TORONTO (CelebrityAccess MediaWire) — For the 648 employees of the 72-store Music World music chain in Canada, it will be a bleak Christmas. They face potential layoffs following the holiday retail sell-off period.
Music World’s parent company Pindoff Record Sales was bought on Nov. 7 by shareholders Kai Voigt, Stephen Granovsky and Lawrence Pollack. Two days later, it received creditors' court protection under Consumer and Corporate Affairs Canada. As president, Voigt has appointed Gary Stern as CFO, and Nick Phillips as COO.
The retailer owed Pindoff Record Sales more than $30 million before the parent was acquired by the new owners, according to documents filed with Ontario Superior Court of Justice. The new owners now owe former owner Kroum T. Pindoff, a secured creditor, more than $20 million.
In 2006, Music World lost $9.2-million on sales of $80.6-million, according to court filings. in 2005, it lost $3.2-million on sales of $96.1-million.
The new owners basically financed their acquisition with a $12-million advance from the liquidators that they hired to sell the merchandise. As of Nov. 12, the liquidators are overseeing sell-off of inventory at the stores valued at about $21 million. The liquidators’ objective is to recoup its $12 million plus make a profit on the inventory.
That means in-store bargains as stock is liquidated and as suppliers worry about 8% of the Canadian music marketplace slipping away.
Pindoff Record Sales continues to own a CD and DVD wholesaling division, as well as 60% of Montreal-based DEP Distribution Exclusive Quebec, a key distributor of French-language product in Quebec.
The filing states that the most likely scenario for Music World is an orderly wind-down of business. The filing further states there is a “possibility” the new owners might try to operate a scaled-down Music World, Several suppliers, in fact, have been informed that under a reorganization, as many as 50 locations could continue to operate.
However, many of Music World’s mall leases, sources say, are due to expire within 2008-2009 with no automatic rights of lease renewal. That means these lease renewals will solely be the discretion of a handful of landlords who oversee malls. If they have to take back Music World’s stores in their weaker malls, it is unlikely they will let Music World keep stores in their better malls.
In order to operate a new Music World model, the new owners need to hold onto the better performing stores in the better malls.
That will be a challenge.
Kroum Pindoff and wife Eva founded Pindoff Record Sales in 1960, initially selling albums to convenience store owners from the backseat of their car. In 1962, the first Pindoff Record Sales warehouse opened and the company attained such rack accounts as The Hudson's Bay Company, and Sears. By 1970, Music World had been launched. At its peak in the mid-80s, the chain had 110 outlets.
Canada media quite wrongly proclaimed that Music World’s bankruptcy is the latest retail casualty of competition from music downloading, online file-swapping, and big-box stores.
Those may be factors but Music World’s previous owner should take much of the blame. If Music World had invested and evolved, if it had branched out into other entertainment product lines, and if it had not lost such key staff as executive VP Robert Smith, and GM/VP Terry Stevens in recent years, it would probably not be bankrupt today.
In the end, the Pindoffs cash out with the sale to new owners; the new owners cash out by attaining the bulk of their purchase price funded by selling inventory to liquidator, and possibly being able to sidestep staff liability by filing for bankruptcy as well as reducing or dropping their retail business; and the Music World employees face getting screwed.
In 1995, Pindoff Record Sales was named as one of Canada's 50 Best Managed Private Companies by The Financial Post. –by Larry Leblanc