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: