THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, June 25, 1995 TAG: 9506270445
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER
LENGTH: Long : 138 lines
Paul Mayer and Ed Fadel, college buddies and entrepreneurs, recognized that a music superstore might someday bulldoze a path through the industry, right over the pair's small retail chain in North Carolina.
``It would be just like Home Depot or Circuit City,'' Mayer said. ``So we started designing the ideal music store for the customer. We asked ourselves, `What would be the ultimate music store?' ''
They responded with Planet Music, a behemoth outlet. The first store opened in Virginia Beach in 1993. Since then, the Planet Music division has grown to five outlets, and there has been talk that Planet Music may become the next growth vehicle for parent company Borders Group Inc.
``I'd like to see 200 Planet Musics from coast to coast,'' said Mayer, chairman and chief executive of Durham, N.C.-based Planet Music and a member of Borders' directing board.
Mayer and friend Fadel, both Duke University graduates in their early 30s, began dabbling in retail while they were students. They opened a restaurant and sports bar in Durham that is still a popular watering hole among students and locals. In 1986, they formed CD Superstores Inc., and opened five 2,800- to 5,000-square-foot outlets in North Carolina. Three are in the Raleigh-Durham area; Greensboro and Winston-Salem each have one.
Few outsiders took the two serious when the entrepreneurs decided to build their gargantuan music dream. It would be 32,500 square feet - more than six times the size of a regular record store - with 4,000 square feet set aside for a soundproof classical-music section.
At the Virginia Beach store, located on Virginia Beach Boulevard, customers can find about 100,000 compact disc and 26,000 cassette titles. While customers browse, their kids can frolic in the play area. Shoppers can sample compact discs at 80 listening booths or ask a bluegrass expert for help picking out tunes.
``My friend told me about the store,'' said Sheldon Terry of Hillsville in southwestern Virginia, who visited the store early this month. ``It's the biggest thing I've ever seen.''
Planet Music asks customers to pay membership fees if they want discounts on the store's goods. But many consumers seem to think the $12 annual fee, which gives them a 20 percent discount on store items, is a good deal. So far, the Virginia Beach store alone has signed up more than 48,000 members.
``It makes sense to music lovers,'' said Jean-Pierre ``J.P.'' Asuncion, the store's head of training and development.
Planet Music, the glassy building next to Barnes & Noble Booksellers, opened its doors on Nov. 24, 1993 - the day before Thanksgiving. It was quickly swamped. Today, even ``slow'' days mean a small crowd.
``The good news is that it worked,'' said Mayer, laughing.
Co-founders Mayer and Fadel, Planet Music's president, knew they had hooked on to something, but they needed two things to expand the concept beyond Virginia Beach: capital and retail expertise.
They got it last September when they sold CD Superstores Inc. to Borders Group for $17.5 million in cash and stock. Borders, a chain of book and music stores, belonged to ailing Kmart Corp. at the time.
The music company's management was left intact, but the company's name was shed. CD Superstores Inc. was renamed Planet Music Inc., though the smaller stores retained the old company name.
It was a relief to some Planet Music executives when Kmart announced it would spin off Borders Group, which operates about 59 Borders Books and Music stores, 22 Borders superstores and 1,050 Waldenbooks stores.
``There was some taint - how do I say this delicately? - to the Kmart name,'' Mayer said. ``When recruiting investors, Kmart doesn't have that luster. Borders has quite a reputation.''
Mayer could have cashed out, but he didn't. Instead, he kept his title and retained part ownership of the chain. He says he wants he wants to watch Planet Music grow.
Borders' capital helped generate four more Planet Music stores: two in Houston and one each in Baltimore and Memphis, Tenn. There are plans for at least two more stores, and officials have discussed opening some Planet Musics in North Carolina. It's not clear what would happen to the older and smaller CD Superstores, which are located in that region.
The company won't comment on future store openings or its strategy, said Rick Vanzura, Borders' vice president of planning.
Borders, however, is somewhat wary of rapid expansion for the fledgling music chain. The customers are younger than it is used to, and the stores' offerings are strikingly different from those at Borders Books and Music stores.
Also, Planet Music has yet to establish a track record in highly competitive markets. In Virginia Beach, for example, it faces no direct competition from music superstores, Borders said in its prospectus filed with the SEC in May. In other markets, Planet Music is matched up with superstores like Tower Records, Musicland and Media Play.
``The Planet Music superstore format is new and unproven,'' the company said in Securities and Exchange Commission documents.
But Mayer and others think the company will pass the test.
Planet Music's sales were $13 million in the five-month period from Sept. 1, 1994 to Jan. 22, 1995. The chain's sales before the acquisition aren't available.
Since its buyout, Planet Music has enlisted more retail expertise. It hired Wanda Shive as chief financial officer and Steve Berlow as vice president of operations. The company also is bringing on a new merchandiser.
Berlow, who worked for the Limited and Sunglass Hut chains, is trying to ensure that Planet Music has a strong enough foundation to support any accelerated growth. From the Virginia Beach office, he's helping set up a training and development office and monitoring the flagship store's performance.
He will try to perfect the store's merchandising, employee training and design before rolling out policies to all of the chain's outlets.
Mayer is humbled by this. After all, he and Fadel got into this business because ``we were entrepreneurs and music lovers.''
``We're just people with this concept, this idea,'' Mayer said. ILLUSTRATION: Color photo
D. KEVIN ELLIOTT/Staff
The atmosphere at Planet Music is relaxed, allowing customers like
Liz Bottomy, 17, the chance to sample various music at listening
stations in the store.
Photo
D. KEVIN ELLIOTT/Staff
Planet Music employee Bob Deal, right, helps Trudy and Jim Gresham
of Duck, N.C., choose selections in the classical-music section of
the Virginia Beach store.
Graphic
PLANET MUSIC INC.
Headquarters: Durham, N.C.
Company officers: Paul B. Mayer, chief executive and chairman,
and Ed Fadel, president.
Parent company: Ann Arbor, Mich.-based Borders Group Inc.
Number of stores: 10. There are five stores each in the Planet
Music and CD Superstores divisions.
Description: Each Planet Music store offers more than 100,000
compact disc titles. The Planet Music division provides most of the
North Carolina company's growth.
Hampton Roads location: 4485 Virginia Beach Blvd., Virginia
Beach. Open 10 a.m. to midnight every day except Monday, when it's
open until 12:30 a.m. Annual membership fee of $12 allows for 20
percent off all store products.
by CNB