online music killing the business

8/6/2019 Online Music Killing the Business

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O nline m usicw as killing theirrecord stores.They ha d to savethe business,b u t w as it w o r t hlosing w ha t ha dm a d e it special?

BY RYAN M C C A R T H Y I PHOTOGRAPH BY IM K E LA S S

fter 15 years, all that was left of Kent Wagner's music stores was 45 tons(if Dumpster trash. It was July 2008, and Wagner stood in front of thebuilding in downtown Charleston, South Carolina, that had oncehoused his most successful location. It was the last of what Wagner likedto call his stubbornly independent slorcs^^there had once been sevenof themand now it had been reduced to a pile of debris. "I thoughtto myself. That s a lot of blood, sweat, tearsand moneythat wetlirew out," says Wagner.

Like countless record stores across the comitry. Millennium Musichad been besieged by the sweeping changes in the music industry'. Wagner had done everythingpossible to avoid this day, but he could no longer light the changing tide brought on by the riseof digital m u s i c : For seven straight y e a r s . Millennium had suffered double-digit revenue declines."We always thought of ourselves as a community center, a meeting place,"saysWagner."We knewthe industry was in decline, but we thought we were different."

It turned out Millennium wasn't different. And Wagner and his business partner, ClaytonWoodson, soon faced a stark choice: Fold up the business completely and walk away, or attemptto transform it into something entirely ditterent. Their hopes for the future hung on one thin reed:


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The Experts Weigh Ina small butg row ing onl ine trad ing business that allowedcustome rs to exchange used C^Ds, DVD s, and book s forelectronicsiPods an d the like. Millennium was able tomake m oney by reselling the used merchandise on Am a-zon, eBay, and otlier sites. That side business ha dn't beenenou gh to save Wagner's beloved record stores, but couldit he the basis of a different kind of m usic business?

Wagnerlaunched Millennium in 1994,determinedto create a thinking person's music store. The storeswould stock hiird-to-nd records and boast sizableclassical and jazz sections. In an industry known forc o o le r - t h a n - th o u c u s to me r s e r v i c e . Mi l l e n n iu mwould make music connoisseursh ip f r iendly andaccessible. "Kent used to say that a mu sic store is likea church," says Robert Bondurant, who worked atMillennium for 15 years, most recently as productmanager . "People com e because music is such a pow -erful me dium , l lc 'd say we 're here to guide custom ersto their personal epiphany."

In the early years, that philosop hy w orked w ell, andrevenue grew som e 20 percent annually. The com pany(ipened stores across North and South (Carolina andemployed more than 100 people. At its peak. Millen-nium had sales of about SIO million. The flagship in(Charleston became a hub for the local cultural scene.The store hosted bands, a live-jazz happy hour, andbook readings. I t opened a restaurant and a bar . I texpanded to book sales and DVD rentals.

But the dramatic industry shifts that put TowerRecords and man y others out of business were catchingup to Millennium. As the years rolled by, the lossesmo unted . Wiigner's empire was hemorrhaging , and hewas soon ready to try anythin g. In 2006, he turne d forhelp to his m arketing director, (~layton W ood son, wh ose eclecticbackg roun d included mak ing furniture, teaching first grad e at acharter sch ool in New York, and teaching acro batic yoga. "Clay-ton tends to sec looking at the abyss as a growing experience,"says Wagner. "I 'm the oppo site."

i l lennium's used -CD section gave W oodsonan idea. Customers frequently caine in to selltheir old CD s for store credit. W hat if M illen-nium could lure in additional customers byoffering iPods for used CDs? In the su m m erof 2005, he persuaded Wagner to give the idea

a try. Wo odson soon h ad ano ther insight: Buying a used CDt)nline was actually cheaper than buying an M P3 album thro ughiTunes. If Millennium moved its iPod trading program to theWt'b, it coitld collect discs from across the glo be, profitably resellthem online, and still und ercut iTunes's prices.

In 2006, Millennium launched FeedYourPlayer.com, whichquickly drew the attention of websites such as Digg and Tech onthe Net. Traffic soared from a tew hundred visitors per week to

WHATSTHE LONG-TERM PLAN?It sounds like what Woodson and Wagner did is work ing. I amconcerned, thoug h, about how AbundaTrade will scale. Thoughthere are thousands of small and medium-size businessesselling throu gh sites like Am azon, there is a finite supply ofused CDs. Are there enoug h used CDs and DVDs to support thisbusiness long term? I also wonder why AbundaTrade abandonedall the cultural skills of its retail employees instead of trying tofind a way to incorporate them into the ir new company.M ar ty A nd er so n | SENIOR LECTURER | Babson Co ilege, Wellesley. Massa chuse tts

KNOW YOUR AUDIENCEMy big concern is that AbundaTrade is positioning itself againstthe grow th of digital music. Eventually, CDs will be useless as astorage medium for mass music sales. I also wonder if Wagnerand Woodson really know who Abu ndaTrade's audience is. UnlikeeBay, online marketplaces that support niche segments aregrowing. So, they migh t have focused AbundaTrade on a morenarrow audience, like jazz-record collectors. Still, their willingnessto do anything to survive is a good sign. They were able to do awaywith everything they believe in and still stay afloat.Jason Cravi/ford | FOUNDER A N D CEO | SwitchGames, New York City

KEEP IT SIMPLEI like that Wagner and Woodson have come up with a unique modelof e-comm erce. But the model may be too complex. They have alot to worry about: acquiring customers and their used products,obtaining electronics for trade and then reselling used productson a secondary m arket. If any of these mark ets falters , Wagnerand Woodson are in trouble. There are m illions of Internetbusinesses that rely on a much more basic business mode l.To be successful, Wagner and W oodson are going to need tokeep things as simple as possible.Jeremy Hanks 1 F0U 4DER A N D CHAIRMAN | Doba. Orem. Uiab

more than 15,000. New customers were soon mailing in morethan 6,000 items a week. Liy 2007 , on line bro ug ht in !B400,000 ofMillennium's $1.7 million revenue.

Feed Your Player's success was in stark c ont rast to the perfor-ma nce of M illennium 's ktne rem aining store. In its last full yearof operation, the store lost nearly $1 million, and the growingdemands of the online business were putting a strain on staffresources. W hen W ood son, for instance, moved a cashier fromthe register to h andl e the influx of CD s being sent in, it quicklybecam e clear she would n eed lots and lots of backup .In September of 2007, Wagner called a company meeting withhis 50 or so remaining employees. He delivered the news thatma ny had already figured out. The retail busines s was dying. I 'hcfuture was online. Woo dson wo uld becom e his par tner focusedon developing the online business. The store would remain tipenbut resources wou ld be put toward building Feed Your Player.

Still, hearing it from the boss h urt. M illennium's m usic bu yerquit when he realized the emph asis would be on used ( "Ds ratherthan new releases. Wagner und erstood his anguish. The stalf me m-


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luTs, he says, "were accustomed to being tastemakers." Wagnerhimself was conflicted, clinging to the hope that downsizing orreltxating might save ihc store. "Wh en you spend so much of yourenergy lighting against the bIindinylyobvious,"siiysWagner,"youcan lose you r focus on the big picture."The Decision Early in 2008 . Wagner and Woodson finally agreedto pull the plug. The s tore c losed that summer when i ts leaseran oui. The pair would re launch the Onlinebusiness osa s tan d-alone operal ion. With a blue marker , the duo wrote out pos-sible names on a windowpane in Wagner 's off ice and hit onAbu ndaT rade. Says Wo odson : "We wanted people to get it thelirst time they heard it."

A few weeks before closing, Wagner hosted a goodby e partyfor Millennium's custom ers.The Charleston com mu nity turne dout in droves. There were students from the (,ollegc of C^^harles-lon and cad ets from the nearby Citadel military academy. Sym-phony lovers filled the store's massive classical section, sippingchampagne. Saiesclerks and their friends shared beer and ham-burgers . It was a bittersweet m om ent .

The transition has been swift. A business with origins as a cozycultural retreat is now high tech, methodicaland profitable.AbundaTrade. like FeedYourPlayer, takes used CDs, DVDs, andboo ks in exchange tor electronics, including iPods. fiat-screen T \'s ,and cam corders. Or custom ers can opt for cashan average of S2per CD . Th e com pany also gets used discs fi-om wholesalers anddefunct record stores. It relies on so phisticated sofhvare that scansthe Web to dete rm ine a fair price for tlie used pr odu cts. Then thecompany offers the merchandise for resale on the W e b . again rely-

ing on software to undercut other sellers on Amazon, eBay, andelsewhere. "The online world is so much easier in a lot of ways,"says W ood son . "If you're no t th e cheapest, you're no t selling."The transition hasn t always been easy. Wagner and Wo odsonwere able to m ove 12 of Millennium's final 30 employees into newroles at AhundaTrade. But it's an entirely different world. Abun-daTrade o perate s a lot like a logistics or order-fulfillment tirm . Inits 6.000-square-foot warehouse, half of the compan y's 20 emp loy-ees re\'iew inc om ing items, checkin g for scratches or defects. Ship -ping oc curs aro un d the clock, Cistomer service is enlircly t)nline.Form er record-store employees like Robert Bo ndu rant are happyto have jobs but som etimes long for the good old days, Bon duran tisagain product m anager, but be is now also in charge of invento rymanagement. "It was tough from an emotional standpoint," hesays. "We're no longer selling our appreciation of musicit's allabout m oving product out the door now."

Early results are encouraging . Abun daTrad e receives about15,000 used pro ducts a week. Abou t a third of i ts use d-pro duclsales are to overseas custom ers. (Japanese custom ers buy lotsof heavy metal.) Revenue is on pace to hit $3 million in 2009.abo ut 50 percent mo re than Millen nium Music 's f lagship s toreever pulled in.If it 's a little bit ironic that a com pan y that o nce boa sted thelatest uev,' releases now sells secondhand music in an outdatedformat. Wagner and W oodson d on' t seem to m ind. The par tnershave their sights on ex tending A bund a Trade's business into othe rused products. "(Clayton and I have learned that one of ou rstrength s is adaptability," says Wagner. Adds W ood son. "1 think

the future is a really wid e-ope n question." O

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H O W L O N G C A N H t 'S T A Y C H O H r a e t f . ?

Update SWEET SPOT A big spike in wholesale pr ices had this chocolat ier scra mblin g.Now. he's in better shape than ever, despite the recession.THE PROBLEMIn late 20Q6, wholesale chocolateprices began a 35 percent rise.Chocolatier Dan Johnson, whobuilt a lucrative business sellingchocolate bars emblazonedwith corporate logos, had to cutcosts quickly to keep his B uffalo-based Choco-Logo profitable.He switched suppliers, beganusing cheaper packagingmateria ls, and cut the packageweight of some products,Johnson also redoubled e ffortsto build up his high-margincorporate-logo business.WHAT THE EXPERTS SAIDGary Karp, executive vice pre si-dent of Chicago-based Tech-nomic, suggested opening mall

kiosks, Katrina Markoff, CEO andfounder of Vosges Haut-Chocolatof Chicago, warned against sac-rificing quality for growth, JuliusWalls J r, CEO of Yonkers, NewYork-based G reyston Bakeryurged Johnson to focus futuregrovi/th on corporate sales.WHAT'S HAPPENED SINCEChoco-Logo has managed toremain profitable, A little goodfortune helped: Johnson's for-mer employer, desperate to dis-pose of 20.000 pou nds of extramilk-cho colate inventory, offeredChoco-Logo a 30 percent dis-count. The company also raisedprices about 10 percent andpurchased its own four-colorprinting press, which cut its

label printing costs as much as50 percent. Most important,Johnson says, people stillcrave chocolate in hard times,"I think we 're in a very, very luckymarke tplace," he says, "Thechocolate industry isn't en tirelyrecession-proof, but it seems tohave a much stronger footingthan most industries."WHAT'S NEXTHealthy grovwth has convincedJohnson that it's time to opena second, and maybe a third,retail shop. Likely locationsare Pittsburgh and Cleveland.Johnson says the company willalso continue building thehigh-margin corporate-logob u s i n e ss , Jason Del Rey


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online music killing the business

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