Suppliers stop shipping to chain.
In one of the most ironic moments ever at a National Assn. of Recording Merchandisers annual convention, Tower Records was named the large retailer of the year on the meeting's closing night (Aug. 5), after the previous three days of the confab were dominated by fears that the 88-unit chain would be forced into bankruptcy.
The Chapter 11 fears were prompted by the news that a pending sale of the chain had unraveled. Additionally, Tower missed a payment to one of the majors and then told all four majors it wouldn't make August payments, which are due beginning Aug. 10. The major labels—EMI Music, Sony BMG Music Ent., Universal Music Group and Warner Music Group—have stopped shipping to the chain, and every independent supplier approached by Billboard at NARM confirmed they also placed the West Sacramento, Calif.-based merchant on "hold," once news of the majors had leaked out.
Tower has been up for sale since February and its investment bank, Houlihan Lokey Howard & Zukin, had already conducted two rounds of bidding, which led to a 30-day period for one of the suitors to have exclusive rights to negotiate a deal, sources say. But when the two parties apparently couldn’t come to terms about two weeks ago, Tower turned to the other bidders to see if they were still interested.
According to sources, Tower is attempting to bring one of the bidders on board as an equity sponsor for a pre-packaged Chapter 11 filing, which would be its second in two years. In March 2004, Tower Records spent 35 days operating in Chapter 11 as a pre-packaged bankruptcy proceeding enacted a debt-to-equity swap that resulted in bondholders gaining a 85% stake in the chain, while the Solomon family's holdings were reduced to 15%.
Within the last two weeks, Joe D'Amico, a turn-around executive from the financial industry, has been named interim CEO of Tower. He replaces Allen Rodruigez, who's contract expired.
When Tower was revealed as the winner for the large-sized retail division at the conclusion of the convention, reaction was mixed. Simultaneously, the award announcement prompted a standing ovation, laughter--and according to interviews with suppliers later that night—disbelief and anger.
The voting was concluded almost two months before it would be known that the chain would have financial troubles.
Tower Records executives VP Kevin Cassidy, the widely respected veteran at the company, accepted the award and noted that it marked the third year in a row that Tower had received the honor. He reminded suppliers that the award is due to chain founder Russ Solomon, seven Tower retail directors, 88 store managers, and 2,800 employees who are "proud to wear Tower colors and will continue to be proud." He concluded by saying, "We'll see you in Chicago," a reference to next year's NARM convention; and by adding, "Long Live independent stores, long live retail, and long live Tower."
In other awards, Twist & Shout in Denver, Colo., won the small-sized division's retailer-of-the-year award for an amazing sixth year in a row, and Waterloo Records in Austin, Texas, repeated as the mid-sized merchant recipient, beating out other distinguished contenders like iTunes and Newbury Comics.
In the wholesale sector, Coral Springs, Fla.-based Allianced Entertainment Corp. won for the second year in a row; while Charlotte, N.C.-based Baker & Taylor won the mid-sized division award for the third straight year, and Minneapolis-based Electric Fetus won the small division award for an astounding seventh consecutive time.
In the distribution sector, WEA in New York won the large-sized supplier division, the first time the distributor has done so since the award was inaugurated back in the mid 1980's. Red-eye Distribution in Haw River, N.C. won the small-sized
distributor-of-the-year award for the fourth straight year and New York-based RED repeated in the medium-sized division.
In the entertainment software supplier of the year category, Rhino Entertainment in Burbank, Calif., repeated as the large division winner as did the Verve Music Group, in New York, in the medium-sized division. Sup Pop Records in Seattle, won for the small-label division. Nielsen SoundScan, Billboard's sister company, won the related products and services supplier of the year award.
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