Tower Records, which was one of the highest ranked entertainment retailers, declared bankruptcy for the second time in the past two years. They company has been sold to the Great American Group, a Los Angelus liquidation firm, for $134.3 million according to the Seattle Post-Intelligencer.
Great American Group does not plan on keeping the chain. The company outbid Trans World Entertainment who planned on keeping the Tower Records label to save some of the stores from closing. Great American Group did not buy the chain for the label; they are liquidating the company, selling off all of the merchandise and closing the stores.
“This is not an easy decision,” Judge Brendan Shannon said. Shannon noted that the Tower debtors and other parties had agreed the bidding process was conducted fairly.
With a debt coming close to the amount of $200 million, the 46-year-old chain filed for a Chapter 11 bankruptcy at the end of August. They first declared bankruptcy due to a large drop in sales. This claim last bankruptcy claim was for the same reason.
Tower Records revenue fell from $476.1 million in 2005 to $430 million in 2006 according to nytimes.com. This $46.1 million drop caused the 89 stores across the United States to sell its assets through an auction, which ended this past October.
The reason for the drop in record sales? It is because of the decrease in sales of actual albums and compact discs according to industry analysts. Because of the easy accessibility to music via the Internet and Apple iTunes, album sales fell 7.8 percent in 2005 while downloading grew 200 percent.
There is also a high competition with stores such as K-mart, Target and Wal-Mart who sell CDs at a discounted price.
If the bid for Tower records had gone in the opposite direction, Trans World planned to consolidate Tower with the other chains they had recently acquired, such as Sam Goody, to put the merchandise under the mall-based chain FYE.
Tower records also has asked the Judge to fire the founder of the company Russell Solomon who led the retail company for more that 40 years according to the Associated Press. Solomon has not objected to the ending of his employment. He was paid over $600 thousand.
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