Retail Track

CHAPTER 11: The bankruptcy court has approved Wherehouse Music's 546-G request, which means that by returning product to its main suppliers, it can get credit to buy new inventory. The amount that can be returned has yet to be determined, but the major suppliers negotiated a deal whereby the chain will get 75% in new credit for every dollar of returned inventory. But that percentage is not set in stone, and sources suggest that Wherehouse has the leeway to individually negotiate with each supplier for a higher credit percentage to be applied to returned product.

Lew Garrett, executive VP for the Torrance, Calif.-based chain, reports that Wherehouse is also seeking debtor-in-possession (DIP) financing. The chain is scrutinizing DIP term sheets from several possible lenders, and Garrett says, "We hope to have something finalized with a possible lender partner in the next few days."

Wherehouse is also running liquidation sales for its undesired outlets, which could last until May, depending on how well the sales go. But when all is said and done, Wherehouse's store count is expected to drop to about 175 units, which means it will have closed about 230 stores this year.

Meanwhile, in Atlanta, Value Music Concepts also had its 546-G approved by the bankruptcy court. According to sources, the chain will be allowed to return nearly $6 million in inventory, but the majors have negotiated a deal whereby Value Music will get 50% in new credit for every dollar of inventory returned. That means the chain should be getting at least $3 million in new credit from the major suppliers—although, like Wherehouse, it too has the ability to negotiate with suppliers for a higher trade-in percentage.

Value Music is further along than Wherehouse in that it has obtained DIP financing from its existing bank, Fleet National, which has a lending formula that could make as much as $12 million available. At the time of the filing, sources suggest that the chain had only drawn down about $2 million. As for closures, the chain has shuttered 30 stores, bringing the count down to 87 units. The fate of another 20 stores depends on how well the chain can negotiate for lower rents with landlords. Value Music executives did not return a call for comment.



MORE CLOSURES: CD World has closed two outlets in New Jersey—the Brick Township and the Bridgewater locations—reducing to eight the number of stores it has in that state. David Lang, who heads up the chain—which merged with Streetside Records last year—justifies the closures simply by saying that he will not keep open stores that do not make a profit.



SAVING THE DAY: As previously reported, R&B (including rap) had a tough year last year: U.S. album sales were down 17.8%, a larger decline than the industry-wide album figure of 10.7%. But so far this year, the genre is leading the charge, with the 50 Cent album Get Rich or Die Tryin' scanning 872,000 units in its debut week and 2.2 million units so far, and the new R.Kelly album Chocolate Factory scanning 532,000 units this week. Though sales are down 10% as of Feb. 23, that has strengthened from the 13.6% that sales were down for the first month of the year. Retailers are imploring the labels to keep the rap and R&B releases coming.



VIDEO HIGHLIGHT: Best Buy's Redline label will continue to operate, but it will only focus on the video side of its business in the wake of Gary Arnold's reassignment to the Best Buy chain as senior VP of entertainment. He was the head of Redline. The music effort apparently will be dropped, but the label will continue to mine its action-sports video line. GM Jennifer Johnston-Schaidler will head the day-to-day operations.

HONOR ROLL: Mike Dreese, CEO of the 25-unit, Brighton, Mass., Newbury Comics chain, is being honored for his many years of charitable work by the Boston Institute for Arts Therapy. A fundraiser will be held March 22 at the Ritz Carlton Hotel in Boston. To attend or help support the event, contact the Boston Institute at 617-288-5858 or log on to biat.org.