Album sales were already down 12.3% compared to last year when, as expected, Circuit City announced that it will close 155 stores, or 21% of its footprint in the market. And though industry analysts say the chain may be trying to avoid bankruptcy to protect its extended warranty income - in a Credit Suisse report issued Nov. 3, analysts point out that filing Chapter 11 "makes it much harder to convince a customer to buy a warranty from a chain" - the threat of bankruptcy still looms.

Circuit City's move was preceded last week by news that Wal-Mart is cutting space dedicated to music and other media to make more room for what its chief marketing officer John Fleming called "growth categories," according to Pali Research. But, as Billboard's Ed Christman pointed out in August, Wal-Mart's move to shrink its music sections may not be bad for the music business.

Music is still a key category for the retail giant because it's so important for driving sales. "A customer basket with music in it produces $40 more in revenue than baskets without it, so music will likely remain a part of the Wal-Mart inventory mix," a senior distribution executive said.

And even though Wal-Mart is reducing SKU count, the chain expects to offset those sales through a re-merchandised music department that will receive more customer visits from stepped-up in-store marketing efforts and a redesigned in-store traffic flow, label executives said.

An executive told Billboard in August that he was willing to experiment because Wal-Mart is talking about making the space devoted to music more productive, "which is why we don't mind a SKU scaleback, if we can do more business with less returns." Currently, the chain's bigger stores carry 5,000-6,000 titles (down from 6,500), with smaller stores carrying about 3,000. One distribution executive estimates that Wal-Mart will pull 800 titles this time around. (Clearly, it is not following a Target model. That Minneapolis-based chain carries about 775-1,500 titles per store.)

But the majors don't seem worried by this kind of SKU reduction. "The titles we will lose only represent 6% of our business with the chain," one distribution executive says. "By pulling titles, they will be able to focus better on fewer SKUs."

Additional reporting by Ed Christman