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Tower Records in Trouble

Legendary chain declares bankruptcy and looks for buyers

February 24, 2004 12:00 AM ET

A record store the size of a supermarket may not seem like a revolution in the age of the Virgin Megastore. But in 1968, the huge Tower Records on the corner of San Francisco's Columbus and Bay was the first of its kind. It soon became a central meeting place, the connection for obscure 1930s blues records and a fixture on the city's rock scene for years.

"When Tower Records popped up, that was the first thing like that I'd ever seen," recalls former Jefferson Airplane guitarist Jorma Kaukonen. "They had all the new music, but Tower was also the source for old music -- they carried the whole line of [country-blues label] Yazoo Records. I got 'em all there. You would go in and Steve Miller would be there, or one of my bandmates, or Carlos [Santana]."

Thirty-six years after Russ Solomon expanded his record business from the back of a Sacramento drugstore to an abandoned San Francisco supermarket, Tower's ninety-three yellow-and-red retail outlets are located all over the U.S., including flagship stores in New York, Los Angeles and Chicago. But Tower's run may be about to end.

Ten stores have closed in the past year, and the company filed for Chapter 11 bankruptcy protection in early February, after struggling with a slumping economy, competition from Wal-Mart and Best Buy, online file sharing and a misguided late-Nineties global-expansion plan. Observers also blame the fact that Tower has stuck doggedly to selling music while its competitors have embraced video games, comic books and even digital downloads.

Financial experts say bankruptcy is the best thing that could have happened, as it enabled Tower to cut its debt and save $80 million. E. Allen Rodriguez, Tower's chief executive officer, is optimistic, hinting at plans to compete online with Apple's iTunes Music Store. "Now, do we get to focus exclusively on the challenges everybody faces in this industry? Yeah," Rodriguez tells Rolling Stone. "We've done very well in the last year with this ball and chain around our ankle."

All remaining Tower stores, save a few failing ones, will stay open while the company searches for a buyer. Founder Solomon and his family won't be so lucky -- their stake in the company will drop from 100 percent to fifteen percent. And, in a terrible economic climate in which 1,000 music retailers have closed in the past year, the Tower chain is hardly back to full strength. "It's a tough position," says Colin McGranahan, an analyst with the investment-research firm Sanford Bernstein. "A financial restructuring does nothing to change the realities of the business."

Those realities are far different from what they were in the late Sixties, when Tower was just beginning to expand. Larry Hulst, a concert photographer who regularly displays his shots of Jimi Hendrix, Chuck Berry and Pink Floyd in museums, recalls selling his prints in front of Tower's Sacramento store. Nobody told him to leave, and he considered a four-dollar haul to be a good day. "If you wanted to meet somebody in our town, you would see them at Tower Records," Hulst says. "It was the network, the main meeting point for most anybody."

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