senior managing director in the corporate finance department at FTI Palladium Partners, a consulting firm that specializes in troubled companies. From the day he started at Tower, he was optimistic Tower would survive.
"It's a difficult business ... because of the changes in the business and what the big boxes are doing," he said. "But Tower had a niche and a brand name that was known to all of us whether you shopped there or not."
There was already an offer on the table from a buyer planning to operate Tower as a going concern, D'Amico said.
He wouldn't identify the buyer but said "there were too many obstacles being put up and as far as I was concerned. ... You're either going to buy it or not, let's fish or cut bait."
That left Tower in a substantial financial jam. The company survived a 2004 bankruptcy, but revenue was faltering. Tower faced significant debt payments, including "millions of dollars coming due" to the major record companies, D'Amico said.
"We had large payments coming due and we had lots of excess inventory," he said. "At that point we couldn't afford to make purchases ... and quite frankly we didn't really need" so much inventory.
So D'Amico told the major record companies in early August that Tower wouldn't pay its bills. The labels responded by halting product shipments; smaller labels and distributors followed suit.
Shortly after Aug. 20, when Tower filed for bankruptcy again and obtained new bank loans, CD and DVD shipments resumed, with Tower paying cash in advance.
The auction became a duel between liquidator Great American and music retailer Trans World Entertainment Corp. Great American won.
"We tried the hardest we could," D'Amico said of his efforts to save Tower.
"I've been doing this a long time, well over 30 years," he said. "This company had a deep, deep belief in what they were doing and in music. They were just very special people, very closely knit, all coalesced around music. You don't find that in many companies.
"It just didn't have the equity and didn't change with the times. That's not a criticism; it's a tough industry. Every one of their competitors has gone through a bankruptcy."
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