Industry Profile: Mike Dreese
By Larry LeBlanc (CelebrityAccess MediaWire)
This week In the Hot Seat with Mike Dreese, CEO and co-founder, Newbury Comics.
As its customers know, you can drop a bundle in Newbury Comics in music and other purchases.
However, when Massachusetts Institute of Technology roommates Mike Dreese and John Brusger opened the first Newbury Comics store on Newbury St. in Boston in 1978, they didn't sell music at all.
Instead, they used the store to sell Brusger's extensive comic book collection.
However, they soon branched out beyond comic books and began to sell albums.
Over the years, a number of bands, including Nirvana, Godsmack, Radiohead, and Beastie Boys, have credited Newbury Comic in kicking off their careers.
Today, their 30 stores are filled with new and used music product as well as with DVDs, books, clothing, shoes, comics, posters, T-shirts, action figures, sports merchandise, and other pop culture-related goods, and Newbury Comics is an iconic New England retail fixture.
There are now 29 Newbury Comics stores in the New England states: four in New Hampshire, two in Rhode Island, one in Maine, one in Connecticut, and 21 in Massachusetts. The company also operates a Hootenanny retail outlet in Boston that sells fashion products.
Through the years, Newbury Comics has sold over 90 million records, CDs and DVDs; and has employed more than 2,400 people.
It out lived such competitors as The Coop, Strawberries, Lechmere, NE Music City, Tower Records, HMV, Popcorn, Good Vibrations, Virgin Megastore, Circuit City and Borders and has seen more than half of the stores belonging to Musicland shuttered.
Generally, American retailers still carrying music goods have downsized their selections in recent years.
Newbury Comics continues to compete in music and in some other entertainment product categories, against Wal-Mart, Target, Best Buy, and Trans World Entertainment’s F.Y.E. media stores.
However, as is true for every other chain, music sales have greatly dipped at Newbury Comics.
As a result, the chain is now placing greater emphasis in selling a greater array of goods and has recently opened two new "hybrid” superstores that feature more fashion product.
Newbury Comics has also greatly increased its web presence to the point where its represents 25% of its total sales, primarily through eBay, Amazon, and Punk.com.
When Newbury Comics opened, Boston had a distinctive alternative music scene that was heavily supportive of both the thriving British punk scene as well as American new wave.
While many of Newbury Comic’s earliest best sellers were releases by local groups, including the Neighborhoods, Mission of Burma, and LaPeste, the chain also started selling imports of U.K. singles by such acts as the Clash, Elvis Costello, Lene Lovich and U2 that were greatly prized by its customers.
Also, from 1980 to 1987, the co-founders published a rock magazine called Boston Rock that spotlighted many of the artists being championed by the chain. Also launched in the early ‘80s was Modern Method Records followed by Wicked Disc, and then their folk label Black Wolf in the 90's. Newbury Comics slowly expanded, opening a store in Harvard Square in 1981, and then its third store in 1984. By 1989, it had seven stores.
Today, Dreese is widely recognized as one of the savviest executives in American retailing, and Newbury Comics is heralded as an innovative retailer that has continually expanded its product offerings with greater and greater success.
Dreese and Brusger recently launched a $1 million angel investing initiative, The Wicked Good Angels Fund, which aims to put money and business expertise behind aspiring startups in Boston.
The fund seeks to put in about $100,000 to $150,000 in startups at an early stage, syndicating with other investors to put together capital rounds worth about $500,000. Typical valuations are $1 million post-money, providing investors with about 50% equity ownership in the startups.
Wicked Good Angels has already put money behind three Boston-area startups: A green building software company, a student marketing network, and a company aiming to provide online connectivity in senior housing facilities.
Newbury Comics hasn’t moved beyond its New England base. You obviously don’t seek a broad-based geographic expansion.
I have never wanted to own a public company. This is basically a lifestyle business. It is run for the employees, and certainly (for) the ownership. I want to have a job that I go to everyday.
With the stores in the same region, you are really helped geographically in distributing product.
About half of our volume comes from the state of Massachusetts.
Many retail chains have expanded over the years, and suffered as they grew too big.
Well, they grew bigger than their competency. The key thing to understand about music retail, in general, is that there is not a lot of competency. Or there was not certainly circa 20 years ago.
You had a bunch of good ole boys who loved music; who grew up and started expanding; and didn’t know what they were doing. These were not people who went to business schools. They didn’t know how to program computers. These were not people who could run large-scale operations.
Then you bring in the suits, and (that) makes it worse.
I guess that Higgins (Bob Higgins, chairman and CEO of Trans World Entertainment Corp.) is the guy from the ultimate accounting point of view that has thrived or has succeeded. But I don’t think that Trans World is a company that a lot of our folks would want to work in. He’s a superlative financial operator but, as far as wanting to do something to impact on staff a little differently, who knows? But he is last man standing in terms of (music retailing). He went and bought up virtually every chain [including Strawberries, Camelot Music, Wherehouse Entertainment. and the Musicland Group, which owned Sam Goody, and the former online store Media Play] that predictably all ran in trouble.
Music retail has changed so much in the past two decades.
You walked into most record stores 20 years ago, and it was a big mess. These were not well-merchandised entities. There was virtually no product that wasn’t from a major label with 60 or 90 day (return) terms.
In the general sense, they (musical retailers) were not merchants. They were selling shelving space for national accounts, and they viewed the record label as the customer, instead of the customer as being the customer. I’m talking about the bigger chains; not the moms and pop (stores).
The big chains viewed the label as means to extract value.
You look at the supermarket industry which might be the closest thing to (the music industry), where positioning matters for brand building; look at the book industry, the hardware industry, or the toy industry; all of the other industries that we have been associated with; none of them operate like the music industry.
So (the big music chain’s strategy was) not about trying to excite the customer. To extract value from the labels seemed to be the pursuit. In essence, there was a lot of value available because not very much of that value (from the product being sold) was flowing to the artists. (Retailers and labels) would be sitting there on a $10 wholesale (CD) item, and it was basically $9 available to be thieved.
If Best Buy could grab $2 of it on a mark-down, the label could use the rest for car service and fancy meals; I guess that worked for a long time.
[Recently, Best Buy has begun demanding a wholesale price of less than $10 for all regular CDs. As well, for new titles not expected to sell 1,000 units in their first week, Best Buy now reportedly requires a wholesale price of $7.50 or less from major labels, and a $7 wholesale price from independent sources.]
Best Buy’s revenue and profits have significantly dipped this year.
Well, they are in trouble now. They don’t have a product left. Best Buy and Target were two of the best marketers who also had very successful music categories for many, many years. Imaging and marketing, they were superlative at it. Today you look at Best Buy, and you ask, “What’s in that store that I really need?” Wide-screen TVs are at a price now where Wal-Mart can sell them. Phones? It’s all about the Apple stores. PCs? Forget about it. It’s a dead product. So Best Buy is in big trouble, I would say just from a product cycle. I don’t see anything in a Best Buy that is going to be relevant in four or five years, that they are going to be best at (selling).
Most retailers still carrying music product have downsized their music selections. Fewer retailers can afford to only sell music products today unless they are in the specialty music market.
Trans World can afford to; we can afford to but we choose to do other things. It really is more about what’s the reward three or four years out from maxing out that (music retail) concept.
Newbury Comics has never really been a music chain.
Well, that’s not true. In 1985, probably 95% of what we sold was music.
Yes, but Newbury also sold many other things then too.
We did, but it was not as economically as significant (as music products). Maybe 10% (of the goods) were non-music but it was weird stuff. Where other chains had more blank tape that had music relevance, we had pop culture relevance stuff. For the past 10 or 15 years, we have definitely morphed into having way more other stuff. But the period three or four years from our founding, and for the next decade, we were 90% a music chain.
Nowadays Newbury keeps coming up with pop culture items that consumers seek to purchase.
That’s been our business for the past five, six or seven years. It started with Pokémon (trading) cards. We had 14 weeks in a row where we made over $100,000 in margin on Pokémon. This is something that sold to four to six year olds. We had no business being in that market. Those were opportunities that other people didn’t jump on. We cleaned Toys-“R”-Us’ clock on that for three or four months. We just took all of the supply.
Newbury is basically a buyer-driven company.
Right. It’s more about driving product, right? Having the right product. We have a customer that looks to us to be that (cultural) pointer. I like to say that if you come into Newbury Comics, that you never know what you are going to find but it’s going to be worth the trip because you are going to find something that titillates or amuses you--for whatever reason—and you will feel like taking it home.
There’s that idea of spontaneous discovery—where you are leading people to a suite of products. That something (in a store) is going to be interesting, and worth the trip for people to come back. I talk in internal meetings of the old Dunkin Donuts’ slogan, “It’s Worth the Trip.” That’s the key for retail. How do you make sure every time your customer walks in the door that they walk out saying, “It was worth the trip,” whether they bought something or not; just because it was an enjoyable experience?
If you walked in one of the (music) chain stores 15 years ago, you wouldn’t know which one you were in. People walk into our stores--even today--and say, “Wow, I have never seen a store like this.”
[Dunkin' Donuts' "It's Worth the Trip" campaign won honors from the Television Bureau of Advertising as one of the five best commercials of the 1980s.]
A decade ago, music product represented more than half of the annual sales at Newbury Comics.
It is totally different today, particularly on the margin side where used product makes very significant margins. New (product) makes okay, but not great, margins. More importantly, DVD is a very significant (revenue) source now. With our new hybrid fashion store concept of which we now have two (stores)—they are earning, maybe, 16% or 18% of their margins from music. So we have already made the transformation. In fact, our Faneuil Hall Marketplace store, which is in a busy tourist area in downtown Boston, the striking thing is that we made more money in selling headphones over the summer than we did selling new music. Just headphones.
How are the two hybrid stores in Massachusetts different from the other stores in the chain?
We still have a (fashion) store called Hootenanny in Harvard Square that has been open for 10 years now.
These fashion stores that we have opened are in major malls. We are in Braintree (In the South Shore Plaza with 10,000 square feet), and we just opened in Natick (in Natick Mall with 11,000 square feet). The stores have a vast array of fashion items, and accessories, and they are performing. It kind of ties in a lot with what we are doing online. We will sell what we describe as fashion about $6 million online this year.
Your online business is growing significantly.
Our online business overall which includes media--much of which is sold through Amazon and eBay--has gone from $8 million to $21 million year over year. There’s been a huge growth in our online capabilities, and that volume is leading us to (having) significant preferred relationships with fashion suppliers.
My take on it all is that in 1980 or ’81 when we looked at the (retail) landscape and said, “Oh my gawd, there’s an emerging class of independent or DIY labels that are in the rock genre that didn’t use to exist and Newbury Comics could bring all of those disparate LPs to the market, including a very large amount from overseas.”
Well, I have the very same view of fashion today. If you go to the MAGIC show (The MAGIC Marketplace) which is the major trade show for fashion twice a year in Las Vegas, there are 4,000 or 5,000 manufacturers presenting. Very few of them have adequate distribution. So we are kind of taking (the same) twist on fashion that we did with music---which is to seek out nichey brands and exploit them through every channel available, including with our brick and mortar (stores) along with Punk.com which is a fashion site that we created a little more than a year ago.
In fashion, you are dealing with items where the price point is unclear to the consumer, and there are huge values to be had in the market. There are a lot of logistical efficiencies that you can employ. We are able to get knit hats out of Nepal, for example, that are air-freighted directly to us. So there are enormous logistical, and customs’ savings.
As an executive, how do you stay focused on the minutiae of the company?
It is just from (having the) experience. I just triage. I am a fix it guy. I am certainly a believer in the management of walking around. I try to stay involved with the bleeding-edge of what we are doing. I spent the past 18 months or two years primarily focused on our web operations. The last nine months or the year has been focused on fashion which also has a significant web component. So I am engaged in the high growth areas.
The web for us is running up to two and a half times (growth) a year. It is an exploding business. At the rate that we are going, it will be a $100 million business in two more years. It is going to be bigger than the whole company 18 months out.
So it’s worth paying attention to.
I spend about half my time on new stuff, and very little time on traditional management. Record stores aren’t that difficult to run. Fashion is hard to run. You have security concerns, and customer service issues. It is hard running a clothing store. A record store is really about throwing things in the bins, and people will buy them. If you have a reasonably knowledgeable and frisky staff, you will do fine. In fashion there is more selling involved, and there’s quality control (issues). Bad goods matter. Your markdown strategy matters. In music, you just shove (product) all back to the manufacturer (if it doesn’t sell).
Still, it must be hard to keep a handle on such details while overseeing corporate matters.
In our world, corporate is very attached to the field. The web pick packers are 100 feet from my desk. They are not separated. I work in the middle of a warehouse. It’s very nice office space, but we (head office staff) are all around product. I cut purchase orders almost every day or do distributions right off of my desk. I’m dabbling in stuff (business matters) so I’m aware. I deep dive on about 5% of the stuff, and that’s how I stay connected.
There’s not a lot of bureaucracy at Newbury Comics.
We now have meetings where we worry about failing fashion brands; but I never been in a budget meeting in my life. We are a $70 million company that has never ever had a budget meeting. Not once. There’s never been any gamesmanship here either, like, “I’m going to pad my payroll so the next time there’s a cutback, I will have an extra position.” All the bullshit the big companies go through just never took root here. Our goals are more about margin generation, and costs control, frankly. If you constantly focus on the key items that people (customers) want, the money will take care of itself.
Recently, in a communiqué you wrote, “We either have to morph or die.”
Well, we are seeing the collapse of the (music) catalog. It is pretty clear that in another year or two or three years that there will be far less physical product available from the manufacturers. So almost regardless of the customer demand or the return rates you can do, there will not be as much stuff (music product) available.
In our business where we sell significant amounts of used product, there are now dramatically lower amounts (being sold)---at least through our customers having a lot less good quality stuff (for us) to buy back. It is kind of a doubled-edged sword between (selling) both new and used. Our volumes on a typical hit (CD) are down a good 70% to 80% from the peak (years). There’s been a wholesale collapse on the hit side. The good news is that is the lowest margin category that we trade in. (Not having) those items, we (now) lose huge amounts of foot traffic but, in terms of margins on specific purchases, it is not as devastating (as it could be).
[Trans World Entertainment's test pricing of all single CDs at $9.99 recently received the support of Universal Music Group, Sony Music Entertainment and EMI Music. As well, Universal Music Group’s "Velocity" pricing initiative that was introduced last year has enabled new releases by current artists to retail for $10 or less. With big-box merchants selling hit music at $9.99 or less, however, other retailers have been forced to lower prices too which cuts into their profitability.]
Does price point remain the key to selling new music product?
I think that it’s everything. I think that the intuition of Trans World, Wal-Mart or these folks that want a $9.99 top price (for a single CD) that it is the right price point. So what that takes in terms of wholesale (pricing) I don’t know, but clearly the era where one can convince retail to stock things to be priced at $14.99 or $15.99 are rapidly approaching an end.
With all catalog, it has always been that the typical quantity that a Newbury Comic store will stock is one unit. As our sales on catalog have dropped something like 60% or 70%, we can no longer support that single unit of that title. I think that there are a number of things that the industry can do to be helpful but price is one; and lavish credit terms would be another. I am sure major accounts have negotiated better terms than we have. But when it comes down to it, you just cannot support the inventory turn if you are only going to sell an item once a year. You start to be a museum more than a merchant. A huge amount of the catalog that we have is in that status now. It is likely that we will only buy that product for that store one or two more times in its history.
Still, you can compete against Target or Wal-Mart by having deeper catalog.
If you choose to compete with an old school mentality which is not our philosophy. We would rather sell an Angry Bird T-shirt or a Hunger Game broach that you can make $10 margin on rather than squeeze out of a $3 or $4 margin on (music) catalog.
[Lions Gate Entertainment has acquired worldwide distribution rights to a film adaptation of “The Hunger Games” which is being produced by Nina Jacobson's production company Color Force. Author Suzanne Collins adapted the novel for film herself. The film has an anticipated release date of March, 2012.]
A few years ago, you described the music industry’s relationship with the emerging digital world as “a train wreck.” Does the industry have more of a handle on the space today?
Yeah, we are pretty much in the clear. Everything kind of fell out the way that I thought it would. We ended up doing better than I thought we would. There was this digital divide that has since largely been smoothed out. There are actions now being taken against the worst of the rogue uploaders. CD sales are now only running 3% or 4% down from a year ago. Total unit volume is positive in terms of track equivalents with albums. I think that the consumer is as well-served as they ever have been. You really do have music where you want it, when you want it, through the device that you want it. There are still some impediments, and folks like Apple still have too much power. The idea they can extract a set amount from every app---that is probably too high by 10% or 12%--is an irritant. If Apple only had a 15% fee, I think that the world would be a great place. But they now have competition in the form of all these streaming services. Certainly, Amazon is a formidable competitor that is starting to wield its clout. Amazon is a very important business outlet for us for media and fashion. We will move $15 million through Amazon this year. They are a huge volume outlet for us. It is interesting that in terms of the vendor’s side (of the business) that Apple is more one size fits all; and Amazon seems to be a much more open platform.
Does music still have a future at Newbury Comics?
We clearly are not going to be in the music business (with the sector) being a significant profit generator of substance three or four years from now. That is just continuing to decline. New music is not accountable for more than 15% or 18% of our total margin right now. So it is already a minority share of what we worry about. I am more worried, frankly, in the short run, about the destruction of video because it involves such a limited amount of SKUs. There are really only 2,000 or 3,000 videos that anyone cares about. It is pretty easy to move those; a lot easier to move them into digital platforms--in my view--than music. Music is more difficult (to surf) than video. With video, there are 200 or 300 directors that matter, and 200 or 300 acts that matter. That’s it, and that’s what people want to watch. Then you’ve got some nitwits that might want to watch foreign films which we love (because of the higher margin).
For us, (the issue with) music is how do we keep it alive? We are definitely going to be one of the very last men standing, but, nevertheless, (new music product) is already less than a quarter of our business. The rest is the long tail of catalog that customers currently own and regurgitate back to us which is the more profitable segment, frankly.
Are video sales hit-driven?
It is brand-driven. There are certain actors that are popular. People either like Sylvester Stallone or they don’t. It is also very brand-driven either in terms of the director—“Oh, that’s Ridley Scott.” People will want to watch (other films by Ridley Scott) almost by reputation or from the way that they (film distributors) market it. “From the creators of…” whatever the new thing is.
There are very few major films released a year.
I think that there are 85 “A” titles that come out. That is the totality of the film industry (annually). Only 85 films. That’s it. Then there are 200 or 300 credible independent projects. In film, you only need (to have) 300 credible items a year. It is a very, very limited array of material. If you take that back maybe 50 years, you’ve got maybe 10,000 items that matter at all. So it is a much easier business to manage than music where we have 1.1 million music bar codes in our system. 1.1 million objects that we are keeping track of.
Video distributors have been quite innovative with product paks. You don’t see that with music because of the licensing issues. Film studios hold all rights whereas in the music industry that is rarely true.
It’s a house divided (with music). The rights are too spread out. It’s all about the rights. That is the problem of the digital divide. With film, it is all work for hire. People can do whatever they want with the content. With music, they have to negotiate with two or three or four parties sometimes (on a release). If you are trying to attain sound sync rights, there are a whole bunch of people that you have to talk to.
Newbury Comics was one of the first music retail chains to have an online store and the first to get rid of its online store.
Yeah, we were up in 1995 or ’96. We had 14,000 static HTML pages, and one of the fastest-loaded sites ever. (Online retailer) CDNow came along and decided to sell music with free shipping. It was (with) a $4 or $5 loss. We decided that this is insane, and we got out. Now we are back in, but our online efforts are focused on fashion because there’s a lot more margin. If I sell a pair of Ben Sherman boots, I can make $40 of margin. That’s a lot different than beating myself over the head to make $1.50 on a CD.
Many artist managers now seem to have a handle on the music marketplace.
That’s probably the way that it should be. What’s the label after all? A distribution mechanism. We have to get away from the plantation system where the label allows the slaves out sometimes to make decisions. That’s the way that it was. That is not the way that it is anymore.
Still, the music industry has passed through the transitional stage of adopting digital strategies and is starting to be innovative with their strategies.
I continue to be extremely optimistic about the world that is going to exist 10 years from now because of all of this innovation. Good ideas are going to win out; the (copyright) laws are going to be sorted out; and the evil doers are going to be put behind bars. There will be “new school” systems that will be reasonably secure; where payments actually flow through some reasonable fair system; and the world will be a much better place.
It’s a very exciting time to be a musician or to be involved in managing musicians. It is not a very exciting time to be a traditional record label. The better of them have already made a significant transition. Warners is a good example. They definitely have some executives in place who get it. If those executives rule the world in five years, it will be a much better place. Probably, they will. It will either be new thinking of people at labels or it will be the tech community doing a wholesale takeover. Either way is fine because the tech community has finally learned how to market to consumers. They really didn’t understand it before. Now I think the tech community understands certain things really well; and there are certainly things that they don’t understand.
The thing you have to ask (about dealing with digital commerce) is "who does have it figured out?" Please tell me an industry where it’s all figured out; where they are not simply expropriating other peoples’ intellectual property. Maybe Apple has it figured out but a tremendous part of their value is a 30% fee on everybody’s else’s stuff.
There’s currently the argument that consumers don’t need to own the music that they listen to.
If people think that people don’t want to own, they are just dead wrong. Some of these (digital) streaming type concepts are really good, but they need to continue to provide an ownership option. The idea is that you are allowed to own something; and it’s not “Oh, I didn’t pay my $9.99 bill, so my streaming is now cut off.”
Consumers have yet to confront that issue.
You are starting to see it with the pushback on Netflix and with cable and phone bills. People are outraged. There is a lot of abuse going on with the consumer with the all-you-can-eat concept with technology in general. If you own the Beatles’ catalog, you own it or you don’t. You don’t own a “cookie” that gives you the right to listen to it. In the end, a lot of consumers are not going to like that deal. The industry better figure out a way for them to own a secured digital copy that they can access from anywhere, anytime and without the approval of Apple or Comcast or satellite. A lot of consumers want that.
I’m not saying (owning is) for everybody. It may not be for people under 25. If they want to get that older customer, they can’t say, “Well, you don’t own it anymore. We took away your library card. You aren’t allowed to read or listen to anything.”
Ownership is terribly important. Maybe it comes down to saying that you can own the entire Warner Brothers’ catalog for $1,000 or something. Give that as an option. But don’t say that because you forgot to pay your “phone bill,” that you don’t have access to music anymore.
For decades, the music industry struggled to get its new products above $10. That came with the advent of CD. Then consumers began screaming that $13.99 or $14.99 for a CD was a rip off.
I wouldn’t say that the (labels) blew the large accounts but certainly there was a period there where the Best Buy mentality became like a heroin to the industry. I’m not referencing Best Buy specifically but the mass merchants collectively were extracting rebates that effectively lowered the price to the point where a $9.99 price point could be headed; and it could be put in a circular.
As those volumes rose (labels) just did not know how to get off the “crack” as it is here. I remember in the old days having executives come to me saying, “Account X,Y or Z wants me to fill their wheel barrel (bins) and I just don’t have the money left to do it.” This was because the (mass merchant) accounts had been so successful, and had grown so fast. What was a 5% or 10% part of the market became a 30% or 40% part of the market. I think that by allowing that product to be effectively whored out at that $9.99 price point, they totally changed consumer perception.
DVDs held their price point for a long time.
Well, DVDs held the price point until Wal-Mart had this bizarre notion that they can better control their assortments by lowering the price of their own products by a significant amount. That reset the DVD price point which was a catastrophic error along with what you see right now which is that (the perception is that) Blu-Ray costs too much, and the consumer is (only) very slowly adopting it.
Record clubs were also a force in the ‘90s.
In my experience, Best Buy was way more of a problem. That was the one people complained the most about. With Wal-Mart, it was like (about) a specific record—like someone trying to move a specific title. It was a national (label) person saying, “I have to fly down to Bentonville (headquarters of Wal-Mart Stores) and drop my pants.” That was corrosive but some of the other mass merchants had better framework deals that drove prices down more effectively. When you had a circular that had 25 titles at $9.99, it was pretty much pounded on the consumer’s mind that was what (the product) was worth.
Despite Jay-Z and Kanye West’s “Watch the Throne” album first being made available exclusively through iTunes, and Best Buy this year, such preferential retail treatment is less common today.
It is only in the last five, six, or seven years that band management has gotten sophisticated enough to where they are the ones that are driving the bus more now. More so than in the past. I think a lot of the nonsense of the past (with exclusive) wouldn’t have happened if there had been more sophisticated band management. They just allowed the industry to roll on them.
There are some really smart managers out there who were always sure that they got their share of the pie. The best of the breed has always been the management of the Rolling Stones or David Bowie. I think that (attitude) is now more common than not among superstar talent. Rights are being represented better.
When the Rolling Stones sold its ”Four Flicks” DVD at Best Buy in 2002, it resulted in retail boycotts of their catalog. The same with Alanis Morissette after her Starbuck’s exclusive deal for her acoustic version of “Jagged Little Pill” in 2005.
We have pulled many artists over the years. As an independent, we aren’t publicly-traded. If someone is that obnoxious, it’s like “Well fuck you. I don’t need to sell your stuff. I really don’t need the money that badly.” We pulled Alanis’ stuff. We pulled the whole Stones’ catalog when they were in town. The label went crazy. “We need Stones’ windows.” Well, you are not going to get them.
As a retailer, you support and develop an act and they then turn their back on you.
And that’s all fine. They will get whatever structure that they are willing to support. Certain acts have irritated me but, in the end, we are hucksters. If your stuff is not favorable to huck, then we will find something else. And that is what we have done. So I don’t take it personally. People can do whatever they want. Certain things that were done in the old days--certainly to me--were over the line in terms of legality or what not; but, in more recent history, I’m not that much annoyed by anything. We simply put our best minds, and best talents to work on vendor sets--where the vendors truly appreciate what we can do for them. We gain some of those so-called exclusives for ourselves simply because we are first with an idea; or we are first with the investment to hold inventory for an up-and-coming pop culture brand.
You and John were roommates while attending the Massachusetts Institute of Technology. He was a chemistry major, and you were studying economics and management. Was it your ambition to go into retail?
I knew that I wanted to start a business. I thought that I would be a programmer or something and work for a digital equipment company. Just for two or three years, and then start my own business. I never thought that I would go right out of school and start a business but, absolutely by the time that I was a sophomore, I knew that I wanted to start a business. It was just a matter of when.
Why on Newbury Street? There wasn’t much there at the time.
It was kind of the bohemian neighborhood as everything is in the Village in New York. It wasn’t so nice then, and now it’s all gentrified. So we just picked our real estate well, I guess. It was a hotbed of college students. There were no condominiums at the time. It was all just rooming houses and frat houses and apartments for rent.
Berklee College of Music isn’t far from there.
That’s right. It’s two blocks away.
WBCN’s studios were then nearby.
Yeah, they were in the Prudential Building. So yeah, it was a very bohemian neighborhood. At the time when we opened, hookers stood on the corners on Friday nights. People can’t believe that today. We used to sell underground comics to hookers.
At $240 to $260 a month, your rent wasn’t exorbitant, but how did you bankroll the store? You only had John’s comic book collection that you were selling.
That is all we had. We started with $2,000, and a comic book collection. That is all. We didn’t borrow money until 10 years into (the business). We borrowed money for, maybe a six or eight or 10 year period, and we haven’t borrowed money for 10 years.
You later opened a second store in Harvard Square.
It was three years later. We (then) opened up a store a year every year for 30 years.
Boston had a thriving local music scene then.
It was a very, very tight scene. We could go to the Paradise Rock Club, and see 400 of our 2,000 customers at every show. It was not a very wide market. It was kind of an arts school/drop out/punk/gay crowd. A really mixed crowd. There were no (really young kids) in that scene. They may have been 17 or 18, but they were mainly in college and were disillusioned artist types. A very intelligent, argumentative crowd. At the time, the drinking age was 18 which meant that 16-year-old kids got into the clubs with false IDs. It was a very rich period for the club scene because there was so much alcohol being poured. A ton of bands used to play Boston and New York and then go back to England.
The Clash played the Harvard Square Theatre in early 1979.
We all say that was the beginning of the new wave movement. The idea that it could happen is unbelievable if you know anything about Harvard Square today. It just wouldn’t be allowed. That was really the beginning of an era. We had this advantage then that the major labels, even though they had (U.K.) artists under contract, wouldn’t release records in the U.S. until four or six months after they came out in the UK.
The big push for Newbury Comic happened with the compact disc.
Cassettes were never more than 12% or 13% of our sales. Our customers went straight from LP to CD, and we killed the CD market. We went out, and sourced (them) everywhere. We were paying people big stacks of cash. We would do anything we had to do to get CDs out of one-stops (distributors). We’d go to one-stops, and a skid of something would come in, and we would take half of that skid and throw it in the back of our car. The CDs didn’t even make it onto the “pick” racks.
When CDs were only 10% of sales in the country, they were 65% or 75% of our sales. We just wiped out the market. That is what destroyed the Harvard Coop which was probably the best record store in New England for many, many years. But they didn’t figure out how to source (CDs). We did. We were literally buying CDs for $9 or $10 and selling them for $9.99. We definitely wanted to penetrate that market. We sold many CDs for a 50 cent mark up.
There were EPs and singles available from the UK then.
Tons of singles. In the old days, we made our living on gatefold sleeve singles that were being used for chart-hyping in the UK. I was on a panel for a New Music Seminar, and I remember one of the suppliers saying to me, “Mike, you are 40% of our import business.” This is when we only had five stores. I had no idea the impact that we had. That we’d sell 3,000 Jam singles when (the supplier) only imported 5,000. We sold them for $3.99 or whatever. Those records were given free to record shops in the UK to hype the charts. That is why they had the extra disk. We knew guys over there who bought all of the extra gate-fold sleeve things off of the shop operators there.
Without all that (import product), labels wouldn’t have built half of those acts out of England like the Clash in the U.S. That’s another piece of the music industry’s rights structure that is so screwed up; that you just can’t put product where consumers want it. It’s been a Gordian Knot to this day that has not been untied. With (import) prices being up, we gave up on imports 10 years ago. We still sell (imports), but it’s just like a joke.
You can get the music from overseas online now.
Right. Nobody cares today, whereas Soft Cell and Frankie Goes To Hollywood, those bands were built on the import 12-inch market.
Over the years Newbury Comics has been credited for helping to develop many bands, including Nirvana, Godsmack, Radiohead, and Beastie Boys.
Radiohead, we sponsored the largest concert that they had ever played in North America at the time (in 1997). (They) headlined at Harbor Lights (now the Fleet Boston Pavilion) with 5,000 people there. We put up the money for the concert. Nirvana played our warehouse three weeks before their record (“Nevermind” in 1991) broke. That record didn’t break out of the box. It broke five weeks later. We got them before they were really famous. They had to bring pizzas.
Newbury Comics continues to offer consignment of CDs to artists. As much as in the ‘90s?
Not even close because most of it you can’t even give away. Now there is much less demand. We advise bands that do that they are better off selling off the table in the club that they are playing. In the folk business, artists charge $15 and they get it because people want to support artists. People still do want to support artists. We have an online consignment form. We ask what are the three or four stores that they think might sell best at. We say that we only want 10 pieces. People say, “I want to give you a box for every store.” We don’t want a box. We want to put CDs in your home town. There’s no market in Connecticut for a (new) band from Maine.
How does Newbury Comics tend to keep staff longer than most retailers?
We have about 17% or 20% of our total profits going to profit-sharing pools. That is shared with office staff, and store management. To the top two or three people in the stores. It’s formulaic. The size of the pie is determined by our economic result trailing back four quarters. The way that it is divided up is based on more subjective ratings of the people. So it’s a merit-based thing on the way that people are rated. They can get a bonus that is half-normal or double-normal based on how they are rated on their performance for the last quarter. A lot of retail pays really badly. But if you talk to a Nordstrom employee, you know what? They aren’t paid badly. It depends on the category they are in. Ours is how a person chooses to attack the market. I don’t disagree with the general thesis that you get what you pay for in the end.
How do you keep your staff knowledgeable about product?
That’s a real challenge. You just have to hire right. We have a lot of retraining issues for fashion and other genres that we sell. We never had a manual to say who the Foo Fighters were. So maybe we have to hire people who have more interest in fashion as well. Some people say we need a training manual for fashion. So why don’t we have one for music? Because we hired people who had a passion for what we sell.
Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008 as senior editor, he was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, and the London Times. He is co-author of the book “Music From Far And Wide.”