Holiday Wrap

By RUSS STANTON

Jan. 2, 1998 12 AM PT

TIMES STAFF WRITER

Heather Johnson couldn’t put her finger on it, but something didn’t feel quite right. It was 1 p.m. on the day before Christmas and the CD Listening Bar store she manages in Irvine wasn’t very busy.

“There aren’t as many people here as I would have thought,” said Johnson, waiting for any of the dozen or so customers to bring a purchase to the counter.

For retailers like Johnson, the 1997 holiday season held true to form right until the end. Business picked up later, as more than half of that day’s purchases came after 3 p.m. For the store’s owner, Irvine-based Upsilon Corp., it was a case of better late than never.

Sales between Thanksgiving and Christmas, the busiest four-week period of the year, rose $646,136--22.7% over the 1996 period--thanks mostly to its expanded wholesale operations, which distribute music to about 600 independent stores nationwide.

Whether those sales translate into higher profits for co-owners Jeff Walker and David Hurwitz remains to be seen. They won’t know how much money they made until mid-January, when they begin crunching their fiscal second-quarter numbers.

But early results are promising. A 25% price increase that went into effect Nov. 1 on most of the CDs sold in their three Orange County music stores virtually guarantees higher profits on the retail side.

Their concern is with the wholesale operation, which accounts for 75% of company sales. The question is whether a 34.5% wholesale sales gain over the holidays will compensate for losses since an April expansion.

For retailers like Upsilon, the success of the holiday season is key to the upcoming year and affects everything from planning to hiring to whether the boss will be in a good mood. That’s because companies like Upsilon derive as much as 20% of their annual sales and about 50% of their annual profit from Thanksgiving through New Year’s.

“If you have a good end of the year and you’re moving your product and not taking a lot of markdowns, you now can utilize those profits to reinvest in the company,” said Nate Franke a retail expert in the Costa Mesa office of Deloitte & Touche.

“You can open new stores, widen your product line, invest in new systems,” he said.

Like most merchants at the season’s outset, Walker and Hurwitz were downright optimistic, with virtually every economic indicator showing Southern California’s economy continuing to expand.

Largely on the strength of their growing wholesale music business, the duo projected a 20% increase in sales in November and December, and a 10% gain in operating profits.

As with Christmases past, the ’97 season provided a host of surprises, disappointments and missed opportunities.

For Upsilon, Barbara Streisand’s “Higher Ground” proved to be bittersweet. It was both the company’s best-selling album and its biggest missed opportunity.

Hurwitz, who is in charge of Upsilon’s music buying, said that recent Streisand albums have had distinct selling patterns, with heavy sales the first four or five weeks, then tapering off significantly.

Released Nov. 11, “Higher Ground” did the opposite at Upsilon’s stores: it started slowly, then gained tremendous momentum in its sixth and seventh weeks. Upsilon ran out of the CD for its stores and its wholesale customers on Dec. 17 and couldn’t get a new shipment until the 23rd, when it was too late to make much difference.

Hurwitz blames Streisand’s label, Columbia, for not doing a better job of anticipating demand. “They blew it,” he said. “We probably could have sold another 250 or 300 of that one.”

Columbia denies it was them. “Retailers who wanted it could get it, and had it,” said a spokesman.

Another unanticipated big seller--and missed opportunity--was the soundtrack from the movie “Titanic.” The soundtrack from Sony arrived in stores Nov. 18, a full month before the movie opened. Predictably, sales were slow early.

But following the film’s Dec. 19 opening, “it just blew out the door and we haven’t been able to get any since,” Walker said.

Other merchants are experiencing similar problems. “We’ve been told we won’t be getting any in until next week at the earliest,” said A.J. Watts, manager of Tower’s store at Tustin Market Place.

This year’s crop of disappointments included some surprising names.

Janet Jackson’s “Velvet Rope,” her first album in four years, was critically acclaimed but not as mainstream as 1993’s “Janet,” Hurwitz said.

The Rolling Stones’ “Bridges to Babylon” also was a bomb, even though the group played at Dodger Stadium in early November.

Christmas music didn’t sell well in 1997. “CDs have been around for about 10 years, and most people now have about seven or eight Christmas CDs,” he said.

Saturation also could be a factor. Christmas CDs are now sold at a host of nontraditional outlets, from Marshall’s discount clothing stores to gas stations.

Upsilon employees spent this week rounding up about 300 unsold Christmas-related CDs, and packing them up to return to the record companies. Upsilon takes less of a hit returning them, despite having to pay a 5% to 15% “restocking fee,” than selling them at reduced prices.

Walker hopes to improve on this year’s performance by posting gift ideas by musical category to help steer undecided shoppers.

And whatever profits Walker and Hurwitz reap from the holiday season, they have already been spent. Five new employees will join the wholesale sales department next week.

“There’s not a lot of time to rest,” Walker said. “We’ve got to get started on next year.”

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Sounds of the Season

Thanks to its growing wholesale operations, Upsilon Corp. posted sharply higher sales between Thanksgiving and Christmas. The Irvine-based company operates three Orange County music stores and a warehouse in Irvine. The company won’t know until mid-January how profitable the season was. A look at Upsilon’s holiday sales:

*--*

1997 1996 % change Retail $211,860 $203,810 +3.9% Wholesale $434,276 $322,936 +34.5 Total $646,136 $526,746 +22.7

*--*

Biggest sales day

Thanksgiving; $22,094

Worst sales day

Christmas; $3,518

Five best-selling CDs

“Higher Ground,” Barbra Streisand

“Tubthumper,” Chumbawamba

“Second-Hand Smoke,” Sublime

“Surfacing,” Sarah McLachlan