Spec’s Music, Inc.

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Spec’s Music, Inc.

1666 North West 82nd Avenue P.O. Box 520248

Miami, Florida 33126
U.S.A.
(305) 592-7288
Fax: (305) 592-1648

Public Company
Incorporated: 1948
Employees: 780
Sales: $77.5 million (1996)
Stock Exchanges: NASDAQ
SICs: 5735 Record & Prerecorded Tape Stores; 7841 Video Tape Rental

One of the largest retailers of prerecorded music and related products in Florida and Puerto Rico, Spec’s Music, Inc. operates a chain of stores that sell compact discs, cassettes, movies, and videos. During the late 1990s, as the company was moving away from an emphasis on retailing, Spec’s Music operated 49 stores, including 20,000-square-foot “superstores” in Miami Beach and Sunrise, Florida. The company’s stores were located in malls, strip centers, and free-standing locations throughout Florida. Four of the company’s stores were located in malls in Puerto Rico.

Post-World War II Birth

When Martin W. Spector opened his first music store in 1948 he realized a lifelong dream. Forty years later he would tell a reporter from Florida Trend magazine, “Always in the back of my mind, I wanted to have a record store,” but it took years before Spector gave in to his passion. For nearly 20 years before opening his first Spec’s Music store, Spector labored in other lines of work, beginning his professional career in 1929 when he was admitted to the New York Bar. After practicing law for several years, the native Virginian decided to forego a life in law and entered the entertainment business. Spector worked as a talent agent, demonstrating enough talent on his own part to be tapped as head of talent for Universal Pictures. Spector sifted through the ranks of Hollywood hopefuls for two years after the end of World War II, but by the late 1940s, when Spector was in his early 40s, he decided to pursue his love of music in earnest. In 1948, he and his pregnant wife moved to Miami to be closer to family. There, in Miami, Spector embarked on a career that would fill his days for the next half century and inaugurate the inception of Spec’s Music, Inc.

Spector’s first store was a 1,500-square-foot structure in Coral Gables, Florida, situated along the South Dixie Highway on the outskirts of Miami. Inside the store was a collection of big-band melodies, recorded on then-standard 78 RPM vinyl discs, and other motley merchandise. Few record stores during the late 1940s could rely exclusively on the sale of recordings to generate sufficient revenue to stay alive, and Spector was no exception. The chain that would later dominate the Florida market began by selling a smattering of merchandise divorced from Specter’s true passion. Intermingled among the 78s, were Kodak Brownie cameras, Magnavox television sets, washing machines, and refrigerators, all included in the store to give Spector the revenue-generating capability to feed his burgeoning family and keep his business alive.

Although the various appliances and products occupying retail space in the first store were necessary inclusions, Spector was wholly devoted to selling music. He played his favorite tunes over and over again inside the store, hoping to interest his patrons in purchasing the aired selections. Many did, as Spector focused on developing a strong reputation in customer service, one of the key ingredients to Spec’s Music’s success throughout its history. Spector’s passion for music eventually became contagious, and his original store prospered, becoming the first link in a chain of retail outlets that would blanket Florida.

The days of having to stock washing machines and refrigerators ended forever with the birth of rock-and-roll, the popularity of which ignited the growth of the music industry on all fronts, including music retailers like Spector. In response, Spector opened a second and third store, renting retail space from local department stores. Expansion continued for the growing business, as two free-standing outlets were opened in Miami and Palm Beach. By the mid-1960s, roughly 20 years of business had engendered a compact network of five stores that were performing admirably, their emphasis on customer service and well-stocked inventories pushing sales forward. The decade also marked the arrival of Spec’s Music’s second generation of leadership, although the company’s future leader was only in her teenage years.

Ann Spector (later Leiff) started working at her father’s business during her off-hours from junior-high school. The third of four children, Ann’s interest in the family business consumed nearly all of her free time. “I was there after classes, on weekends and on holidays,” she remembered, “there was a pulse to the store—to the business—that hooked me early on.” Though enchanted by the bustle within her father’s store, Ann Spector Leiff opted to pursue her formal education outside of Florida and entered the University of Denver in 1970. After spending four years in Denver, where she majored in sociology, Leiff returned to Florida and joined the family business. Other job offers were there for the taking, but Martin Spector’s promise to better any offer from any other prospective employer won Leiff over. Like her father, Leiff had found her life’s work.

Although the daughter of the owner, Leiff did not benefit from any overt nepotism. She started as an eight-track-tape buyer, joining a company that had recorded encouraging growth during her four years away at college. When Leiff left for the University of Denver, annual sales stood at $962,000; when she returned the company’s revenue volume had swelled to nearly $2.5 million, growth that necessitated deeper management. Spec’s Music had quickly developed into an enterprise that Martin Spector could no longer effectively manage on his own, and his daughter Ann was quick to answer the call for managerial assistance. One year after her return, Leiff was promoted to supervisor in charge of nine stores; by 1980, at age 31, she had risen to the post of president, quickly scaling the ranks of a business that was flourishing in the southern Florida area. Under Leiff s directorship, Spec’s Music would outstrip the growth achieved under her father’s leadership in a few short years.

1980s Expansion

From 1968 into the 1980s, Spec’s Music opened an average of two stores each year, all located in the southern region of Florida. Leiff would add to the company’s store count quickly, but not until she took the company public in the fall of 1985. The 1985 initial public offering occurred when the company was coming off recording $16.6 million in sales from its 16 stores. Although Spec’s Music’s financial and physical growth had been considerable since her first days as an eight-track-buyer, Leiff was intent on picking up the pace of growth on both fronts, and the public sale of stock was intended to generate the resources to fuel expansion. The company sold 660,000 shares at $6 per share, raising roughly $3.5 million for the expansion planned by Leiff, who along with her sister and her father maintained a majority stake in Spec’s Music after the offering.

After opening an average of two stores per year for nearly two decades, Spec’s Music grew robustly following the public offering, as clusters of stores were opened in Florida. Within two years, the number of stores composing the chain increased from 16 to 42, while annual sales climbed to $26.5 million. The two-year surge of growth was enough to make Spec’s Music the largest retailer of pre-recorded music, videos, and related accessories in Florida, elevating the company atop an industry whose annual revenue volume was estimated at between $150 million and $200 million. For Leiff and Spector, the growth achieved during the months following the public offering fueled confidence for the future, leading to ambitious projections for expansion in the years ahead. In 1988, when the company was selected by Forbes magazine as one of the nation’s 200 best-run small companies, Leiff announced plans to increase the chain’s size to 100 stores by the early 1990s, giving the company a lofty goal to aim for as it moved past its 40th anniversary year.

By the beginning of the 1990s, Spec’s Music’s revenues had more than doubled since the 1985 public offering of stock, swelling from $16.6 million to more than $40 million. The number of employees had increased commensurately, tripling as the number of Spec’s Music outlets increased to 50 state-wide. Making its way through the economically recessive early 1990s, Spec’s Music had to contend with forces equally as pernicious as the flagging retail industry. In August 1992, Hurricane Andrew swept through southern Florida, laying waste to homes and businesses that lay in its path. Among the victims of the tropical storm was Spec’s Music. Two of the company’s stores were destroyed and another 15 stores suffered disrupted business as a result of the storm, causing Spec’s Music to lose nearly $1 million in revenue and to record an operating loss of $160,000. By the time the financial repercussions of Hurricane Andrew were being recorded, Spec’s Music was entering its 45th year of business, the year Leiff had projected the company would be operating 100 retail outlets. At the time, there were only 59 stores composing the chain, but plans announced midway through 1993 once again pointed the company toward developing into a 100-unit chain.

Company Perspectives:

“Spec’s is committed to maintaining its position as the dominant specialty retailer of prerecorded music and music-related products and offering the highest quality service to its customers. While all of our stores maintain a comprehensive selection of diverse music categories, our newly opened stores provide a unique opportunity for customers to interact with our products. Specifically, they can sample music at listening stations throughout the store and search on-line at information kiosks for product listings throughout Spec’s network, as well as accessibility to more than 130,000 titles available via special order.”

In the summer of 1993, Leiff announced that Spec’s Music was undertaking a $23-million, capital-expenditure program. In the renovation and expansion set to take place, 54 new stores were to be added to the chain and another 36 were slated to be refurbished, as Spec’s Music executives struggled to find a formula that would beat back mounting competition from large, national chains. Blockbuster and Musicland were opening out-lets in and around Spec’s Music’s markets, forcing the company to develop new strategies for the future. Aside from opening a prodigious number of new stores and renovating the majority of existing stores, the company’s executives also planned to focus on music selections they felt were underserved by national competitors. This approach involved placing a greater emphasis on Latin music, classical music, and merchandise targeted for children. To provide room for a greater emphasis on these items, the company decided to remove many of its lackluster video rental departments. By mid-1993, 12 of the video rental departments had been closed and another eight were scheduled for removal in 1994.

Additional changes adopted in 1993 included new fixtures inside the stores that could house a combined stock of compact discs and cassettes, as well as listening “posts,” each equipped with two headphones and programmed to play 10 compact discs, with featured titles rotating every several days or weeks. These new additions were showcased in a prototype, 7,000-square-foot store that opened in Tallahassee, Florida, in early 1994. However, a little more than a year later—in mid-1995—the company made a bold move in another direction by turning to the superstore format to help maintain its leading position in Florida, which was being threatened by increasing competition.

Mid-1990s Tumble

The two superstores—one in Coconut Grove and the other in South Beach—were massive, 23,000-square-foot, $2-million, two-story structures that each carried more than 70,000 titles. The superstores sported cafes, and offered weekend concerts, all in the hope that an entertaining environment would attract patrons away from competitors’ stores. Despite the hoopla surrounding the grand opening of the Coconut Grove and South Beach stores, however, Spec’s Music was beginning to show signs of anemic financial performance. Sales and earnings were slipping, forced downward by the stiff competition in Florida and by the lack of blockbuster music hits. Music sales were down nationwide, and Spec’s Music was struggling. By the end of 1995, the company’s annual sales stood at $79.6 million, a negligible increase over 1994’s total of $78.4, but earnings slipped from $2.8 million to a meager $1 million. By the beginning of 1996, changes were needed, and those changes were to be effected by a new arrival to Spec’s Music’s head-quarters.

In early 1996, Barry Gibbons was hired as the company’s new chairman of the board, replacing Martin Spector who assumed the duties of chairman emeritus. Gibbons arrived at Spec’s Music with a solid reputation as a corporate executive and an equally renowned reputation as an eccentric. When Gibbons left Burger King Corp., where he served as chairman and chief executive officer from 1989 to 1993, he blared opera music through the company’s cafeteria sound system, making good on his promise to remain at Burger King until the “fat lady sings.” Despite his penchant for the unconventional, British-born Gibbons was a hot commodity in the corporate world, having orchestrated the resurgence of Burger King, a feat that earned him the distinction of being named Fortune magazine’s Turnaround Champ of 1990. Leiff, who was serving as the company’s president and chief executive officer, was ecstatic about the addition, explaining to a reporter from Billboard magazine that Spec’s Music “wants to get involved with other facets of the music business besides retail, and Barry has a good strategic mind and is very good at brand marketing. He can help enhance and grow the company,” she continued, “He seems to be a perfect fit.” Martin Spector, then in his 90s, was less enthusiastic, declaring to the St. Petersburg Times, “I think about half of what he says is baloney, but I say give him a chance.”

A little more than a month after Gibbons’s arrival, Spec’s Music announced the closure of its Coconut Grove superstore, an embarrassment that prompted Gibbons to yell at 50 of the company’s store managers, “This company is on a slab in the morgue with a toe tag.” Other retail outlets were shuttered during the year as well, causing a $4.5 million loss for the year. To recover, Gibbons led the company away from its dependence on its struggling stores and toward other lines of business in the music industry. In pursuit of this objective, a subsidiary was formed in 1996 to promote concerts and in early 1997 the company acquired Digital Sound Distributor, a distributor of Latin music in Florida, New York, Puerto Rico, and the Dominican Republic.

By 1997, the number of Spec’s Music stores had been whittled down to 47, and more store closures were imminent as Gibbons strove to diversify within the entertainment and leisure industry. In the future, the retail sale of music was expected to play a lesser role in Spec’s Music’s business, while the company’s involvement in other facets of the music industry in-creased. Whether or not this strategy would arrest the retrogressive financial slide occurring during the mid-1990s was to be determined in the late 1990s and the years beyond, as one of Florida’s oldest music retailers struggled to reshape itself for the 21st century.