A David fights the iTunes Goliath

Gary Scotti, the owner of the nation's oldest independent record store chain, talks about survival after the demise of Tower Records. Fortune's Devin Leonard reports.

By Devin Leonard, Fortune senior writer

(Fortune) -- Gary Scotti has his good weeks and his bad weeks. Lately, there have been more of the latter. The owner of Scotti's Record Shops, the nation's oldest independent record store chain, has been whipsawed by the changes in the music industry.

A decade and a half ago, his family had stores in five New Jersey towns outside of New York City. He and his brothers, Michael and Jeff, oversaw 50 employees. Now Scotti is down to three stores. Soon, he may only have one - the chain's flagship outlet in tony Summit.

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Gary Scotti of Scotti's Record Shops sees hope in the growing popularity of vinyl records and the closing down of Tower Records.
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Michael left the business three years ago. Jeff exited last month. Why is Gary, 48, still hanging in there? "I enjoy it," he says. "I want to keep it going."

Still, it's been rough. Some weeks, he doesn't collect a salary because the 50-year-old chain isn't throwing off enough cash. "I'm struggling personally to keep up," says Scotti. "That's just the way it is."

Who does he blame for his troubles? Lots of people. There are the kids who come to his stores and tell each other not to buy a new CD because someone can burn them a copy. Adults are just as bad. "Someone buys a CD, and they pass it around the neighborhood," Scotti says. With all that burning going on, it's hardly surprising that his CD sales have fallen by 50% in recent years.

Scotti grudgingly accepts that the public's music consumption habits aren't what they used to be. He's more furious with the big record companies. As far as Scotti is concerned, the major labels never bothered to package CDs in a way that would make them attractive to customers.

"I almost got thrown out of some meetings at BMG," he says. "This was back in the day of 'N Sync and the boy bands. I said, 'You guys are just promoting trash. You are not doing enough to get people to buy music. You're putting it out in these plastic jewel cases that are just crap. They fall apart right away.'"

These days, Scotti says, the labels spend all their time kowtowing to iTunes. Never mind that their vast majority of their revenues still come from CD sales.

It galls Scotti that the labels give iTunes exclusive tracks and allow the digital download site to sell albums before stores like his. "Then they give me a hard time about breaking street date?" he fumes, referring to when stores start selling a new CD before its scheduled release. "Does anybody in this industry have a brain?"

It's not all doom and gloom at Scotti's Record Shops. The owner is cautiously optimistic about the resurgence of vinyl.

In late September, another Jersey guy, Bruce Springsteen, released his new album, Magic, on vinyl a week before the CD went on sale. Scotti got his hands on 200 copies and sold them all within days in his stores and on his website. Those are big numbers for a small chain.

"Nobody else had it," the owner says proudly. "I know Best Buy didn't have it. I know Target didn't. I don't believe Amazon had it online either. " (It didn't.)

Scotti's isn't the only record store chain benefiting from the return of vinyl.

Michael Kurtz, head of the Music Monitor Network, a coalition of regional chains, says the collective sales of his members are up two percent this year, in part because of the demand for LPs. "Some of their stores are starting to look like they did back in the eighties with all the vinyl," he says.

Still, Kurtz concedes that his West Coast members are doing better than their East Coast peers like Gary Scotti. Why? Because they don't pay as much rent.

Ironically, the demise of Tower Records, once the nation's largest record store chain, may be Scotti's saving grace. The shuttering of Tower was a wake-up call for people who would rather comb through bins of record store music than download digital files on the Internet.

They know that if they don't support stores like Scotti's, they'll only have the thin selections of Best Buy (Charts, Fortune 500) and Wal-Mart (Charts, Fortune 500) to choose from. "I do feel that from customers in my area," says Scotti, hopefully. "They are trying to support us."

They'd better. He can't go on forever without a steady paycheck. Top of page

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