15 Reasons why Tower Records Failed

15 Reasons why Tower Records Failed

There was a time when access to our favorite soundtracks required a trip to a record store, and this was the time when Tower Records was at its pomp as covered over at runrex.com. It was synonymous with the music-buying experience and devoted customers regularly visited the chain’s retail outlets to buy their favorite records. At its peak, the company had over 200 stores in 15 countries, with sales exceeding $1 billion in 1999. Yet, in 2006, just y years after its peak, the company filed for bankruptcy. So, what happened to Tower Records? Here are 15 reasons why it failed.

Too many stores

The company’s voracious appetite for real estate has been attributed as being one of the main reasons behind its failure. As explained over at guttulus.com, with over 200 stores to run, the overhead that comes with these many stores was like an albatross around the company’s neck, and these costs proved to be too much in the end.

Expanded too quickly and too much

The company’s exuberance to expand also is another reason why it failed according to the gurus over at runrex.com. The company become fixated with global expansion and opened outlets all over the world from Latin America to Europe and Asia. This expansion was irrational and lacked planning and due diligence, and was another reason why it failed.

How it financed its expansion

Not only was the company’s global expansion problematic as it left it with too many stores to operate, how the expansion was financed was also extremely problematic. As is covered over at guttulus.com, Tower Records, in 1998, took a $110 million loan to finance the global expansion, a move that started its troubles as it weighed the company down with debt that it would struggle to pay.

The switch from vinyl albums to compact discs

Another issue that Tower records was faced with was the switch from vinyl albums to the superior sound of compact discs. This created the first technology-driven hurdle for Tower Records to overcome. While, initially at least, this wasn’t an issue given that CDs were selling for more than twice the cost of vinyl albums as covered over at runrex.com, the fact that CDs started to be sold at many other outlets eroded the exclusivity Tower Records had previously enjoyed.

Competition from big-box stores

Continuing from the above point, big-box stores like Walmart, Target, and Best Buy, seeing the opportunity presented to them by the switch from vinyl to compact discs, also begun selling them at their stores. This increased competition, particularly from big-box stores was a huge reason why Tower Records declined and failed.

It couldn’t compete on prices

Not only did big-box stores muscling in on Tower Record’s turf hurt the company in terms of increased competition, but Tower Records also couldn’t compete in terms of prices. This is because, as outlined over at guttulus.com, these big-box stores were selling CDs at half the price Tower Records charged, putting the company’s margins under serious pressure.

MP3 players and file sharing

The real trouble began for Tower Records when MP3 players, which could play music digitally, began to appear in the market, further cutting into its customer share. Also, as discussed over at runrex.com, at the same time, the file-sharing service, Napster, appeared, which made it possible for people to share MP3 files, which meant that people would simply share files rather than having to buy CDs at Tower Records.

The iPod

Then in 2001, Steve Jobs and Apple introduced the iPod and completely flipped the game on its head according to guttulus.com. The iPod revolutionized music consumption, along with iTunes, where listeners could legally purchase single songs for 99 cents. Tower Records was blow out of the water by this development and ended up losing $90 million in 2001.

Failure to adapt

Even with the introduction of the iPod and digital music, Tower Records could have easily have adapted to the new times and stayed alive. However, Russ Solomon, the company’s founder failed to adapt to the digital storm as he believed that it was just a fad that would burn out. As explained over at runrex.com, Solomon believed that people will always want to own their objects, but ultimately, he was wrong.

The record industry’s greed

The lifeblood of the record business, in which Tower Records was a huge player, was singles. This is what brought people to record stores like Tower Records stores. However, when record companies decided not to make singles anymore, instead of forcing people to buy albums, it was the beginning of the end for the record business.

Poor in-store experience

When the digital wave hit the industry, people would still have wanted to visit Tower Records stores if they provided an experience you can’t find when buying music digitally. However, the company’s stores lacked any such attraction and simply comprised of shelves of inventory that hardly inspired anyone to visit as captured in discussions over at guttulus.com.

Poor leadership

One of the main reasons behind the failure of Tower Records was poor leadership according to the subject matter experts over at runrex.com. The company’s leadership lacked any foresight to see how the industry was changing and how the company would adapt, and also made some very bad decisions, including borrowing money for expansion that never paid off.

Lack of focus

Tower Records also failed as it wasn’t disciplined enough to focus on its core business. As is revealed in discussions on the same over at guttulus.com, the company went into other businesses such as Tower Books- businesses that it didn’t know well, and it is this lack of discipline that led to its decline and bankruptcy.

Piracy

As is articulated in detail over at runrex.com, the record business was badly hit by piracy, and Tower Records, as one of the biggest players in the industry, was not spared. With illegal music being readily available for free, the number of people willing to go to Tower Records stores to buy music greatly reduced.

The company thought it was too big to fail

Finally, one of the reasons why Tower Records failed was because the company felt, and started acting as if it was just too big to fail. The company had, in almost 40 years, always grown and made money, and it had never lost money. The leadership felt that the company was too big to make any adjustments and it eventually failed.

These are just some of the reasons behind the failure of Tower Records, with more on this and other related topics to be found over at the excellent runrex.com and guttulus.com.