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Handleman Company

Handleman Company

500 Kirts Boulevard
Troy, Michigan 48084-4142
U.S.A.
Telephone: (248) 362-4400
Web site: http://www.handleman.com

Public Company
Incorporated:
1934
Employees: 2,600
Sales: $1.31 billion (2006)
Stock Exchanges: New York
Ticker Symbol: HDL
NAIC: 423990 Other Miscellaneous Durable Goods Merchant Wholesalers

Handleman Company is a leading mass merchandiser of prerecorded music in the United States, the United Kingdom, and Canada. It stocks the shelves of large retail chains, a task called rack jobbing. Handleman has weathered the challenges posed by a rapidly evolving industry by refocusing on its core strengths and investing heavily in state-of-the-art distribution centers. It acquired video game distributor Crave Entertainment Group in 2005. The company operates automated distribution centers in Richmond, Virginia; Indianapolis, Indiana; Toronto, Ontario; and Warrington in the United Kingdom.

ORIGINS

Originally a sole proprietorship, in 1937 the Handle-man Company became a partnership with Philip Handleman and his sons Joseph, Paul, and Moe. Started to distribute pharmaceuticals, the firm soon shifted to selling health and beauty aids in 1940. By World War II, the company was being run by the sons. In 1946 another brother, David, joined the business.

During the 1950s the company made a decision that proved to be crucial to its future growth: it began wholesaling records. When Joe Handleman, then president of the company, wanted to buy a friend a gift, he was shocked at the poor quality of the record stores display and selection. He sensed an opportunity for a record distributor. With record sales expanding and poised for far greater growth in the future, this was a fortunate move.

With record sales fluctuating wildly as trends came and went, Handleman became an expert in inventory control. Eventually stocking the racks for major retailers such as Kmart, Wal-Mart, and Woolworth, Handleman became better at managing record displays than a large store could be. Record sales generally consisted of releases by many different artists. Some records had a short life span, others might become bestsellers overnight. Overstocking or understocking a record might prove to be a big mistake. As a result, major retailers handed over to Handleman responsibility for supplying selections, deciding how many of each to stock, advertising records and setting up promotional displays.

DAVID HANDLEMAN TAKES OVER

David Handleman took charge of the company in 1967. In 1974 he became chairman and CEO. The following year, under his leadership, the firm moved into book distribution with the purchase of Sieberts, a record and book marketer.

By 1980 the firm stocked records at over 8,000 retail stores. It was a tough year for record sales, with sales across the entire industry declining. The U.S. economy was in recession, the usual crop of yearly recording hits failed to materialize, and Handlemans sales dropped to $199 million, down from $224 million in 1979. With those sales in 1979, Handleman built a large inventory in anticipation of another great year. When the sales slump hit, the firm was stuck with excess inventory, and many record companies restricted returns to 20 to 30 percent. As a result, the firms suppliers forced it to lessen its future inventories. So, for example, in late 1980 the firm bought only 65,000 copies of a new Barbra Streisand album, less than half of what it might have bought a few years earlier. Despite these troubles, in 1980 the company became the largest record and tape wholesaler in the United States, moving past the Pickwick division of American Can.

About half of the firms sales were coming from Kmart. Handleman used optical scanners there, and at its other major accounts, to track customer inventory and send the information to a central computer. The firm used the information to examine trends and decide what to carry at its distribution centers and at individual stores. Handlemans gross profit margins averaged about 27.7 percent for these services. The company had 21 distribution sites throughout the United States and Canada. It picked up a major new account when it began stocking records at the Zayre chains 250 stores in the northeast United States. This gave it a total of about 5,000 record and tape departments.

Handleman was also expanding its book distribution business. The firm ran the book departments in 2,000 retail stores across the United States. It would take only customers for whom it already stocked records. This allowed the same sales representative to handle music and books for the same store, keeping costs down and simplifying the sales process. About 40 percent of book sales came from romance novels geared toward female customers. Books and magazines accounted for about 9 percent of Handlemans 1980 revenues.

Handleman accounted for about 9 percent of all sales in the record industry in 1980, but because so much of what the firm handled were major releases, it accounted for 20 percent of total hit sales. As a result, nearly 90 percent of the firms revenues came from handling recorded music. This reliance on the products of one industry gave the firm a narrow base, however, and with the total number of records and tapes sold declining by 18 percent over a four-year period, the company wanted to broaden its product lines.

SELLING SOFTWARE AND VIDEOS

In 1983 Handleman began a major push into stocking home computer software. The company moved entertainment and education software into about 250 retail stores, hoping that the anticipated growth of the market for home computer software would make it a major new area of growth. Entertainment software made up over 50 percent of software sales in the large retail outlets Handleman served. Handleman also stocked word-processing software and software designed to help users with home and personal finance. In addition, the firm stocked accessories such as computer discs and joy sticks for games, as well as some computer books. With its national distribution and inventory management systems already in place, the move into software seemed logical, and the company hoped to stock it at 4,500 stores by 1986. In 1984, Handleman won a contract to rack all software sold at Kmart.

COMPANY PERSPECTIVES

Handleman Company, with annual sales over $1.2 billion, is the Channel of Choice for distributing prerecorded music to leading retailers in the United States, United Kingdom and Canada. As a category manager, Handleman Company manages a broad assortment of titles required to optimize sales and inventory productivity in retail stores and provides direct-to-store shipments, marketing of the selections and in-store merchandising.

To offset the decline in overall music sales, the firm also carried more lower-priced selections, and paid close attention to local taste preferences, for example, stocking more ethnic music in stores located where it was popular. It also pushed specialty items like exercise records and childrens music, which made up 20 percent of music sales by 1983. The firm had 22 distribution sites and over 500 field representatives, giving it a great deal of flexibility in transferring inventory around the country. In the meantime, music sales began to look up again. MTV, the cable music video channel, began to grow in the early 1980s, as did sales of high-margin compact discs (CDs).

In the mid-1980s a new medium came along for Handleman: videocassettes. In 1984 Handlemans clients had video sales of $1.5 million. Though videos were expensive at the time and most consumers rented them, Handleman believed that people would buy them if the price was low enough. The firm began by selling copies of movies that were in the public domain. With no royalties to pay, Handleman could duplicate them and sell them for $15 apiece, in comparison to the going rate of $70 for a copyright-controlled Hollywood movie. As a result, videotape revenues reached $43 million in 1985. Videos brought in twice the revenue per square foot of other merchandise and retailers began giving them more shelf space.

With video sales strong, the firm decided it would make more money if it actually owned some of the video products it sold. In 1988 Handleman bought Viking Entertainment, a southern California-based rack jobber of prerecorded video and audio. Viking brought Handleman the master recordings for 500 public domain movies. Though Viking had only sales of about $16 million, it stocked supermarkets and drugstores, areas where Handleman was weak. The firm hoped to use this base to expand into the supermarket and drugstore sector. Soon thereafter, Handleman acquired a group of four companies that acquired licenses to copy and distribute taped versions of movies. The group had total sales of $10 million and was acquired in a stock exchange.

In the late 1980s Handleman was still making most of its sales through huge retailers, with Kmart accounting for 41 percent of sales and Wal-Mart for 15 percent. Despite a huge boom in software sales throughout the United States, software only accounted for 2 percent of Handlemans sales, partly because few people bought software through huge retailers. The firm was doing better with videotapes, however. By 1989 the firm was the largest U.S. tape distributor, controlling about 15 percent of the market. In early 1989 Handleman spent $10 million for Video Treasures, which owned licenses and sub-licenses to duplicate and sell more than 400 films.

Recorded music still accounted for a large percentage of Handlemans sales58 percent of its 1989 revenues of $646.7 millionbut the market was changing. Sales of LPs were declining rapidly, replaced by fewer but higher-margin sales of CDs. Consumers were buying CD players rapidly, promising more CD sales in the future. The firm also began a limited foray into becoming a retailer itself, operating Entertainment Zone, the video and audio department of a hyperstore opened in Georgia.

ENTERTAINMENT VENTURES AND INTERNATIONAL PUSH

In 1991 the firm bought the entertainment software rack-jobbing business of Live Entertainment Company. Handleman had sales of $702.7 million that year, which increased to $1.2 billion the following year. In 1992 Handleman began stocking products by Lotus Software. In 1994 it completed a 42,000-square-foot addition to its headquarters building. Realizing that it was overly dependent on large retail chains, the firm began a push into Mexico and Canada. At the same time, it added 239 Woolworth stores to its customer list.

KEY DATES

1934:
Handleman is formed as pharmaceuticals distributorship.
1967:
Company is listed on New York Stock Exchange after three years trading over-the-counter.
1980:
Handleman is the largest record and tape wholesaler in the United States.
1992:
Sales are more than $1 billion.
1994:
Company begins an international push.
1996:
Handleman posts first annual loss since going public, spurring a restructuring.
1998:
Book and software units are sold off in restructuring.
2003:
Most of North Coast Entertainment is sold.
2005:
Handleman acquires video game distributor Crave Entertainment Group.

The company restructured in 1995, forming three business groups. The Core Business Group comprised Handlemans traditional rack jobbing in the United States in Canada for music, video, books, and software. The firm formed North Coast Entertainment to focus on efforts to expand retail operations and proprietary products. The International business unit was designed to pave the way for future international expansion. While Handlemans only foreign rack jobbing took place in Mexico, plans were underway to move into Argentina and Brazil. Since rack jobbing was such a mature market in the United States, future company growth depended on moving into new territory, and the firm announced that it hoped to garner one-third of sales from International and North Coast by 1999. Handleman named Peter J. Cline president of Core Business Group and Louis A. Kircos as president of North Coast.

In 1995 the firm acquired Starmaker Entertainment, Inc., a budget video company with about $15 million in annual sales. It also bought a majority interest in Montreal-based Madacy Music Group for $22.7 million, and music and video rack jobber Levy Music and Video. Madacys former owner, Amos Alter, remained as president. Madacy, which created specialty music products, had revenues of over $40 million. It owned Mediaphon GmbH, a German music supplier that owned over 2,000 classical music master recordings. To increase its presence in the computer and multimedia market, Handleman increased its ownership of Sof-Source, a software development and licensing company. Handleman already owned 27 percent, and increased its stake to above 50 percent.

To increase its book sales outside of the United States, Handleman began two joint ventures. One, with the Canada Publishing Corporation in Toronto, expanded its presence in Canada. The other, with Grupo Video Visa, created two new companies: one for sell-through video and music products, the other for rack-jobbing services. Handleman expected to invest $20 million in Mexico over a two-year period. The firm also planned to move into Argentina and Brazil.

The number of music retail departments serviced by Handleman had grown to 6,500. Music accounted for $653.4 million of the firms $1.23 billion total 1995 sales. The firm serviced even more video departments, 7,400, and video sales had reached $461.6 million. The firm made $57.6 million from book sales in 2,600 retail departments, a drop of 13 percent. Meanwhile, software sales were showing signs of taking off, growing 36 percent to $53.3 million. The firm serviced 4,700 software retail departments. Handleman remained heavily dependent on its two largest customers. Kmart, which was experiencing financial trouble, accounted for 40 percent of Handlemans sales, while Wal-Mart accounted for 25 percent.

Handleman also worked to decrease its costs. In September 1994 the firm opened an automated distribution center in Sparks, Nevada. The 324,000-square-foot center used automation to cut distribution costs on the West Coast. The center also separated sales and merchandising from the firms other operations, leaving its 1,300 field representatives free to focus on customer sales and service. Handleman expected to open an automated distribution center in the Midwest in late 1995.

AN EVOLVING MARKETPLACE

Handleman had a terrible year in 1996, posting its first loss since going public, and watching its share price fall. Wal-Mart canceled its distribution contract for videos in order to try buying directly from manufacturers. Handlemans workforce was cut by 650 employees to 3,350 as the company struggled to regain profitability.

Handleman continued to seek growth from its international business as well as from its proprietary entertainment unit, North Coast Entertainment. The latter had annual revenues of $100 million on the strength of such offerings as its Thomas the Tank Engine childrens videos. In addition to independent record label Madacy Entertainment, North Coast included home video label Anchor Bay Entertainment. In 1998 Handleman acquired a 75 percent interest in The itsy bitsy Entertainment Company, which held licensing rights for childrens entertainment properties including the popular Teletubbies characters.

Handleman shelved its NBD book distribution business in 1998, selling the unit to Levy Home Entertainment. Its $55 million in annual sales had represented less than 5 percent of Handlemans total revenues. The SofSource software unit was also sold, to the Learning Company in a $45 million stock swap. Other moves included cutting about 90 small accounts that together made up just 5 percent of sales. This left it with about a dozen big clients, chief among them Wal-Mart. Another key part of Handlemans strategy was to mitigate risks through geographical expansion. In 1999 it bought Lifetime Entertainment, a U.K. rack jobber with sales of about $40 million a year.

Handleman distributed 130 million CDs and tapes in 2000; net sales were up 13 percent to $1.14 billion from the previous year. Net profits rose to $38.6 million from $25.3 million. The companys investment in high-tech distribution centers was bringing order fulfillment to new levels of efficiency. This was not without its hitches, however, such as problems with its outsourced help-desk function and a hacking incident with an ex-employee.

The U.S. music industry was going through a slump in 2002, but mass merchandisers had raised their share to 30 percent. Handleman itself accounted for almost 11 percent; it was even more dominant in Canada, with a 26 percent market share. It had about 10 percent of the U.K. market. The bankruptcy of Kmart, which then accounted for 35 percent of Handle-mans sales, prompted the company to suspend shipments.

INTO VIDEO GAMES IN 2005

Most of the North Coast Entertainment unit (Madacy and Anchor Bay) was sold in 2003 as Handleman focused on its core strengths. A move into the growing video game business followed a couple of years later, as Handleman acquired distributor Crave Entertainment in 2005 in a deal worth more than $72 million. Based in Newport Beach, California, privately-owned Crave had annual sales of $240 million to more than 30,000 retail stores. Mass market merchandiser REPS LLC was also acquired in 2005. During the year, Handleman also launched its own independent music distributor, called Artist to Market Distribution (A2M).

Wal-Mart was accounting for a larger share of business, going from 68 percent of sales in the fiscal year ended April 2004 to nearly three-quarters of revenues in fiscal 2005 and 2006. Total revenues in the fiscal year ending April 29, 2006 were $1.31 billion. While this represented a slight increase from the previous year, net income dropped from $34.2 million to $13.6 million. This decline was attributed to the slump in U.S. business.

Tesco, a 700-store supermarket chain in the United Kingdom, was added to Handlemans client list in 2007. Trying out a new business model here, Handle-man did not actually take ownership of the merchandise in this arrangement.

To that end, Handleman opened a 275,000 square foot Automated Distribution Centre in Bolton England on April 13, 2007. The Distribution Centre had the capability to operate 24 hours a day, 7 days a week and was expected to manage 80 million units of product in its first year.

Scott M. Lewis
Updated, Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

Artist to Market Distribution LLC; Crave Entertainment Group, Inc.; Crave Entertainment, Inc.; Entertainment Fulfillment Services LLC; Handleman Canada, Inc.; Handleman Category Management Company; Handleman Company of Canada, Ltd.; Handleman de Argentina S.R.L.; Handleman de Mexico S.A. de C.V.; Handleman do Brasil Commercial Ltda.; Handleman Entertainment Resources LLC; Handleman Ontario Ltd. (British Virgin Islands); Handleman Real Estate LLC; Handleman UK Ltd.; Hanley Advertising Company; Lifetime Holding, Inc.; Rackjobbing Services, S.A. de C.V.; REPS LLC; SVG Distribution, Inc.; The itsy bitsy Entertainment Company.

PRINCIPAL DIVISIONS

Category Management and Distribution Operations; Video Game Operations.

PRINCIPAL COMPETITORS

Alliance Entertainment Corporation; Baker & Taylor Corporation; Entertainment One Income Fund; Ingram Entertainment Holdings Inc.

FURTHER READING

Ankeny, Robert, Handleman Hacking Case Offers Window into Problem, Crains Detroit Business, November 4, 2002, p. 3.

Cochran, Thomas N., Handleman Co.: Building Tomorrows Business Today, Barrons, January 23, 1989, pp. 5556. Gubernick, Lisa, We Are a Society of Collectors, Forbes, July 24, 1989, p. 80.

Handelman opens Tesco Distribution Centre in Bolton, 200 new jobs for the area, April 13, 2007, http://www.a2mediagroup.com.

Jeffrey, Don, Handleman Buys U.K. Rackjobber, Billboard, November 27, 1999, p. 88.

, Handleman Cutting Its Non-Music Biz, Billboard, June 13, 1998, p. 3.

King, Julia, Users Discover Dark Side of Help Desk Outsourcing, Computerworld, January 25, 1999, p. 24.

The Middlemans Dilemma, Financial World, October 15, 1980, p. 30, 32.

Milliot, Jim, Handleman Selling NBD to Chas. Levy, Publishers Weekly, June 15, 1998, p. 13.

Norris, Kim, Handleman to Buy Crave, Detroit Free Press, October 22, 2005.

Roberts-Witt, Sarah L., They May Be Old, but Theyre Acting Like Start-Ups, PC Magazine, June 5, 2001.

Roush, Matt, Getting Handle on It? Distributor Points to 2 Divisions for Growth, Crains Detroit Business, September 9, 1996, p. 2.

Snavely, Brent, Handleman Co. Moves in Step with Shoppings New Rhythms, Crains Detroit Business, October 28, 2002, p. 3.

, Handleman Suspends Shipments to Kmart; Penske Stays Vigilant, Crains Detroit Business, January 28, 2002, p. 7.

Taub, Stephen, The Sweet Music of Computer Software, Financial World, October 15, 1983, pp. 2829.

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Handleman Company

Handleman Company

500 Kirts Boulevard
Troy, Michigan 48084-4142
U.S.A.
(810) 362-4400
Fax: (810)362-3415

Public Company
Incorporated:
1937
Employees: 4,147
Sales: $1.22 billion (1995)
Stock Exchanges: New York
SICs: 7386 Business Services; 7822 Motion Picture and Tape Distribution; 5192 Books, Periodicals and Newspapers; 5045 Computers, Peripherals and Software

Handleman Company is one of the largest U.S. distributors of prerecorded videotapes and music, as well as computer software and books. It stocks the shelves of large retail chains, a task called rack jobbing. Handleman also licenses the right to exclusive manufacture of some video and audio products.

Handleman was founded in 1937 as partnership in distributing pharmaceuticals by Philip Handleman and his sons Joseph, Paul, and Moe. The firm soon shifted to selling health aids. By World War II, the company was being run by the sons. In 1946 another brother, David, joined the business.

During the 1950s the company made a decision that proved to be crucial to its future growth: it began wholesaling records. When Joe Handleman, then president of the company, wanted to buy a friend a gift, he was shocked at the poor quality of the record stores display and selection. He sensed an opportunity for a record distributor. With record sales already expanding and poised for far greater growth in the future, this was a fortunate move.

With record sales fluctuating wildly as trends came and went, Handleman became an expert in inventory control. Eventually stocking the racks for major retailers like Kmart, Wal-Mart, and Woolworth, Handleman became better at managing record displays than a large store could be. Record sales generally consisted of releases by many different artists. Some records had a short lifespan, others might become best-sellers overnight. Overstocking or understocking a record might prove to be a big mistake. As a result, major retailers handed over Handleman responsibility for supplying selections, deciding how many of each to stock, advertising records and setting up promotional displays.

David Handleman took charge of the company in 1967. In 1974 he became chairman and CEO. The following year, under his leadership, the firm moved into book distribution with the purchase of Sieberts, a record and book marketer.

By 1980 the firm stocked records at over 8,000 retail stores. It was a tough year for record sales, with sales across the entire industry declining. The U.S. economy was in recession, the usual crop of yearly recording hits failed to materialize, and Handlemans sales dropped to $199 million, down from $224 million in 1979. With those sales in 1979, Handleman built a large inventory in anticipation of another great year. When the sales slump hit, the firm was stuck with excess inventory, and many record companies restricted returns to 20 to 30 percent. As a result, the firms suppliers forced it to lessen its future inventories. So, for example, in late 1980 the firm bought only 65,000 copies of a new Barbra Streisand, less than half of what it might have bought a few years earlier. Despite these troubles, in 1980 the company became the largest record and tape wholesaler in the United States, moving past the Pickwick division of American Can.

About half of the firms sales were coming from Kmart. Handleman used optical scanners there, and at its other major accounts, to track customer inventory and send the information to a central computer. The firm used the information to examine trends and decide what to carry at its distribution centers and at individual stores. Handlemans gross profit margins averages about 27.7 percent for these services. The company had 21 distribution sites throughout the United States and Canada. It picked up a major new account when it began stocking records at the Zayre chains 250 stores in the Northeast United States. This gave it a total of about 5,000 record and tape departments.

Handleman was also expanding its book distribution business. The firm ran the book departments in 2,000 retail stores across the United States. It would only take customers for whom it already stocked records. This allowed the same sales representative to handle music and books for the same store, keeping costs down and simplifying the sales process. About 40 percent of book sales came from romance novels geared toward female customers. Books and magazines accounted for about nine percent of Handlemans 1980 revenues.

Handleman accounted for about nine percent of all sales in the record industry in 1980, but because so much of what the firm handled were major releases, it accounted for 20 percent of total hit sales. As a result, nearly 90 percent of the firms revenues came from handling recorded music. This reliance on the products of one industry gave the firm a narrow base, however. And with the total number of records and tapes sold declining by 18 percent over a four-year period, the company wanted to broaden its product lines.

In 1983 Handleman began a major push into stocking home computer software. The company moved entertainment and education software into about 250 retail stores, hoping that the anticipated growth of the market for home computer software would make it a major new area of growth. Entertainment software made up over 50 percent of software sales in the large retail outlets Handleman served. Handleman also stocked wordprocessing software and software designed to help users with home and personal finance. In addition, the firm stocked accessories like computer discs and joy sticks for games, as well as some computer books. With its national distribution and inventory management systems already in place, the move into software seemed logical, and the company hoped to stock it at 4,500 stores by 1986. In 1984, Handleman won a contract to rack all software sold at Kmart.

To offset the decline in overall music sales, the firm also carried more lower-priced selections, and paid close attention to local taste preferences, for example, stocking more ethnic music in stores located where it was popular. It also pushed specialty items like exercise records and childrens music, which made up 20 percent of music sales by 1983. The firm now had 22 distribution sites and over 500 field representatives, giving it a great deal of flexibility in transferring inventory around the country. In the meantime, music sales began to look up again. MTV, the cable music video channel, began to grow in the early 1980s, as did sales of high-margin compact discs.

In the mid-1980s a new medium came along for Handleman: videocassettes. In 1984 Handlemans clients had video sales of $1.5 million. Though videos were expensive at the time and most consumers rented them, Handleman believed that people would buy them if the price was low enough. The firm began by selling copies of movies that were in the public domain. With no royalties to pay, Handleman could duplicate them and sell them for $15 a piece, in comparison to the going rate of $70 for a copyright-controlled Hollywood movie. As a result, videotape revenues reached $43 million in 1985. Videos brought in twice the revenue per square foot of other merchandise and retailers began giving them more shelf space.

With video sales strong, the firm decided it would make more money if it actually owned some of the video products it sold. In 1988 Handleman bought Viking Entertainment, a southern California-based rack jobber of pre-recorded video and audio. Viking brought Handleman the master recordings for 500 public domain movies. Though Viking only had sales of about $ 16 million, it stocked supermarkets and drugstores, areas where Handleman was weak. The firm hoped to use this base to expand into the supermarket and drugstore sector. Soon thereafter, Handleman acquired a group of four companies that acquired licenses to copy and distribute taped versions of movies. The group had total sales of $10 million and were acquired in a stock exchange.

In the late 1980s Handleman was still making most of its sales through huge retailers, with Kmart accounting for 41 percent of sales and Wal-Mart for 15 percent. Despite a huge boom in software sales throughout the United States, software only accounted for two percent of Handlemans sales, partly because few people bought software through huge retailers. The firm was doing better with videotapes, however. By 1989 the firm was the largest U.S. tape distributor controlling about 15 percent of the market. In early 1989 Handleman spent $10 million for Video Treasures, which owned licenses and sub-licenses to duplicate and sell more than 400 films.

Recorded music still accounted for a large percentage of Handlemans sales58 percent of its 1989 revenues of $646.7 millionbut the market was changing. Sales of LPs were declining rapidly, replaced by fewer but higher-margin sales of compact discs. Consumers were buying compact disc players rapidly, promising more CD sales in the future. The firm also began a limited foray into becoming a retailer itself, operating Entertainment Zone, the video and audio department of a hyperstore opened in Georgia.

In 1991 the firm bought the entertainment software rack-jobbing business of Live Entertainment Company. Handleman had sales of $702.7 million that year, which increased to $1.2 billion the following year. In 1992 Handleman began stocking products by Lotus Software. In 1994 it completed a 42,000-square-foot addition to its headquarters building. Realizing that it was overly dependent on large retail chains, the firm began a push into Mexico and Canada. At the same time, it added 239 Woolworth stores to its customer list.

The company restructured in 1995, forming three business groups. The Core Business Group comprised Handlemans traditional rack jobbing in the United States in Canada for music, video, books and software. The firm formed North Coast Entertainment to focus on efforts to expand retail operations and proprietary products. The International business unit was designed to pave the way for future international expansion. While Handlemans only foreign rack jobbing took place in Mexico, plans were underway to move into Argentina and Brazil. Since rack jobbing was such a mature market in the United States, future company growth depended on moving into new territory, and the firm announced that it hoped to garner one-third of sales from International and North Coast by 1999. Handleman named Peter J. Cline president of Core Business Group and Louis A. Kircos president of North Coast.

In 1995 the firm acquired Starmaker Entertainment, Inc., a budget video company with about $15 million in annual sales. It also bought a majority interest in Montreal-based Madacy Music Group for $22.7 million, and music and video rack jobber Levy Music and Video. Madacys former owner, Amos Alter, remained as president. Madacy, which created specialty music products, had revenues of over $40 million. It owned Mediaphon GmbH, a German music supplier that owned over 2,000 classical music master recordings. To increase its presence in the computer and multimedia market, Handleman increased its ownership of Sofsource, a software development and licensing company. Handleman had already owned 27 percent, and increased its stake to above 50 percent.

To increase its book sales outside of the United States, Handleman began two joint ventures. One, with the Canada Publishing Corporation, Toronto, expanded its presence in Canada. The other, with Grupo Video Visa, created two new companies: one for sellthrough video and music products, the other for rack-jobbing services. Handleman expected to invest $20 million in Mexico over a two-year period. The firm also planned to move into Argentina and Brazil.

The number of music retail departments serviced by Handleman had grown to 6,500. Music accounted for $653.4 million of the firms $1.23 billion total 1995 sales. The firm serviced even more video departments7,400, and video sales had reached $461.6 million. The firm made $57.6 million from book sales in 2,600 retail departments, a drop of 13 percent. Meanwhile, software sales were showing signs of taking off, growing 36 percent to $53.3 million. The firm now serviced 4,700 software retail departments. Handleman remained heavily dependent on its two largest customers. Kmart, which was experiencing financial trouble, accounted for 40 percent of Handlemans sales, while Wal-Mart accounted for 25 percent.

Handleman also worked to decrease its costs. In September 1994 the firm opened an automated distribution center in Sparks, Nevada. The 324,000-square-foot center used automation to cut distribution costs on the West Coast. The center also separated sales and merchandising from the firms other operations, leaving its 1,300 field representatives free to focus on customer sales and service. Handleman expected to open an automated distribution center in the Midwest in late 1995.

Principal Subsidiaries

Handleman Co. of Canada; Entertainment Zone, Inc.; Scorpio Productions, Inc.; Hanley Advertising Co.; Softprime, Inc.; Rackjobbing, S. A. de C. V.; Rackjobbing Services, S. A. de C. V.; Michigan Property and Risk Management Co. North Coast Entertainment, Inc.; Anchor Bay Entertainment, Inc.; Sell-through Entertainment, Inc.; North Coast Entertainment, Ltd. (Canada); Sofsource, Inc.; Madacy Music Group, Inc.; Mediaphon, GmbH; Madacy Music Group, Ltd. (Canada); American Sterling Corp.

Principal Operating Units

Core Business Group; North Coast Entertainment; International.

Further Reading

Cochran, Thomas N., Handleman Co.: Building Tomorrows Business Today, Barrons, January 23, 1989, pp. 55-56.

Gubernick, Lisa, We Are a Society of Collectors, Forbes, July 24, 1989, p. 80.

The Middlemans Dilemma, Financial World, October 15, 1980, p. 30, 32.

Taub, Stephen, The Sweet Music of Computer Software, Financial World, October 15, 1983, pp. 28-29.

Scott M. Lewis

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"Handleman Company." International Directory of Company Histories. . Encyclopedia.com. 13 Dec. 2017 <http://www.encyclopedia.com>.

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