How Arrogance Brought Down Musicland

Back in 2001, I was one of a handful of Best Buy executives who made the leap to Musicland after the acquisition. You may not know Musicland, but you probably shopped at Sam Goody, Suncoast Video or Media Play.  There were nearly 2000 stores with $2+ billion in sales.  Over the course of the next 5 years, I would have a lesson in arrogance that changed the trajectory of Best Buy, Musicland and the pre-recorded media industry.

Best Buy was arrogant.  Best Buy had been incredibly successful from 1997-2001 and believed they had the secret sauce for retail success: a tight store SOP, a laser focus on accessory and warranty sales, hot new technology for sale and a non-commission sales force.  As a big box retailer, they had their sights set on malls and those poor fools who shopped in Sears and Radio Shack. We didn’t listen to the Musicland executives who tried to tell us that there was authenticity and value in the stores as they were. Sam Goody’s mall-based stores seemed like an easy entree into the malls.  Clean out those black light posters, put in MP3 players, cell phones and Best Buy pricing and customers would stream in.  The real estate people agreed, the marketing people agreed, the sales trainers, inventory, merchandising and finance people agreed.  Guess who didn’t? Sam Goody’s customers.  They liked the stores, they were edgy music stores in a world being sanitized by Wal-Mart and parental guidance stickers.  They shopped Sam Goody for the experience.  So when Best Buy changed that experience (eliminating “Fill-A-Bong” Tee shirts because they went against The Moral Compass and replacing them with DVD players, for example) the change was made without the consent of the customers.  Best Buy’s arrogance led to a series of management changes, store closings and ultimately, a sale to Sun Capital.

Sun Capital was arrogant.  An equity firm who made a living out of turning around B and C player retailers like Mattress Giant and Wickes Furniture, Sun Capital’s CFO boasted that the problem with Best Buy was that they didn’t have the grit to close the stores that needed to be closed.  Without mercy or notice, Sun Capital began to close the unprofitable stores in an attempt to bring back profitability.  But with a real estate-only strategy, they didn’t recognize the titanic shift in consumer consumption.  Sun Capital didn’t listen to the customers. Sure, Eminem, Jay-Z and J Lo were pumping out monster titles, but increasingly consumers were grabbing them off iTunes or Napster.  While Musicland merchants boasted about out-performing sales budgets with each generation of iPod and MP3 player, Sun Capital sided with the music labels in continuing the business-as-usual model that released CD’s at a low price the week of release and then raised prices as the CD aged. Smart customers waited until they knew which songs they wanted from the CD and then downloaded just what they wanted for 99¢.  After a couple years, Sun Capital sold the few remaining Sam Goody and Suncoast locations that were still open to TransWorld.

The Music Industry was arrogant.  When it first realized that music was being “stolen,” it made headlines by taking the teen pirates to court.  It shut down Napster (for a time.) But despite voices in the wilderness like Prince and Oasis bypassing labels and taking their music directly to their fans, music labels continued to insist that the only way to make money was to groom musical acts and bring their studio recordings to the public through a shiny disk at $10-20 per disk. What they missed was that music began to mutate in a totally new way: tweens and teens were awash in music from their private players but music was no longer THE cornerstone personal marker in their identities.  It was one of many choices and gaming, MySpace, facebook, and all social media eclipsed music.  Music was devalued by the audience that had provided the cash fuel for so long: 15-28 year old men.  The Music Industry still isn’t listening.

I am not innocent in this.  I was along for the ride which decimated tens of thousands of jobs and an industry that had a wild and imaginative personality.  People ask me what I learned from my time at Musicland.  That’s easy:

Humility.

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4 Responses to “How Arrogance Brought Down Musicland”

  1. Your article was both insightful and sobering. As a former GM of Media Play in Salt Lake City, I was one of those left without a position when the company began disintegrating in December of 2005. You bring to the table a very valid, and teachable lesson. “Just when you think you have your customer figured out, they will time and again prove that they are in charge, and not you.”

    I was lucky to be a part of the early days of Media Play in Utah, and it was an incredible ride I will never forget. I recall sitting in one of our yearly sales conferences in 2002 and being told that Apple/iTunes was now the 18th largest retailer in Music in the United States. Everyone agreed they would never reach our sales level. As our hindsight is 20/20, if only we realized what freight train was coming as they are now far and away the #1 retailer of music in the United States.

    You are correct Flora in that arrogance took down this once mighty retailer. Had the recording industry and other key players reacted differently, and not allowed the greed, egos, pay-offs, and recording label mandated pricing models continue, we might both still be there today.

    Working in the store one afternoon in 1999, a mother asked her daughter if she wanted a just released CD. The girl replied to her mother, “Don’t bother spending the money, I’ll just download it for free off Napster.”

    I pondered that remark wondering if our days could be numbered. Little did I know, they were.

  2. Katie Morse says:

    Speaking as a consumer, it’s interesting to read your viewpoints on what contributed to the collapse of Musicland and companies just like it. The consumer often didn’t see the struggle behind the curtain. What they (well, we), did see was what Michael points out below, and you highlight in your article:

    “You are correct Flora in that arrogance took down this once mighty retailer. Had the recording industry and other key players reacted differently, and not allowed the greed, egos, pay-offs, and recording label mandated pricing models continue, we might both still be there today.”

    We saw the people being sued, the artists taking publishing routes that didn’t include labels, and we saw industry big-wigs becoming increasingly stubborn and digging in their heels – instead of innovating and looking for opportunities to embrace consumer preferences.

    I recently read a blog post talking about the Guardian article about how streaming music in the UK is rapidly replacing downloading music (http://www.guardian.co.uk/music/2009/jul/12/music-industry-illegal-downloading-streaming).

    Consumer preferences will continue to change, and no matter the market – it’s the duty of the market leaders to not only react to this change, but anticipate the changing preferences and adapt to suit. It’s basic business – listen to the market you’re selling products and services into.

    Thanks for the enlightening post!

    Katie
    Community Manager | Radian6
    @misskatiemo

  3. Tim Boman says:

    Arrogance…yes. A casualty of technology yes…but I contended then and to this day, Best Buy bought Musicland to eliminate a major player from the advancing and changing entertainment landscape.

    Tim Boman 27 year Musicland employee and conspiratorical enthusiast

  4. Joseph says:

    I was a victim of this arrogance in 2002; coincidently corresponding to a massive rant I published to my superiors at the time predicting the demise of the music industry as we knew it. Clearly, they weren’t paying attention to what consumers wanted in their core business. (e.g. downloads vs. cds) My analogy was that the industry was busying themselves with plugging all the cracks and holes in a (eminently failing) dam instead of getting out in front of it and building a NEW dam (a la iTunes.) Instead, they continued to spend their resources fighting and alienating their core customers. A couple years later, the old dam broke, Musicland washed away and drowned behind the dam that iTunes built. (Yeah, EXACTLY what music retailers *could* have done!) You hear that, book industry?!

    The performing arts industry (symphony, opera, etc.) is also in the exact same situation as the music industry circa 2001. Their audience is massively dying off. Yet, they refuse to make the seismic changes necessary to guarantee their future success. It took me a while to accept this fact before I left that head-in-the-sand industry too.

    Finally, I got smart and started an internet marketing consulting business helping businesses that *want* to change their approach in ways that will make them more relevant in the future. The internet is changing how “traditional” businesses attract and maintain customers on almost a *daily* basis.

    The internet is here to stay so, if you haven’t yet, embrace it! Mobile, social, video, geo, SMS, PPC, PPV, CPM, SEO, hut hut…. Obviously, there are many places to find traffic in this new world. Find someone to help you now and don’t be afraid to dive in. I guarantee you that someone else in your industry is already waist-deep in the internet marketing pool. Besides, we all know what happens when your head is in the sand.

    Thanks for the post Flora. It was bitter-sweet. :-)

    Warmest regards,

    Joseph Burch

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