Sam Goody

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Sam Goody

Contact Information:

headquarters: 10400 yellow circle dr.
minnetonka, mn 55343 phone: (612)931-8000 fax: (612)931-8300 url: http://www.samgoody.com

OVERVIEW

Sam Goody is the largest division of Musicland Stores Corporation, which is the largest retailer of pre-recorded music in terms of stores and sales. Sam Goody constitutes Musicland's mall and shopping district division, and Musicland Stores Corporation plans to convert its Musicland stores to Sam Goody outlets. Sam Goody also operates five superstores, which integrate lighting, layout, and sound to create an exciting shopping atmosphere. In 1996 Musicland's industry domination reached its apex when the corporation operated about 1,500 stores around the globe, over half of which were Sam Goody stores. However, heavy competition drove sales down in 1997, causing a wave of closures and reducing the Musicland empire to 1,363 total stores, of which 713 were Sam Goody stores. While a Musicland Stores Corporation subsidiary, Sam Goody has contributed substantially to the corporation's success. In 1997 revenues from Sam Goody accounted for a strong percentage of the corporation's $930 million in music sales. Overall, Musicland Stores Corporation's revenues totaled $1.8 billion in 1997.

COMPANY FINANCES

Fighting price wars, Musicland posted lower sales in 1997 than 1996. Sales dropped 2.9 percent, from $1.82 billion in 1996 to $1.77 billion in 1997. The sales decrease in 1997 was explained by store closings. The company did show a profit of $14 million in 1997, as opposed to a loss of $194 million in 1996. The loss in 1996, as well as a loss of $136 million in 1995, was attributed to restructuring charges and goodwill write-down. The music segment of Musicland, led by Sam Goody, posted sales of $930 million, down just 0.1 percent from 1996's sales of $931 million. Music contributed more toward the company's sales in 1997, 52.6 percent, compared with 51.1 percent in 1996.

Mall stores, again led by Sam Goody, had sales of $1.65 billion in 1997, up 0.4 percent from 1996 sales of $1.16 billion. Comparable stores' sales for the music segment was up 7.5 percent in 1997 over 1996, and up 0.9 percent in 1996 over 1995. Musicland's stock hit a high of $14 and a low of $1 during a 52-week period in 1997-98.

ANALYSTS' OPINIONS

Music industry analysts viewed the economic environment of mid-1997 as favorable for music retailers such as Sam Goody, according to Dow Jones Newswires. Observers noted that, in 1995 and 1996, a glut of music stores chased after a limited pool of customers but, after a spree of closings and consolidations, companies such as Sam Goody became lean and efficient enough to operate successfully in the industry. Overall, music sales rose by about 7 percent in 1997, indicating that the industry still had room for sales growth. Nevertheless, Sam Goody's parent company confronted serious obstacles in its attempt to stabilize after floundering for several years, but Musicland Stores Corporation has taken the steps recommended by industry analysts, so company executives remained optimistic and brushed off rumors that it would file for bankruptcy.

HISTORY

In the late 1930s, Sam Goody made his entrance in the music industry by selling 78 rpm (revolutions per minute) records while operating a toy store in New York City. Goody founded the self-titled music store in the 1940s as a discount and specialty record retailer, and Sam Goody went on to become a small independent chain up until the late 1970s. In 1951, two years after the introduction of the LP (long-playing record), Sam Goody opened what would become his flagship store on 49th Street, which grew into a world-renowned source for record collectors and boasted 4,000 customers a day in its prime.

In 1978 American Can acquired Sam Goody. American Can later became Primerica and was bought by group of investors led by Jack Eugster who called the entire company Musicland Stores Corporation. Goody left the company shortly after the sale and died in 1991 at age 87. After being acquired, the Sam Goody chain expanded quickly, and by 1988 the chain operated 190 stores, primarily serving the east and west coasts. With strong corporate backing, Sam Goody continued to expand through the mid-1990s and opened additional stores around the world. As a Musicland Stores Corporation division, Sam Goody's focus shifted from furnishing discount musical recordings to becoming a higher-end music store, catering to a more mature group of customers and emphasizing jazz and classical music. Capitalizing on Sam Goody's name, the parent corporation consolidated its various music stores under one name. Musicland stores were switched over to Sam Goody stores beginning in 1996, with the transition ending in 1997.

STRATEGY

With competition not only from other music specialists such as Warehouse Records and Recordtown but also from superstores and discount stores, Sam Goody sought to retain its position as part of the leading music retail company. In the mid-1990s, part of Sam Goody's strategy included reducing its prices to take on discount rivals; however, this plan ultimately hurt the company by substantially reducing its profit margins. The second part of the company's strategy called for greater promotion of the company's name and emphasis on brand recognition. To this end, Sam Goody launched a frequent buyer club, monthly magazines, a line of Sam Goody apparel, and sponsored events where it could promote its name. In addition, the company rolled out a Sam Goody credit card in conjunction with First USA Inc. that offered a 5 percent rebate on all Sam Goody sales. Sam Goody also opened a few superstores to compete in that market. By 1996 Sam Goody operated five megastores, which featured uniquely designed 30,000 to 50,000 square foot stores with cafes, CDs, cassettes, videos, and apparel items.

Musicland advertises heavily for all its product lines. Most is done through newspaper inserts, but the company also runs radio and television ads on local stations in big markets such as Los Angeles, New York, and Chicago. Furthermore, Sam Goody collaborated with ESPN to promote the cable sports channel's X Games, which included biking, skate boarding, snow skating, and other high-energy outdoor activities. Sam Goody participated in the X Games Road Show, which toured 12 cities and featured sports and music.

Sam Goody participated, along with the rest of the music industry, in major price wars in 1996 and early 1997. The music industry as a whole was sluggish during that time, with sales off for nearly all players. Sam Goody cut prices along with everyone else and the parent company launched major cost-cutting measures beginning in 1996. Musicland closed 236 stores from 1995 to 1997, including 107 Sam Goody stores. Instead of growth, the company planned to focus on improving existing stores in 1998.

INFLUENCES

Due to the financial problems of its parent company, Musicland Stores Corporation, Sam Goody faced an uncertain future in 1997. Musicland CEO Jack Eugster attempted to launch a multimedia megastore, Media Play, in the early 1990s. The concept proved unsuccessful, with 65 closures in 1995 alone, followed by additional closures in 1996 and 1997. As a result, Musicland Stores Corporation experienced heightened debt and credit difficulties that affected its Sam Goody division. Increased competition from chains such as Tower Records and Recordtown, as well as discount stores such as Best Buy, Wal-Mart, and Circuit City, exacerbated the company's woes. These music superstores and discount stores successfully exerted enough pressure to cause the closure of many small and specialty music stores in the mid-1990s. In an attempt to keep up with its rivals, Sam Goody tried to compete with discount music stores, but wound up squandering revenues and profits. Looking to strengthen its position, Musicland closed under-performing stores and one distribution warehouse, saving the company money and decreasing inventory. In 1997 the music industry began to turn around with higher sales and notas-fierce price competition.

CURRENT TRENDS

Sam Goody looked to increase sales by teaming up with the Internet radio station NetRadio. Selected Sam Goody stores featured promotional booths highlighting artists heard on NetRadio. Adorned with a banner saying "As Heard on NetRadio," the promotional booths contained 75 CDs by the featured acts. Sam Goody also moved to enhance customer loyalty by offering a monthly music and entertainment magazine in 1996. Previously, Sam Goody launched a successful frequent buyer program, giving members a 10 percent discount after purchasing a $10 membership. The magazine comes in part as an expansion of the club promotion, as members of Sam Goody's frequent buyer club receive the magazine Replay for free. The music retailer designed the new magazine for customers 30 years and older, whereas the company's other magazine, Request, appeals to customers under 30.

FAST FACTS: About Sam Goody

Ownership: Sam Goody is a wholly owned subsidiary of Musicland Stores Corporation, a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: MLG

Officers: Jack W. Eugster, Chmn. & CEO, 1997 salary $535,600, bonus $983,474; Gilbert L. Wachsman, VChmn., 1997 salary $423,208, bonus $518,127; Keith A. Benson, VChmn. & CFO, 1997 salary $323,146, bonus $388,308

Employees: 5,800 full-time, 9,600 part-time, 1,000 temporary (1998)

Chief Competitors: Many of Sam Goody's competitors are local independent music stores. Recently, more music stores have opened and more types of stores (such as discount retailers) offer music sections. Chain stores are still big competitors, such as Best Buy; Tower Records; Virgin Megastores; and Wal-Mart.

Sam Goody, along with Musicland subsidiary Sun-coast Video, began offering digital viedo discs (DVD) to customers in 1997. DVD is new to the video field, offering laser technology in a small physical format with excellent sound and picture quality. It is considered a superior technology to VHS video and laser discs. DVD accounted for 1.8 percent of all of Musicland's video sales in 1997 but were strongest in December, with 3.4 percent of video sales, and in January 1998, with DVD accounting for 8.2 percent of video sales. The company expects the technology to continue growing quickly in the near future.

PRODUCTS

In the late 1990s Sam Goody had 713 stores in 49 states, the District of Columbia, Puerto Rico, and the Virgin Islands. Most stores are located in malls, with the average store 4,300 square feet in size. Sam Goody carried between 4,500 to 8,500 titles on compact disc, depending on store size. Sam Goody stores are organized along genre music types and hits—new releases and still-popular older releases that still sell well. Sam Goody consistently gets most of its sales (40 percent) and nearly all of its profits during the end of the year, from October through December.

As part of an ongoing campaign to increase sales, Sam Goody introduced a variety of non-music goods in the 1990s. In 1996 Sam Goody began marketing its own apparel designed after popular sports and fashion apparel to complement its array of rock t-shirts, which the store has sold for years. Sam Goody particularly began targeting women, offering the Girls Rule, Briefly Stated, and Southern Exposure brands in a campaign to increase the number of women who frequent music stores. In addition, Sam Goody set up mannequins in its stores to help promote its apparel and other non-music items in the mid-1990s, including perfume and comic books.

GLOBAL PRESENCE

Although the United States constitutes Sam Goody's primary market, the music retailer operated stores around the world. Sam Goody has a strong presence in Great Britain, operating 21 stores in the United Kingdom as of mid-1997. Sam Goody's U.K. strategy of the mid-1990s included opening small outlets with a directed selection to avoid unnecessary overhead and expenses. In the second half of 1997 Sam Goody closed six under-performing U.K. stores and in 1998 ran a total of 16 stores. The stores in the U.K. are responsible for their own purchasing and distribution.

Sam Goody launched its first store in Japan in 1994 by licensing its name to Japan Record Sales Network Inc., which made an agreement with Itoh Music City to operate the store. Sam Goody planned to evaluate the success of this test store in order to gauge the potential of the concept in Japan.

SOURCES OF INFORMATION

Bibliography

hisey, peter. "talkin' aabout a revolution in music sales: superstores and ce chains record gains, while small stores are scratched off consumers' playlists." discount store news, 18 march 1996.

lichtman, irv. "retail pioneer sam goody dead at 87." billboard, 24 august 1991.

"musicland stores gets extension on credit agreement." discount store news, 2 june 1997.

"trans world, musicland up; music retailers seen favorable." dow jones newswires, 6 august 1997.