WHEREHOUSE FILES CHAPTER 11 AGAIN MUSIC, VIDEO GIANT FACING STIFF INTERNET COMPETITION.

Byline: Brent Hopkins Staff Writer

Wherehouse Entertainment Inc. filed for Chapter 11 bankruptcy on Tuesday for the second time in seven years and announced plans to close 120 stores.

The music and video chain endured 18 months of bankruptcy after an August 1995 filing, but emerged to swallow its competitor Blockbuster Music. Its fortunes were short-lived, however. The Torrance-based company has since seen both its video rental business and music sales erode. Citing increased competition from Internet downloading and sales pressure from discount competitors, the chain announced it would attempt to restructure. Specific locations for closure have not been announced, nor has the number of jobs that will be lost.

``It's a concept that's past its prime,'' said Aubie Goldenberg, a retail expert and partner with Ernst & Young's Los Angeles office. ``If you try to compete on price, you need to be a low-cost operator, but I don't think that fits their business model. It's increasingly difficult for stores of this type to survive.''

With low-priced CDs and DVDs available in supermarkets, electronics stores and discounters, Wherehouse found its market share dwindling.

``We're a specialty retailer, which sells in one area, so if someone can undercut you in market share, you can't make it up in selling produce,'' said Anita-Marie Hill, a spokeswoman for the chain. ``It's been a slip for three years, so this is the right time now.''

Price was the deciding factor for most consumers, and retail experts said Wherehouse, which also operates Tu Musica and Xchange, no longer could compete with its down-market competitors.

``If competition continues to increase from Target, Wal-Mart, Best Buy, who all feature CDs, DVDs and VHS, it's awfully tough for a specialty music store to thrive,'' Goldenberg said. ``The convenience and price are such that people go to the big-boxes. As a specialty store chain, they can't compete on price. The big-boxes can sell CDs as a loss leader to get other people in the door.''

Such is the trouble for the majority of the music business, hurt by an overall drop in music sales to 681 million units last year, down from 688.2 million in 2001, according to figures released by industry watcher SoundScan. Independent stores have suffered, with chains like Tower and HMV flagging, as well. With a full-price CD in the $17 range at the specialty stores, an $8.99 new release proves irresistible to many shoppers.

``Normally, I just rent their DVDs now,'' said Tina Balaban, a Granada Hills actress. ``You can find older CDs and used ones cheaper, but for CDs, I go to Target and Best Buy. You just can't beat their prices.''

Hill said the chain hopes to emerge from bankruptcy in under 18 months, shepherded along by Jerry Comstock, chairman and chief executive officer. Hired as CEO last June and elected as the company's director in December, the former head of Blockbuster Music aims to whip the company back into working shape.

With its customer base increasingly shrinking, that might be a tough task.

``There's not much to like here,'' said Eric Lee, a Granada Hills blinds installer leaving a Devonshire Street store. ``They're pricier, they don't have a great selection. The only reason I come is it's close to my house.''

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Photo:

(color) Eric Lee says he only shops at the Wherehouse on Devonshire Street because of its closeness to his home. The video and music giant has filed for Chapter 11 bankruptcy protection for the second time in seven years.

David Sprague/Staff Photographer

Box:

WHEREHOUSE MUSIC, INC.

SOURCES: Hoovers.com and Daily News research