Ailing island
music stores
liquidating inventories

House of Music and 3 sister stores
soon will go up for auction

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By Erika Engle
eengle@starbulletin.com

One of Hawaii's oldest music stores as well as three outlets owned by the same company will close at the end of January if no buyer steps forward during an upcoming auction. In the meantime the stores are liquidating their inventories.

Half-century-old House of Music is owned by National Record Mart Inc. of Carnegie, Pa., which has been operating under bankruptcy protection since June.

"It's going to have to close if nobody wants to buy the lease," said Gary Ross, acting chief executive of NRM, which also owns a Waves Music and two Tempo Music stores in Hawaii and more than 100 other stores across the United States and on Guam.

Hawaii stores employ more than 20 workers, Ross said.

Five NRM suppliers, including Vivendi Universal SA and Sony Corp., forced the chain into Chapter 7 bankruptcy in June, seeking to have the company liquidated to pay off $18.7 million in debts.

In August the bankruptcy was reclassified as a voluntary Chapter 11 reorganization. The company and its creditors also came to an agreement to keep the stores open through the fall while a buyer was sought, though one has yet to be found.

NRM's previous management was ousted by the court, and Ross has been in place for about a month and a half.

Federal Bankruptcy Court in Pittsburgh ordered the whole chain "to sell the inventory down," at discounts of 10 percent to 30 percent, in a sale that starts today.

House of Music is known for its sales of musical instruments, Ross said, "and that's a very nice markdown."

NRM's leases in 25 states and Guam have been listed for auction with Keen Realty LLC of Great Neck, N.Y.

"There's some term left on these leases," said agent Michael Matlat. "We are looking at a tentative auction date of Dec. 18, and the bid deadline is Dec. 14."

The Hawaii stores feature square footage ranging from 4,095 at Tempo in Hilo to 4,469 at Tempo on Maui, lease rents from $25 a square foot on Maui to $61 at House of Music in Ala Moana, and lease expirations from April 2004 to February 2010.

Record distributors such as Navarre Corp. in Hawaii had stopped delivering to the stores recently after NRM fell behind on bills. Many of those invoices will never be paid.

"People that have had exposure prior to June, when the bankruptcy was declared, are out of luck," Ross said.

Vendors are not the only ones who will go begging. Severance pay for employees "is out of the question," he said, though district managers and certain upper-level store managers have received retention bonuses.

"We need their help -- we're also guaranteeing them a salary until the very end," Ross said.

"We'd love to have somebody local buy us," said an employee who asked to remain anonymous. "We did things their way. We made suggestions because they were not familiar with how local music sells, but around the time of the Na Hoku Hanohano Awards or Merrie Monarch, they wouldn't stock up, and a lot of times, the store was not equipped to deal with the volume of people."

Other factors have also contributed to NRM's demise. Ross cited free downloading of music from the Internet, huge stores known for heavy discounting, and bad corporate management.

"They have the employees in place, the location, the lease, everything that would make a very successful business," said Doug Fawcett, operations manager for record distributor Navarre Corp.

House of Music is believed to have started in 1949 in Waikiki, said former owner Bob Clarke, contacted in California. The store moved into Ala Moana Center in 1962, he said. Clarke bought the Ala Moana store and its sister store in Hilo's Kaikoo Mall in 1977 from original owner John Murphy.

Clarke opened a House of Music in Kahala Mall in the 1980s, and in 1990 sold the stores to J.R.'s Music Shops of Hawaii Inc.

"At one time, in J.R.'s heyday, there were 18 stores, including two on Guam," said Fawcett. "They never changed the name (of House of Music) -- it had such a great connotation here locally."

J.R.'s later went bankrupt, and House of Music went through a litany of owners. NRM bought the stores in 1995.