Want to Buy a CD in Times Square? Make It Quick: Virgin’s Giving Up
by Peter Kafka
Posted on January 14, 2009 at 12:54 PM PT
I’ve passed by the Virgin Megastore in New York’s Times Square many, many times, but have never even stepped foot in there. Turns out, it was doing just fine without me–it’s the highest-volume music store in the U.S. Until April, that is, when it shuts down. Billboard/Reuters:
Last June, a Vornado executive told Reuters that the store would shut down in the first quarter of 2009. The decision to close the store appears related to real estate and the value connected to the location. That executive was quoted as saying that Virgin pays only $54 per square-foot when the market rent in the area is about $700 a square foot.
So, while the store, which does an estimated $55 million in annual volume, is profitable to the tune of $6 million, according to sources, the space would be even more profitable for its owner with a higher rent tenant. Vornado bought the 180,000 square foot retail component of the Bertelsmann building, which houses the Times Square store, in 2006, and will lease the space to Century 21, according to reports.
The closure leaves the Virgin chain with five stores, and one of them, the Union Square store in New York, will now be the city’s premiere record store, with an estimated $40 million annual volume. But the status of that store is also at question as the Related Cos. and Vornado leased the ground floor of the store to Nordstrom Rack for the holiday season, only to have the deal fall through.”
I get that the decision appears to be “related to real estate,” but it’s really about the health–or lack thereof–of bricks-and-mortar music retail. If the No. 1 store in the country can’t make it, and if New York City’s “premiere record store” rented out a floor during the peak sales season, then why is anyone bothering to sell CDs in stores, period?
Plenty of retail executives seem to be asking themselves the same question, and are responding by cutting the small space they’ve devoted to CDs even further. The exceptions: Special promotions for exclusive albums, like Wal-Mart’s (WMT) successful push for the new AC/DC album last year, and Best Buy’s (BBY) unsuccessful gambit with Guns N’ Roses.
[Image Credit: Troshy]
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Comments
It’s partly about the health of music retail and partly about choosing how to generate revenue in a high rent district like Times Square. You ask why anybody even bothers to sell CDs. The answer is because there is still a market for them. There will still be CDs sold in the country, but retailers that specialize in music are not able to bear such high rent expense as Virgin would have faced under its new Times Square landlord.
Virgin is showy, and that’s how Richard Branson likes to do business. But the CD can no longer be sold out of showy storefronts. Those days are gone, those margins are gone, those levels of sales are gone.
Posted by Glenn Peoples at January 14th, 2009 at 2:22 pmHey Glenn. Virgin Megastore is no longer a Branson operation, right? Maybe that’s the reason they’re gone.
Posted by Peter Kafka at January 14th, 2009 at 5:18 pmAnyway, yes people still buy billions of dollars worth of CDs. But I think that increasingly the only way to sell them via bricks and mortar is going to be via a handful of mom and pops doing it for kicks, and as impulse buys stacked next to the gum and iTunes cards at the checkout counter.