Music World Ltd., the last domestically owned national music chain, has been put into bankruptcy protection by new owners who expect to wind down the money-losing business - another victim of a rapidly changing music listening and buying landscape.
With 72 stores and a presence in almost every province, the retailer joins Sam the Record Man and others that have succumbed to the new world of music downloading, online file-swapping services and digital radio. As well, music merchants have been squeezed by Wal-Mart Canada Corp. and other big-box stores that sell compact discs as loss leaders.
"The music industry has gone through tremendous turmoil in recent years," Toronto businessman Kai Voigt, one of the three new owners, said in an interview. "Purely music retail has a sad epitaph."
The Canadian music sector has been hammered by a worldwide drop in record sales, leaving dozens of people out of jobs this year at music labels Sony BMG and EMI, while music chain Sam the Record man closed its high-profile flagship in Toronto last summer.
Music World, previously owned by the wealthy and philanthropically generous Pindoff family, should close by early next year, but its new owners will look for buyers for some of its profitable stores and its inventory, court documents state.
The parent company was bought by the new shareholders last Wednesday and, two days later, got creditors' court protection.
By early next year, British-based HMV will likely be the only remaining national music chain in Canada, with 118 stores.
"Unfortunately the nature of the business is, when companies aren't investing and aren't finding ways to evolve their business, the risk is that you start to fall backwards, and I believe that's what happened to them," said Humphrey Kadaner, president of HMV Canada. It will now consider picking up "a few" of Music World's outlets.
HMV is surviving the onslaught of digital downloads by aggressively branching out into non-music products - DVDs and video games - and transforming into an "entertainment" retailer rather than just a music chain, he said. By the end of this year, HMV Canada will generate more than half of its business from non-music sales.
At Music World, the losses were mounting. Last year, it was $9.2-million in the red on sales of $80.6-million; in 2005, it lost $3.2-million on sales of $96.1-million, according to documents filed with Ontario Superior Court of Justice.
The retailer owed its parent, Pindoff Record Sales Ltd., more than $30-million before the parent was acquired by the new owners, according to court filings. The new owners now owe Pindoff, a secured creditor, more than $20-million. It is the only substantial creditor.
Pindoff also owns a CD and DVD wholesaling division, as well as 60 per cent of a music distribution business in Quebec (neither is included in the court filing). Both "are strong companies which we intend to grow significantly going forward," Lawrence Pollack, another of the new owners, said in an email.
The new owners essentially financed the acquisition with $12-million of an advance from the liquidators that they hired to sell the merchandise, the filings indicate. The retailer will lay off its 648 employees, but keep most of them until Jan. 31, the filings state. It wants to start its liquidation sales immediately to cash in on the busy holiday shopping season.
Mr. Voigt said in the interview that he is now thinking of buying some of the Music World stores in the court-shielded bankruptcy process.
He said he is talking to other smaller retailers about combining their efforts in a new model that would entail expanding into non-music categories.
"We're not ruling out retail, but retail as it exists has to be reinvented," he said. "I'm not anti-retail. I'm anti-losing-money.
Music World was founded more than 35 years ago by Eva and Kroum Pindoff after the couple carted records in their station wagon to convenience stores and pharmacies in Ontario, selling them on consignment.
Contracts with larger retailers followed, and they opened a warehouse in 1962 before launching the first store in Toronto eight years later. At its peak in the late 1980s, it ran more than 100 stores.
Known for their largesse, the Pindoffs donated $5-million to the tsunami relief effort in 2005 and, a year earlier, $20-million to War Child Canada, which helps children living in battle zones.
When reached by phone, Ms. Pindoff had no comment.
The music stops
Sam the Record Man
Sam Sniderman first began selling records out of his brother's radio shop in 1937. He opened the flagship store on Yonge Street in Toronto in 1961, and transformed it into a successful chain of 130 stores across Canada. But by 2001, it was down to 30 stores and filed for bankruptcy. Last summer, it closed the Yonge Street store but the decision did not affect two franchise stores, in Belleville, Ont. and Sarnia, Ont.
Started in 1970 by Eva and Kroum Pindoff after the couple sold records from their station wagon to convenience stores and pharmacies in Ontario, it expanded to supply larger retailers and opened a warehouse in 1962. At its peak in the late 1980s it had more than 100 stores, but today that is down to 72. On Friday, the chain was granted court protection from creditors.
A&A Records was a Canadian record store chain, which declared bankruptcy in 1991. Many A&A stores were absorbed into the Music World or Sunrise Records chains.