There are a number of old stores that went out of business because of various reasons. In this article, we will dive deep into the Tower Records failure story.
Let’s get a quick background first:
Tower Records was founded in 1960, in Sacramento, CA. The company had a chain of music retail stores offering CDs, DVDs, and vinyl records.
Tower Records was a pioneered superstore for its unique collection of CDs and records. In 1999, the company had nearly 200 traditional retail stores in 15 countries, with sales exceeding $1 billion.
In a 1994 promotional video, Solomon stated about the future of the company,
“As for the whole concept of beaming something into one’s home, that may come along someday, that’s for sure. But it will come along over a long period of time, and we’ll be able to deal with it and change our focus and change the way we do business. As far as your CD collection – and our CD inventory, for that matter – it’s going to be around for a long, long time.”
Why did tower records fail?
1. Increased competition
In every company failure story we have covered, one thing was most common- Companies outplayed by competition.
Previously, CDs, which sold for more than twice the price of vinyl records, helped Tower.
However, big-box stores such as Best Buy, Wal-Mart, and Target quickly entered the CD market, offering CDs for half the price that Tower Records charged.
Suddenly, the endless growth of Towers stopped, and the company’s margins were severely strained.
Tower Records and other record shops discontinued the sale of music singles. The removal of singles forced customers to purchase the much more expensive full album.
Consumers were unhappy, but they had no option. In the short run, this action was profitable for Tower, but it had second-order consequences that ultimately brought about the failure of Tower Records.
2. Changing customer preferences
With the fast-growing technology, people’s preferences keep changing. In order to stay ahead in the game, keeping a close eye on the market trends is important.
Consumers began to prefer digital music online rather than going to music stores.
However, Tower Records failed to embrace digital music sales, while its competitor, Apple, embraced the innovation.
Tower Records was primarily a traditional retailer of music and other entertainment products, but as digital music gained popularity, consumers began to shift towards buying music online.
In 2001, Apple launched the iPod, which revolutionized music consumption, along with iTunes, where listeners could legally purchase single songs for 99 cents.
Since its inception, iPod quickly gained a large market share. Napster was also developing a website that allowed music listeners to share and download music for free.
In contrast, Tower Records was unable to compete effectively with iTunes and other online music retailers which led to its downfall.
3. Bad leadership decisions.
Another reason that backed Tower Records Failure is its financial problems arose from questionable decisions by the leaders.
Within a short period, Tower quickly expanded globally and accumulated significant amounts of debt.
Since so many people are purchasing CDs, the business believed that its future growth would be steady. Because of this assumption, the business overgrew.
The issue was that the growth received no strategic planning or careful consideration.
Tower had grown from a small mom-and-pop business to a global conglomerate, but its central leadership continued to make decisions as if it were still the independent Sacramento record shop.
The business’s strategy was based on the assumption that the good times would last eternally and that growth would continue.
Tower was similar to the straw house in the Three Little Pigs story: everything was fine while the market and conditions were stable, but as soon as they changed, it fell to pieces.
According to Minewaki, CEO of Tower Records Japan Inc.,
“CDs are no longer items that you can leave on the store shelf and expect customers to purchase. Need to do what Amazon and other online retailers can’t.”
The bankruptcy of Tower Records:
After the decline of sales, in 2004, Tower Records filed for bankruptcy as they couldn’t repay their loans.
Their revenue fell from $1 billion in 2004 to $430 million in 2005. In August 2006, the company filed for bankruptcy for the second time due to a huge number of creditors.
This could have been avoided if Towers Records had been more creative and open to change.
Many companies often fail to capture innovative ideas even though creativity exists in their employees.
In order to generate, capture, manage, and implement groundbreaking ideas, you must implement an idea management system in your organization.
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