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Trans World Mines Declining Music While Pushing DVD, Blu-ray

By Erik Gruenwedel | Posted: 27 Aug 2008

Despite packaged music’s ongoing freefall at retail, Trans World Entertainment remixed its CD selections, including adding catalog titles, following an extensive six-month, store-by-store assessment, sometimes at the chagrin of personnel at its f.y.e and Second Spin stores.

Employees contacted locally lamented the company appeared to be transitioning shelf-space away from music to better-selling DVD movies at a snails pace. One staffer said corporate responses to requests for increased DVD presence often proved futile.

“We increase DVD shelf space whenever we can on our own,” said a Second Spin manager. “It’s what’s selling right now.”

At the f.y.e. in Mission Viejo, Calif., DVD and Blu-ray selections rivaled music, which an employee said reflected sales. He said the store did favor buying used DVD titles over music due to greater demand for movies.

Albany, N.Y.-based Trans World operates 790 largely f.y.e. (for your entertainment), Suncoast and Second Spin retail stores, in addition to related Web sites.

The company reported a 17% decline in same-store (open at least 12 months) music CD sales that contributed to a second quarter (ended Aug. 2) loss of $19.2 million, compared to a loss of $10.1 million during the previous-year period. DVD comps, by comparison, increased 1%. Video represents nearly 39% of Trans World’s revenue (equal to music), up from 36% last year.

Jim Litwak, president and COO of Trans World, denied the company was soft-pedaling DVD for music. He said the strategy was to grow all non-music business while at the same time protecting music.

“Because we are a catalog house in music, we expect to capture a bigger piece of a diminishing pie,” Litwak said. “The reason why you may see some of the stores confused is … they are seeing a lot of new [music] product that they hadn’t seen in a while.”

After a steady decline in shelf space devoted to music, Litwak said 2008 represented the first year the company had not proactively reduced its music inventory, which he said reflected an increase in used product more than anything else.

The COO agreed the music business is declining, but added that when the company was able to reverse a year-over-year negative 27% music comp to negative 17%, it proved the corporate strategy to minimize internal music sales while growing other business segments was working.

“That’s a positive statement in the current economic climate,” Litwak said. “We want to be, and we are, a major player in packaged music sales. We will carry the appropriate inventory based upon what the customer tells us. We are not overstocking stores.”

Edward Woo, research analyst with Wedbush Morgan Securities in Los Angeles, said Trans World finds itself in a dilemma juxtaposing its history in music sales with market realities that include reduced inventories by competitors and failed businesses by others (i.e. Tower Records and Musicland).

“I think they are hoping for some rebound or stabilization in the music business,” Woo said.

He said the transition to new products to make up for lost music sales presents an inventory investment decision hampered by the company’s limited available capital. For example, Woo said he was surprised Trans World’s video game comparative store sales declined in light of the positive quarter for the gaming industry in general.

“They seem to need more time and resources to get the inventory for video games,” he said. “But they should move quicker on movies, which while flat, is not the negative 20% that music is.”


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