BA Comics

Mike Dreese, co-owner of the 15-store Boston-based music chain, believes that the latest retail trend – the multimedia superstore – is a mistake. Retailers who try to please all customers and stock too much inventory will wind up liquidating it at low prices. The write-down’s coming, he warns.

A few years ago, Newbury made a conscious decision not to broaden its merchandise base and not to try to be all things to all people.

“We specialize in saying no to the customer,” Dreese says.

For instance, Newbury no longer takes American Express cards, because each transaction cost 20 cents per disc. Stores stock little video sell-through product, because Newbury cannot get the wholesale prices that big retailers get. And there is not a deep selection of pop and classic rock titles. Dreese says that while he is not interested in carrying, say, the entire Heart catalog, he will try to make sure he has the whole Clash catalog.

The show goes on at Newbury

Alternative rock is the prime category here, and it has been so from the start. And now that alternative is the biggest wave in music, it appears that the rest of the market has just caught up with Newbury. Dreese figures that his chain represents 30%-40% of the Boston area’s first-week SoundScan sales numbers on new alternative releases.

And independent label product, always the leading edge of rock music, is up 45%-50% in sales this year, Dreese says. Small labels get stocked just as the big ones do.

Although music is by far the biggest category here, Newbury Comics actually did begin with comic books. In 1977, one semester short of graduating with a degree in economics from the Massachusetts Institute of Technology in Cambridge, Mass., Dreese and his roommate, John Brusger, dropped out to manage their growing comics business. In April 1978, they opened their first store on Newbury Street in Boston.

From a $2,000 initial investment, the partners have developed a business with revenues of $29 million. Earlier this year, Newbury Comics won the National Assn. of Recording Merchandisers’ award for midsize retailer of the year.

The partners have been selling music since 1979; mostly used records and locally produced singles at first. Radio DJs shopped at the store and gave it cachet. Dreese, on visits to his Naval officer father in England, made contacts there with independent labels, such as Rough Trade, in order to get an import business going.

That first store on Newbury Street was in a rundown section of Boston’s Back Bay in which hookers roamed. But the street has gone upscale, and so has the rent, from $260 a month to $11,000. However, that flagship black-and-blue store, in a different location but still on Newbury, produces a healthy volume: $3.5 million this year in a 3,600-square-foot space.

Dreese’s policy on real estate is to remain flexible. Five-year leases are what he looks for. He also likes small stores in areas where there is a large college-age population or a liberal philosophy. He points to the “fuck you” T-shirts on the wall of one store and says that such products occasionally upset prospective landlords; if so, he doesn’t want his store in their malls.

His suburban stores are generally located in power strip centers adjacent to major regional malls.

In Cambridge’s busy Harvard Square, a Newbury Comics is situated in an enclosed urban mall, with no signs on the street and three competing music chains within a block. But that doesn’t stop the store from ringing up $3 million a year in 3,400 square feet.

A key to Newbury’s success in generating strong volumes in small specialty stores is what Dreese calls its “extreme just-in-time inventory.” The chain’s sophisticated computer systems, developed by Brusger, allow it to purchase just what it needs and no more. One unit of each title is often enough, and there are no duplicates of slow-moving albums.

The product sales mix here is 77%-78% music, 5%-7% accessories, 3%-4% comics, and 10%-12% other merchandise, such as T-shirts. He has found that with his new POS systems, installed just recently by POS Software Associates, he is able to easily control the sales mix while ensuring that credit card transactions are faster than ever. The POS software definitely helps with inventory, as well.

Alternative is not the only kind of music sold at Newbury. Classical, for instance, still sells well in the M.I.T. student store. But for the other stores, Dreese says, classical began to die when a major record company raised its prices and established a minimum-advertised-pricing policy. Jazz, on the other hand, is on the upswing, Dreese says, because of strong midline releases.

But Dreese maintains that Newbury has always been a developing artist chain, because that’s where its value lies. “We fill the left third of the market,” he says.

The company has not tried to expand too quickly and make the mistakes some major retailers have made. Its 15th store in 17 years opens this month in Amherst, Mass., an area with 35,000 college students.

Dreese says that 90% of expansion is achieved through retained earnings. Recently, the company obtained $2.75 million in bank financing, which he says is adequate for the chain’s growth needs.

He figures the chain can increase to $100 million in revenues on its own resources and bank borrowings; if the goal is to become a $200 million company, then the owners will consider going public. He says Newbury did not have the numbers to seriously interest Wall Street until this year.

For the fiscal year that ended Sept. 30, Newbury reports a pretax profit of $2 million on sales of $29 million, compared with a profit of $1.3 million on $22 million in sales last year. The sales increase for stores open at least one year was in double digits, Dreese says.

He adds that the company has not had a down year in revenues or a loss in its 17 years of operation. The financial goal, according to Dreese, remains a “healthy profit,” with 30% annual growth in revenues.

So far all Newbury stores are located in New England. But that could change in the next few years. Dreese has been looking closely at the London retail market, where a store could open by 1998. And next year, he promises, there will be a Newbury outside the 100-mile radius of Boston – possibly on the other coast.

The company is headquartered in an old warehouse building in Allston, a working-class and student section of Boston. There are 44,000 square feet of offices and warehouse, now that previous tenant New Balance shoes has moved out. All product is shipped here, and three company vans and outside transporters truck it to the stores every day.

Dreese does not believe in drop-shipping, a growing trend in music retailing by which labels send product directly to stores rather than to retailers’ warehouses. He says it complicates operations and turns employees into shipping-and-receiving clerks. He wants his workers to spend the time getting the product on the shelves and providing customer service.