The last sale at Tower Records starts today.
The legendary music retailer, born in the rear of a Sacramento drugstore but brought to its knees by the Internet and discount chains, was sold Friday to a liquidating firm after a court-supervised bankruptcy auction that spilled over two days.
The liquidator, Great American Group of Woodland Hills, agreed to pay about $134.3 million for Tower's inventory, money that will go to Tower's creditors.
Going-out-of-business sales will begin today at all 89 Tower stores and will probably take eight to 10 weeks, said Great American President Andy Gumaer.
Gumaer's firm barely outbid Trans World Entertainment Corp., a mega-retailing chain that would have kept many of the stores open but probably would have erased the Tower name. Attorneys for Trans World and the major record companies argued that the Trans World bid, although $500,000 lower, should prevail because keeping stores open would ultimately create more value for creditors. The argument was rejected by U.S. Bankruptcy Judge Brendan Shannon at a hearing in Wilmington, Del.
A pioneer of the music "superstore," Tower became a global icon with stores in some of the world's most glamorous cities. But even as music industry officials lamented its passing, there was evidence aplenty of Tower's diminished presence: The parking lot of the store near Fisherman's Wharf in San Francisco -- one of the flagships of the chain -- was two-thirds empty Friday.
"My heart goes out to each of you who have poured your hearts and souls into this great company," Tower Chief Executive Joseph D'Amico, a consultant hired this summer to find a solution to Tower's chronic ills, said in an e-mail to employees. "This outcome was not expected and I too am disappointed."
In an e-mail to employees sent by his assistant, Tower founder Russ Solomon wrote:
"The fat lady has sung. ... She was off-key. Thank You, Thank You, Thank You."
Solomon's family still owns 15 percent of Tower but will walk away with nothing from the bankruptcy. Solomon could not be reached for additional comment.
The liquidation will erase about 2,700 jobs nationwide, including several hundred at Tower's West Sacramento headquarters and distribution center, and its six area stores. A few employees walked out of the headquarters Friday afternoon, exchanging long hugs and carrying boxes of potted plants and desk items. The main lobby was deserted, except for an employee who turned away visitors, saying, "It's not a good time now."
Tower's downfall will spell the end of some of the world's most famous retail establishments, like the Sunset Boulevard location in West Hollywood, which catered to rock stars and others for more than 30 years.
But nowhere will the sting be greater than in Sacramento, where Tower has served as a point of pride for area residents.
"It's a real loss for us," said Mayor Heather Fargo. "It was always great to go to another city, let alone another country, and see a Tower there. It was one of the few companies we've had with that kind of international stature."
Fargo fretted in particular about the loss of the Tower music, book and video stores on Broadway, which she described as key merchants on the boulevard. Though not the first-ever store, the Broadway location -- sitting across the street from the movie theater that gave Tower its name -- has been a cultural landmark in Sacramento for decades.
"It's a shame to see a community resource like this go up in smoke," said Sacramentan Michael Thurmond as he left the Broadway bookstore.
Inside, store employees had stunned looks on their faces as they discussed the liquidation.
"There wasn't any other music store like Tower," West Sacramentan Johanna McFadden said as she left the Broadway record store Friday afternoon. "They had stuff here that you couldn't find anywhere else."
A company that wanted to buy Tower but dropped out of the bidding said late Friday it still was scrambling to find a way to save the retailer. Radius Equity Partners, a Chicago investment firm, didn't bid because it hadn't finished lining up financing. The firm had enlisted music industry executives like Nile Rogers, a well-known record producer, to help plan a new course for Tower.
"We're trying to contact Great American to see if there's anything we can do," Radius managing director Stuart Jamieson said. But he acknowledged that it was unlikely a liquidation could be prevented.
While Great American is disposing of Tower's CDs, DVDs and other merchandise, other parts of the business will go elsewhere. A firm called Norton LLC won the bidding for Tower's brand name, Web site and certain other assets, according to a report by Dow Jones news service. Two firms obtained lease rights to Tower's various store locations, including the Sacramento stores. The famous Sunset Boulevard store, one of the few owned by Tower rather than leased, was sold for $12 million to a real estate firm, Tower attorney Peter Gurfein said.
The rights to Tower's 155 franchise stores overseas remained unsold, he said.
All told, Tower's assets will go for about $150 million, Gurfein said -- more than many had expected but still a sad commentary on Tower's shrunken state and the condition of music retailers in general.
In the early 1990s it was estimated Tower, which was roughly as big as it is now, was worth $325 million.
"It's certainly a cliché, but it's the passing of an era," said Mike Dreese, a New England music chain owner and director of the National Association of Recording Merchandisers. "To see one of the greatest names in home entertainment go out that way is sad."
In the 1940s, Russ Solomon began selling records from the back of his father's drugstore in the Tower Theatre building on Broadway. He opened the first Tower store on Watt Avenue in 1960, and really put Tower on the cultural map when his San Francisco store opened in 1968.
At its peak, in the mid-1990s, Tower was doing $1 billion a year in sales and owned more than 200 stores around the world.
But competition from big-box discounters and the Internet began eroding music retailers like Tower in the mid- and late 1990s, and some analysts say Tower hurt itself by continuing to invest millions in new stores.
As losses started piling up, the company began closing and selling stores to stay above water. But the debts were too large, and the Solomon family had to surrender 85 percent of the ownership of Tower to the retailer's bondholders in a 2004 bankruptcy case.
That first bankruptcy protection erased millions in debts, but the company still couldn't gain traction as music sales plunged. In the just-ended fiscal year, Tower sales dropped 10 percent to $430 million, according to court records.
Tower filed for Chapter 11 bankruptcy protection Aug. 20, its second in two years. This time the company was facing a huge December debt payment and was being forced to pay cash for CDs and DVDs, the result of a harrowing showdown in which the record companies temporarily halted product shipments.
The only real solution, Tower said, was to find a buyer.
Great American actually started the bidding in mid-September by offering $90 million for Tower's inventory -- the first step in the two-step bankruptcy auction process.
The second phase, a closed-door auction, began at 10 a.m. EDT (7 a.m. PDT) Thursday as lawyers, financiers and others gathered at Tower's law firm in Wilmington. It lasted 30 hours, when the participants headed into U.S. Bankruptcy Court to announce the results.
In between was a roller coaster of emotions and rumor. Tower employees and others crowded into online chat rooms to speculate on the bidding and lament the downfall of a once-great company.
At one point Friday the trade publication Hits magazine reported on its Web site that Trans World, which operates the FYE and Wherehouse chains, had won the bidding. A little while later, Hits retracted the report.
VOICES
"All they've told us for now is that I've got to keep coming to work until it closes."
-- Chris Thongsonithae cashier at Tower Records on Watt Avenue
"It was a great place to go and just be surrounded by all this wealth of music and movies. There's nothing quite like it anymore."
-- Mick Martin Sacramento musician and former Tower employee
"It's the worst I can think of, really."
-- Mike Farrace former manager of Tower's Web site
"This era has actually been coming to a close for a while now." -- George Whalin native Sacramentan and national retailing consultant
"I knew that they were in trouble, but I can't believe this is it. I've been shopping here since I was a kid."
-- William Roth Sacramento resident, waiter
"Tower's problem was that people can now be incredibly immersed in music and never leave home."
-- Alex Wager executive editor, The FADER magazine
"On a personal level, I'll really miss them. I go there for books mostly. They always had a knowledgable staff and an incredible selection."
-- Heather Fargo Sacramento mayor
"I used to buy all my funk here, jazz, gospel, all of it. This store is a landmark, just like the theater across the street."
-- Antwan Reeves Sacramento
"I've always liked this store because you can listen to the music and they have good service. I'm going to miss it."
-- Albert Martinez Sacramento
"Wow. I can't believe it's going to close. If you've got gift cards, I guess you'd better hurry up and spend them."
-- Noemi Barrera Sacramento
"(Tower) was one of the few things that when you went to another city and saw the store you'd say, 'Yeah! That's Sacramento!' "
-- Fred Sanchez Rancho Cordova
"When I started, most records were sold in a department store like Penny's. Tower was one of the first places that could sell records in a stand-alone store. ... Now it's gone 360 because music is sold in Best Buy, Wal-Mart or whatever."
-- Stan Goman who started working at Tower in 1967 and retired in 2002 as chief operating officer
