Inside the rise and fall of the record store chain Tower Records
From $1 billion in sales to bankruptcy five years later.
Long before paid music streaming services like Spotify and Apple Music, record superstores like Tower Records dominated the retail half of the recorded music industry. But after its (second!) bankruptcy and liquidation in 2006, Tower Records in America is no more.
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The story of Tower Records
Depicted: A mural honoring the band Nirvana in a now-shuttered Tower Records location in Seattle. Photo Credit: zoomar
Russ Solomon was born in Sacramento, CA in 1925. As a thirteen-year-old, he worked in his father’s drug store in the Tower Theater building in Sacramento. Soloman’s father began selling records in the drug store in 1941, soon expanding to an empty room adjacent to the drug store that they called “Tower Record Mart.”
Solomon began pressuring his father to expand the business. Instead, Solomon ended up buying Tower Record Mart from his father in 1952 to expand on his own, but the business was undercapitalized and ended up being liquidated by his distributors.
In 1960, Solomon reopened his business and then created Tower North as a second location—financed with a $5,000 loan from his father. Around this time, he rebranded Tower Record Mart to Tower Records—with a new logo and a Shell Oil Company-themed red and yellow color scheme.
In 1968, Solomon spotted the building for his future Tower Records San Francisco location while having a post-hangover brunch across the street with a woman he was partying with the previous night. He transformed the property—a 6,000 square foot former Chinese grocery store—into a record store that was gigantic by the standards of the day.
Tower Records opened its first Los Angeles location in 1970 on Sunset Boulevard. The location was not far from many famous recording artists and record labels, making it the preferred hangout for many of the music industry’s tastemakers. The Sunset location was giant: the 1974 Guinness Book of Records listed it as the largest record store in the world.
In 1979, Tower first turned to international expansion by establishing a wildly successful footprint in Japan. Tower’s success in Japan would whet Solomon’s appetite for international expansion. Later on, in an interview, Solomon reflected that they tragically “weren’t really successful in any of the other countries [they] went into.”
Depicted: A Tower Records location in Tokyo, Japan. Photo Credit: MD111
In 1990, Russ Solomon made Forbes Magazine list of the 400 wealthiest Americans at #335, pegging his net worth at $310 million based on an estimate of Tower Records’ parent company’s private market valuation.
In June 1995, Tower Records launched the first online music store on AOL, registering nearly $200,000 in sales that December. A year later, they launched the music store tower.com. CNNMoney—in a November 2000 piece—even described tower.com as once being a dotcom IPO candidate. Despite these forward-looking moves, Solomon seemingly never believed that physical CD sales were threatened and never made serious investments into a digital-first music world.
In 1998, Tower pursued a plan that would eventually contribute to its undoing: they borrowed $110 million in bonds to finance aggressive international expansion.
In 1999, Tower was forced by its creditors to pay off debt by selling its profitable Japanese stores. Tower’s revenue that year had reached a peak of around $1 billion dollars. Sales had continually grown since Tower’s founding in 1960 but finally began to flatten around 2000.
In September 2002, Tower was one of the defendants that agreed to a $143 million price-fixing settlement with 41 US states and three US commonwealths. The settlement was part of a two-year investigation into “minimum advertised price” schemes where music distributors agree to pay for retailers’ advertising costs for CDs in exchange for retailers not advertising discounts on those CDs.
In 2004, Tower filed for bankruptcy partially because they could not make a $5.2 million payment on the $110 million they borrowed. Bondholders forgave millions of dollars in debt in exchange for an 85% stake in the company, leaving Russ Solomon and his family with the remainder.
By 2005, Tower’s revenue had fallen from $1 billion a year to $430 million per year.
In August 2006, Tower filed for bankruptcy for a second time. The retail liquidation firm Great American Group won a two-day bankruptcy auction in October 2006 with a bid of $134.3 million, announcing its plan to liquidate all Tower Records assets to pay off creditors who were owed about $210 million in total. All inventory was to be sold and all US stores were to be closed. Solomon emailed his staff, “The fat lady has sung. … She was off-key. Thank you, Thank you, Thank You.”
Depicted: Russ Solomon in December 2006. Photo Credit: JD Lasica
In 2007, Solomon tried to build his second act by creating a new record store called R5 Records in Sacramento, but he ended up closing the store in 2010. Dimple Records took over the location, celebrating their purchase by throwing a retirement party for Russ.
Russ Solomon died on March 4th, 2018 of an apparent heart attack while watching the Academy Awards, shortly after asking his wife to refill his whisky glass.
Today, Tower Records’ Japanese stores continue to live on. Because they were sold in 1999, they were not on the liquidation chopping block in 2006. Furthermore, there continues to be a brisk demand for physical media in the Japanese music market.
What made Tower successful
Depicted: The inside of a Tower Records location in Israel. Photo Credit: Dovi Shraga
Carrying a wide selection of music
Tower Records focused on building gigantic stores with enormous selections of music—beginning in an era when this was not the norm for record stores. Former Tower executive Stan Goman said, “We liked to make sure we had every single record in stock. If you wanted the Amazon tree frog noises, we had it.”
International demand for American music from American brands
Tower also chose to expand into Japan during a moment when American music was in high demand from Japanese youth. This allowed Tower to build enormously profitable businesses in Japan by exporting their American model, as opposed to having to work harder to build a more natively Japanese enterprise. Mark Viducich—the Tower exec responsible for bringing the company into Japan—claims in an interview that Tower in the 1970s was the first American retail business to directly operate in Japan without a local Japanese partner.
An emphasis on bottoms-up sales and marketing
Solomon also recognized that music tastes varied heavily from one locality to another—which led to a bottoms-up sales and marketing strategy where the staff of each local store figured out how to best sell records to their surrounding neighborhoods.
He gave enormous amounts of credit to the store teams for Tower Records’ success and culture. In an interview, he stated, “Everything we did was invented by the kids in the store: the art on the walls, the way they displayed things, their attitude about what to buy and what not to buy was [sic] all things happening at the store level.”
How and why Tower collapsed
Depicted: A Tower Records location with a “Going Out Of Business” sign. Photo Credit: Caldorwards4
Competition from big-box retailers
The advent of the compact disc was—at first—enormously profitable for the music business, especially record store chains like Tower, for several reasons:
CDs offered far superior audio quality when compared to the LPs they were replacing.
CDs were a novel, expensive-looking product that could be marked up to high prices.
Consumers were interested in spending considerable amounts of money in replacing their entire LP or cassette collections with CDs.
CDs were smaller than LPs, which meant that they took up less floor space in the store.
CDs were so attractive as a product that—unfortunately for record stores like Tower—big-box retailers like Walmart and Best Buy began selling CDs as cheap loss leaders. These retailers sold hit records at steep discounts with the goal of getting consumers to also buy higher-margin goods when in stores. Tower was neither financially able nor willing to sell records at steep discounts. Tower charged as much as $18.99 for a CD while Walmart or Best Buy might charge $13.99 or $14.99, although in 2004 Walmart began aggressively negotiating with record labels and distributors to push the price of a CD below $10.
Napster and Internet piracy
The compact disc was a format unencumbered by digital rights management, making it easy for consumers to rip music from CDs and share them on services like Napster—setting the stage for Internet piracy to besiege the recorded music industry.
Consumers were also motivated to turn to piracy because of the music industry’s move—led by retailers like Tower—to make it impossible for consumers to buy singles. The industry marketed singles via radio airplay and MTV, but with the goal of forcing consumers to buy entire $18.99 album CDs at the record store. Consumers that only wanted a single and didn’t want to pay for the whole album often turned to piracy.
The $0.99 single from the iTunes Store
Apple’s iTunes Store model of charging $0.99 per song also fulfilled the consumer demand for high-quality, no-strings-attached singles.
Online music stores like iTunes once again made it accessible for consumers to purchase their favorite singles without committing to buying the whole album. The iTunes $0.99 single was a powerful counterweight to both the expensive Tower Records offerings and online piracy.
Taking on excessive debt right when the bottom fell out of the market
Russ Solomon was a high school dropout with no formal business education. His business partner and character foil Bud Martin was an accountant that was dedicated to maintaining a semblance of fiscal responsibility at Tower. Martin believed in profitability in favor of growth and was skeptical of international expansion.
Martin and his viewpoints were gradually sidelined in the 1990s, and he resigned in 1995. His successor—DeVaughn "Dee" Searson—was assigned to the mission of selling Tower Records bonds to raise money for opening more stores. The early success of Tower gave them access to huge amounts of debt that they would not be able to service in the face of competition and piracy. In multiple interviews [1, 2], Solomon lamented that Tower would not have faced the problems that it did if Solomon had listened to Bud Martin. Instead, Tower Records took on an enormous amount of debt when the bottom fell out of the recorded music market, allowing creditors to come in and eventually take the company apart.
Russ Solomon and Tower Records rose to power with the understanding that consumers would favor a record store with a wide selection staffed with friendly local employees with encyclopedic musical knowledge.
Yet Solomon never envisioned a world where the Internet could do what he did better than him. He did not build an institution that was willing or able to compete on price against big-box retailers, online music stores, or filesharing sites—tragically not taking Tower’s own pioneering Internet investments seriously. He climbed his Tower all the way into the Forbes 400, only to fall all the way back down.