What's Selling in America: part 1 of 5

"First You Get High on It, Then You Buy It."

Amoeba Music Marches to Its Own Beat

Memo to: The Big Bosses at Virgin Megastores Re: Your Next Big Source of Competition

These days, it's hard for monstrously big music retailers to whistle a happy tune. The major labels are turning out major flops. When they do get something to sell, they're up against other monster chains (Tower Records, FYE, Sam Goody), as well as even bigger merchants (Target and Kmart) that are happy to sell CDs as loss leaders. Well, I'm here to add another sour note to your medley of challenges: There's a new form of competition that is especially vexing -- because it is so original and exciting.

On a Saturday afternoon in late October, I dropped by your Market Street Megastore in San Francisco. With its giant black-and-white portraits of jazz and blues greats and its sleek listening posts for sampling CDs, the place was gorgeous -- and nearly empty. No doubt the World Series showdown between San Francisco and Anaheim, airing later that night, had shut out many shoppers. But when I headed across town, I found an aggressively anticorporate, outsized emporium, where roughly 300 music fanatics were joyously assailing the record racks as a Bay Area grunge band thrashed away on a makeshift stage. Perhaps you've heard of the place. It's called Amoeba Music, and it's arguably the largest -- and almost without question, the best -- independent record store in the country.

Twelve years ago, Amoeba raised the curtain on its original outlet, a pint-sized storefront in Berkeley packed with about 11,000 new and used CDs. It was not a great time to launch a mom-and-pop record store. Major labels were drunkenly churning out megahit makers such as Michael Jackson. In a desperate bid to get bigger faster, many national chains gobbled up smaller chains and independent stores and geared themselves to the casual music consumer. But Amoeba chose a different route: to serve the dedicated fan. And it has grown, amoebalike, since its first year. It expanded its Berkeley store until it ran out of room, launched the San Francisco outlet in 1997, and, just over a year ago, added a third store, on Sunset Boulevard in Los Angeles. This past fall -- a period when the music-industry recession hammered the national chains and the independents alike, and mass merchants barely eked out a sales gain -- Amoeba was projecting year-over-year growth of 75% (due in part to the successful launch of the L.A. store).

Mike Boyder, Amoeba's cofounder, likes to recall that he was a rookie retailer when he helped launch the Berkeley store. He brags that he never got an MBA. But Boyder and his partners have proven to be shrewd innovators who devised a three-part, rule-breaking formula to outfox -- and sometimes even outgun -- the industry giants. "First and foremost, Amoeba is a business," he says. "But we never forget that the business succeeds because of the music. Music is the essence of everything we do."

Here's the first part of the formula: Just because it's independent doesn't mean it's small. Amoeba's sprawling San Francisco outlet, which occupies an old bowling alley on Haight Street, takes up 25,000 square feet. Between CDs, LPs, 45s, 78s, cassettes, 8-tracks, videotapes, and DVDs, it stocks roughly 250,000 titles. Compare that with Wal-Mart, whose average store carries about 350 titles, most of which are this month's flash in the pan. Amoeba even towers over the national chain that's best known for its selection, Tower Records, which on average stocks about 60,000 titles at its stores.

But it's not just about size. It's also about diversity. Looking for the ultrarare, out-of-print LP, "I Get That Lonesome Feeling" by bluesman Ivory Joe Hunter? Amoeba has it. How about a one-of-a-kind Japanese import of the Byrds' "Ballad of Easy Rider"? Got that too. At a time when the music industry is mired in another one of its slumps and most retailers are placing smaller orders and stocking fewer titles, Amoeba covers a dazzling array of music genres and subgenres: experimental, electronica, New Orleans, dance, hip-hop, Appalachian, New Age, Celtic. Its classical section alone carries 15,000 CDs, roughly three times as many as one of the bigger Tower stores. But that's not all. Amoeba devotes every square inch of its space to selling stuff. Instead of wasting real estate on promotional displays from the record labels (as do most of the chains), Amoeba's walls are plastered with historic posters: the Beatles at the Palladium, B.B. King in Hamburg, the Who and Santana at the Fillmore. Says tattooed Amoeba salesman Nick Tyhurst, as he takes in the mind-bending display of art: "First you get high on it, then you buy it."

Right from the start, Amoeba's founders saw that they could exploit the record industry's hit-obsessed, me-too mind-set by helping people find the music that the big labels failed to offer. They signed on obscure import labels and indie producers. They promoted the recordings of Bay Area musicians who lacked the corporate clout to get their music into stores. They took a risk on stocking innovative, noncommercial recordings. "There's very little diversity in the music that gets pushed to the public, but there's tremendous diversity in music," says Boyder. "That's why we try to carry the broadest range that we can fit onto our shelves. And that's why we fill these giant spaces and still run out of room. We could always fit in more."

The Amoeba formula has a second ingredient: It's not a music store -- it's a music exchange. Walk through the front door of Amoeba's San Francisco outlet, and you'll run smack into a line of customers toting battered boxes of used records and CDs. This is Amoeba's secret weapon: the trading post, where customers can swap the flotsam of their collections for credit or cash. For a long time, the big retailers looked down on merchants who carried used product. But that hoity-toity attitude blinded the majors to a gold mine. The gross margins on a used CD run as high as 70%, compared with about 20% on a new CD. In a very real sense, used music allows Amoeba to bring Wal-Mart - like pricing to its new music.

"Amoeba has brought to bear a completely different financial model that cuts the big studios out of the action -- the very people who have been raping the retailer for the past 50 years," says Paco Underhill, author of the best-selling Why We Buy: The Science of Shopping, who was knocked out by Amoeba's innovations when he visited its Hollywood store. "As soon as the customer walks in, he sees that there's an opportunity to trade. And that makes him feel a hell of a lot better about buying. If he buys something he doesn't like, he knows that he can trade it in for something he does like. Ultimately, Amoeba has turned the music industry's conventional wisdom on its head. The industry views music as a consumable product: You consume music in the same way that you'd drink a Pepsi. Amoeba thinks of music as a tradable commodity, a durable good that has long-term value."

Seeing the error of their ways, some of the big chains are scrambling to market used CDs. They might be too late. There's no easy formula for creating a music stock exchange. Success depends largely on the traders' experience. The lead buyer at Amoeba's Haight Street store, Tony Green, has been in the used-record business for more than 20 years. Few chain stores have access to that kind of talent. "The chains won't be as successful at moving used product as the independents have been," predicts Ed Christman, retail editor at Billboard magazine. "They simply lack the sophistication and the depth of knowledge. You really have to know what you're doing."

There's a final element to why Amoeba works: The retail business is a people business. "We are social creatures, and shopping is a social experience," says Boyder. "To work here, your music knowledge must be good -- but so must your people knowledge. Success depends on blending the two."

The punk-rock offspring who make up Amoeba's staff are hardcore music junkies. Many are semipro musicians, producers, and deejays whose personal record collections tip into the five-figure range. They are passionate (at times delirious) about their music. Combine that unassailable fact with the sheer energy of the place -- the swirl of art, live music, and people -- and it all adds up to a combustible mix that on a good day sparks high drama.

"The cross section of people that I saw shopping at Amoeba was both shocking and wonderful," recalls Underhill. "Over in the vintage-reggae section, you'd see some pierced, tattooed 19-year-old looking to spend his hard-earned money from selling clothes at the Gap, and a 43-year-old collector with a six-figure salary who's hunting for a Maytals record. They'd meet at the same bin, and chances are it's a happy meeting, because they both love the music. There are very few places in retail where that ever happens."

And that's the way it was as night fell on the city, and that fateful (for San Francisco) game six of the World Series got under way: Virgin's Megastore was nearly desolate, but at Amoeba, the joint was jumping.

What's Selling in America

Part 1: "First You Get High on It, Then You Buy It."
Amoeba Music Marches to Its Own Beat
Part 2: "How Does a 900-Pound Gorilla Get to Be an 1,800-Pound Gorilla?"
Wal-Mart Thinks Outside the Big Box
Part 3: "Our Customers Can Sniff Through Any Kind of Hard Sell. And When They Do, They're Gone."
ESPN Takes Retailing to the Extreme
Part 4: "We Decided to Merchandise Raised Toilet Seats in the Same Way You'd Merchandise Lamp Fixtures at Pottery Barn."
Can Take Good Care Make Hip Replacements Hip?
Part 5: "The Lamest Question in Retail Is, 'Can I Help You?'"
How the Container Store Lays a Solid Foundation

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