Retailing records series; (part 1) Records become a commodity and face real estate prices and profit margins (I)

One of the biggest problems the record business faces, besides letting people know that their product exists at all, is actually getting that product to the people who might want to buy it. The quandaries facing record retailers get more difficult daily. As with so many of the problems within the music business, “doing things the way we always did it” creates far more static than it clears up. Change never comes easily, but failure to change can cause disaster. While retail uses a more recent business model than, say, the record companies, the model has remained largely the same for over half a century.

In the early part of the 1950s, the main buyers for sound recordings weren’t stores. Record salesmen made the bulk of their money servicing the owners of jukeboxes. There were over 300,000 of them in the U.S., each held 50 – 100 singles, and the machines went through the popular discs pretty quickly.

In those days, before big stores carried large inventories of music, people would buy their records at variety stores, musical instrument stores, appliance stores, and the like. The records would sit in racks – at the appliance store, they’d put them next to the phonographs. This gave the salesmen who serviced these stores their appellation – “rack jobbers.”

Sam Gutowitz didn’t even get serviced by a rack jobber. In the years prior to World War II, he ran a novelty and magic shop in downtown Manhattan’s financial district. In the 1930s, as radio began its ascendancy as the entertainment medium of choice and the Depression had the world in a choke hold, the record business took a dive just like the bankers in the area surrounding Gutowitz’s store – falling from a high of $105.6 million gross sales in 1921 to $5.5 million in 1933. So when a customer walked into the store and asked whether Gutowitz had any records, Gutowitz was surprised. “I thought [records] had gone out with the dodo birds,” he would later recall.

He remembered actually stepping on a glass-and-lacquer 78 in the basement of his Washington Heights apartment building, so he told the guy to come back in a couple of days. He negotiated a deal with the building superintendent – the pile of records for either a can of beer or three cigars (the story would change with the telling) – cleaned them up, and resold the stack for $25. Like so many before him, Gutowitz realised the joys of music. “I said to myself, this is a beautiful business. What am I doing wasting time with toys and novelties?”

Seeing that records were a hot commodity, he got a good deal on some singles that had previously done time in jukeboxes, so he started stocking and selling them. These recordings did so well that he moved his shop to Midtown, settled on 49th Street, and opened a store using a nickname he’d acquired as a kid, Sam Goody.

Goody’s name now hangs over the front doors of hundreds of record stores around the world. His adventures in record retailing make a good study, as he led the way in discount record retailing and came to epitomise the business. He lived the ups and downs of record retail and the music business in general, as he represented the business’s ultimate goal – selling records.

Goody began selling records using merchandising techniques common to the novelty market but heretofore unheard of in record retailing. In the late 1940s, he saw the future in vinyl LPs. One of the staunchest advocates of the LP in retail, he once gave away 40,000 turntables that operated at the new microgroove speeds – 3313 and 45 rpm – one to anyone who bought $25 worth of LPs. He lost money in the short run, but recognised it meant he had 40,000 new customers.

For his next major merchandising manoeuvre he marked all his new LPs down 30 percent off retail list price. He could sell a 10-inch long-playing disc that listed for $3.98 at $2.80. Since he bought disks for $1.85, he still made nearly a dollar on everything that he sold. By keeping his overhead to 15 percent, and carrying 300,000 LPs, Sam Goody made his record store into a sensation, hosting 4,000 customers a day. By 1955, Goody’s store accounted for 7 percent of all U.S. LP sales, grossing close to four million dollars that year.

Around this same time, the record companies saw a new source of revenue. Why rely on the Sam Goodys of the world when you could take your wares directly to the customer? Columbia started the Columbia Record Club in Summer 1955, offering retailers 20 percent of the revenue from every member it signed up (a deal it still makes with the magazines that run its ads and the college students that post its application cards around campus). In a survey by The Billboard (as it was known at the time), a majority of retailers naturally opposed the idea. Most reported that it hadn’t affected their sales, though over 30 percent said that it had cut their bottom lines.