From The Archives - Used and Abused

by Bill Glahn

[This piece first appeared in the Chicago Reader 15 years ago. I hardly think the used CD license brings the city of Chicago much revenue anymore. The few stores that have survived specialize in used vinyl now.]

Update: Chicago's Record Emporium continued for years despite the ordinance. But there were other forces at work. Gentrification in Roscoe Village, where the Record Emporium was located, and other areas of Chicago, boosted rents far beyond the capabilities of small record shop owners.

The article:
This May [2002], Alderman Gene Schulter proposed the addition of two phrases to the city's secondhand-dealer ordinance: "digital audio disc" and "digital video disc." The law, which regulates the resale of certain items, was successfully amended in June, and those six words have had a severe impact on local independent record shops. At least one store has stopped selling used CDs, a clerk at Raffe's Record Riot was arrested, and Second Hand Tunes' Hyde Park store was shut down for failure to obtain a license after the four-store chain filed a federal lawsuit against the city. (It has since reopened under appeal.)

Municipal Code 4-264 is intended as a crime prevention tool--it requires stores that buy and sell used merchandise to obtain a special license (currently $500 annually); to qualify, applicants must pass a criminal-background check. Stores must also keep a log that lists used goods purchased and collect personal information to verify the seller's identity: name, address, phone number, height, weight, date of birth, and social security number. If the seller cannot present a picture ID the store must snap a photo or record the sale on video.

Only those used items considered prone to theft are included in the ordinance, and until June that meant audio-video equipment, cameras, computer hardware, watches, coins, and certain types of jewelry. Schulter introduced his amendment after receiving a letter from Lieutenant Lee Epplen of the 19th Precinct stating that in more than 80 percent of burglaries in the city CDs and DVDs were taken.

Used-CD shops have always been aware of the possibility that they're being sold stolen goods, which is why most already had a policy similar to that required by the secondhand-dealer statute. "The guy that tries to sell us stolen CDs this week will be stealing from us and trying to sell them to another store next week," says Mike Felten, owner of the Record Emporium in Roscoe Village, who has sold used and new records for 23 years. "Our policy is, 'We want to buy your used, not stolen, CDs. Photo ID required.'" But the new legal demands are more invasive, and, in the age of identity theft, disturbing to patrons. According to Felten, many customers who have come into his shop to trade in or sell used CDs have decided not to when asked for a social security number.

Such concerns are at the heart of the lawsuit Second Hand Tunes has filed against the city in district court. Represented by the firm of Horowitz and Weinstein, the chain is basing its suit on First and Fourth Amendment issues. "If you look at the other used items listed in the statute, none of them are items of speech and expression, as CDs and DVDs are," says the chain's attorney, Paul Horowitz. "Regulating items of speech and expression is a violation of First Amendment rights." As Second Hand Tunes owner Johnny Balmer puts it, "The city of Chicago has no right to document my customers' listening habits."

The suit also maintains that the actions taken by Chicago police to enforce the ordinance violated the company's constitutional protection against unreasonable search and seizure. Those actions, as documented in the suit, included requests to inspect "restricted" areas of the Lincoln Park store and to examine the customer information the ordinance required the store to collect, threats of arrests and fines, and a statement by an officer that any business that failed to comply with the ordinance would have "a difficult time when they attempted to renew any of their business licenses." According to the suit, the police visited the store six times in two months, the last three on consecutive days. (Second Hand Tunes has scrapped plans for another store in the city until the issue is resolved.)

The existence of many independent CD stores is already precarious--more than three dozen in the Chicago area have gone out of business in the last decade. Unlike large chains, independent stores can't buy direct from manufacturers and must pay between $1.50 and $3 more per disc to get them from middlemen. They certainly can't sell new releases as loss leaders at $9.99, as Best Buy does. Balmer says he can price new CDs no higher than $14.99 to $15.99 if he wants to stay competitive with national chain stores, for a profit margin of roughly 20 percent.

Used CDs offer a similar profit per disc (about $3 to $4), but cost considerably less to stock--the average profit margin on a used disc is 50 to 60 percent. Besides, Best Buy and Borders don't carry them at any price. Many independent shops rely heavily on used CDs to stay in business: Dead Wax in North Center is a 100 percent used operation, Second Hand Tunes does 95 percent of its business in used items, and the Record Emporium sells about half-and-half.

Mark Ferguson, owner of Hard Boiled Records and Videos in Roscoe Village, did just 5 percent of his business in used CDs--he says he bought them for the convenience of customers who wanted to thin out their collections. But because of the license fee and the law's intrusive requirements, he's no longer buying. "Now when someone brings in their unwanted discs, I have to refer them to my competition," he says. "I'm not necessarily sure that those customers will return to my shop when they want to buy new CDs."

Raffe Simonian, owner of Raffe's Record Riot in Portage Park, has had more serious problems. Raffe's keeps a basic transaction log, but on September 20 a store clerk bought several used CDs from an undercover police officer without obtaining all of the required information. Half an hour later the cops showed up. The store was shut down and the employee was put in jail; it was six hours before Simonian could bail him out. The charges were dropped, but the owner received a stern warning from city attorneys to bring the store into compliance. "Much of my business is still in used vinyl," says Simonian. (Vinyl LPs are not covered by the ordinance.) "I'm not some kind of crook or fly-by-night operation. I've been in this business for several decades and have a well-deserved reputation nationally for selling obscure jazz and 60s and 70s rock 'n' roll records.

"I see these actions as entrapment," Simonian continues. "I get the feeling that the city doesn't want independent stores around anymore."

Deliberately or not, owners say, certain legislative decisions made by the city over the past decade have made things increasingly tough on them. "In the nine years that I've been at my present location my rent has tripled. I already have to sell 30 used CDs each and every day, seven days a week, just to pay my rent," says the Record Emporium's Felten. "A lot of redevelopment has gone on in the last nine years, and corporate operations seem to be more desirable to the city planners and landlords. Independent businesses are getting squeezed, and this new license fee might just be the final straw for me."