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Will Wherehouse Music buy National Record Mart? Will Trans World buy Wherehouse? Will Circuit City get into the act? The questions that are now raised by far outnumber the answers.

BEST BUY & MUSICLAND: THE AFTERMATH

OK, Now What? Trans World, Wherehouse Have Ball In Their Court
Jaws dropped yesterday when it became clear that we were about to witness the biggest music retail acquisition in history after the announcement of Best Buy's $685 million takeover of Musicland.

The questions that are now raised by far outnumber the answers. Will this precipitate other takeovers? Will Trans World answer with another acquisition of its own to keep pace with Best Buy's now-dominant market share (estimated to be around 20%)? Will Wherehouse Music buy National Record Mart? Will Trans World buy Wherehouse? Will Circuit City get into the act?

Many are also wondering what a national Best Buy program will now cost. Recently, the price and positioning program that includes Best Buy's coveted circular went from around $60,000 to somewhere between $70-80,000. What will the new ticket price be?

And what will be the effect on the one-stop businesses? Currently Best Buy uses predominantly Valley Media for fill and catalog. Valley is able to bar-code and sticker all product so that it can go directly from the shipping box to the shelf. But Musicland not only has a one million square foot distribution facility in Indianapolis that can handle many of those one-stop duties, it also has what's called "just in time" service from all but Sony-distributed labels. The program ships orders of 30 or less units directly to individual stores labeled and stocked for the shelf. Will Best Buy get the benefit of those services and no longer need as much help from the one-stops?

Many in the industry are also of the opinion that the price that Best Buy paid was unexpectedly low. When Trans World bought Camelot a few years ago, they paid $350 million for approximately 350 stores, or around a million per store. If you subtract the $260 million in debt from the $685 million paid for Musicland, you're left with $425 million paid for some 1,300 locations. Quite a deal in comparison.

It will be interesting to see how they combine the two companies. Will they keep separate buying staffs for the malls and the freestanding big box stores? Or will the consolidation run through every department?

Stay tuned.

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