Squeezed by declining sales, Internet music downloads and lower- priced competitors, retailer Compact Disc World has filed for bankruptcy.
The South Plainfield-based company, with eight stores in New Jersey and six in Missouri, will continue to operate, and its chief executive said the business has a plan to emerge from Chapter 11 bankruptcy.
The music chain took its first step in that direction yesterday, when a bankruptcy judge approved the use of $193,000 through Monday for CD World to buy inventory and pay state taxes. The judge also signed an order allowing wages for 200 employees.
Attorneys in the case are scheduled to reappear next week before Judge Novalyn Winfield in Newark for a more comprehensive agreement between the company and its lender, Wachovia Bank.
CD World Chief Executive David Lang said business has been hurt by consumers downloading music illegally from the Internet and burning their own CDs. Competition from mass merchandisers and electronics retail stores that sell music and DVDs at or below cost also has affected the company, court filings said.
Sales at CD World stores open at least a year -- a key measurement of a retailer's performance -- dropped about 20 percent during the first three months of the year. CD World, started in 1986, had $20.5 million in sales for the fiscal year ended Sept. 30.
"We anticipated those declines," Lang said. "We didn't anticipate the seriousness of those declines."
Illegal downloads and competition from mass merchandisers have been a problem not only for CD World. Two and a half weeks ago, Best Buy cited similar factors in announcing it wants to sell its music and movies division, which operates under the banners Sam Goody, Media Play and Suncoast.
"Best Buy, with all their buying power, couldn't make it work," said Scot Ciccarelli, an analyst with Gerard Klauer Mattison in New York. "It's not a good time to be a pure music retailer."
In August, CD World merged with Streetside Records, a small chain in Missouri. But in the past two months, the company has had to close three stores in Missouri and two in New Jersey.
CD World listed $8.1 million in assets and $6.4 million in liabilities