Retailing records series; (part 2) Records become a commodity and face real estate prices and profit margins (II)

One of the methods the clubs used to recruit members – was to give away records as a premium, another practice that continues unabated. Thus, new artists and even more venerable artists without star-powered negotiating leverage (or a competent lawyer) found language similar to this in their contracts:

No royalty shall be payable with respect to records given to members of record clubs as bonus or free records as a result of joining clubs and/or purchasing a required number of records.

The record business knew the clubs wouldn’t replace the record stores, though. On the cover of the same issue of The Billboard as the record-club story, the magazine predicted another record breaking year of record sales. It partially attributed this rise to more advertising, especially display advertising. Another thing that might have accounted for the rise was the perception of value. As New York Times music specialist Robert Shelton pointed out, in the change from the 78 rpm glass-and-lacquer disk to microgroove vinylite, “A minute of music on a record today [1958] costs less than one third of what it did before 1948, certainly a key factor in giving record and phonograph sales their great impetus in a period when prices for nearly every other product in the economy rose.”

Indeed, record sales did rise to new highs, from $182.7 million in 1954 to $235.2 in 1955, and in two more years they had risen to $360 million. Shelton predicted:

The happy tunes that have been playing on the nation’s cash register during the age of vinylite are by no means ended. The industry is at the brink of a new era, the age of stereophonic sound, and observers feel that the addition of a new dimension in music reproduction on disks and tape will add another dimension to the cash sales of a flourishing industry.

This kind of prediction might have led to some irrational exuberance. By 1959, Goody had expanded aggressively, so aggressively that he was forced into Chapter 11 bankruptcy. Partially, it was a disaster of his own design. Discount retailing had caught on across the board, so Goody was no longer the only game in town for marked-down music. The retail record business had rapidly turned into what then-RIAA head Henry Brief once a typical consumer was able to buy, say, one album for $4 or $5, now he can often afford two albums with a total outlay of $5 or $6… . Such discount price records make natural traffic builders or loss leaders for stores.”

So they didn’t necessarily have to go to Goody.

Even at that rate, it took seven years for Sam Goody to clean up his debts, but two years after he pulled his company out of bankruptcy, he floated stock over the counter. By 1969, at the age of 62, he was rebuilding an empire. He had eight stores and a new, computerised warehouse in Queens to get product to them. The company tuned over a third of a million dollars in profit based on sales of $14.3 million, and things continued to look up. He had expanded into cassettes, both blank and prerecorded, an item he saw as having high sales per-square-foot potential – a concept that would become increasingly important. He also franchised his name. He even looked into videotape rental, though the VCR would not arrive home for another five years.

By 1977, the Sam Goody chain had 28 stores and grossed about $60 million a year. In his 70s, Goody decided it had been a good run, but it was time to go. Unfortunately, he couldn’t leave the company to his children. “They loved each other,” he said, “and they still do, but they competed with each other on everything and soon even the help was taking sides. I could only see them breaking it all apart, so I sold the company.”

The buyer was, unlikely as it sounds, the American Can Company, which had bought record distributor and retailer Pickwick International a year or so earlier. American Can merged the two music companies. “I agreed to this transaction,” Goody said at the time, “so that the company would perpetuate itself and grow. I have my two sons with me, Howard, 35, and Barry, 33, and a lot of young eager beavers who have put a lot of effort into building this business with me.” At the time of the sale, over 1,000 people worked for the chain.

In the nearly 40 years he ruled the roost in retail records, Sam Goody had revolutionised the way America bought sound recordings. Now he would see what that revolution had wrought.