Trans World Entertainment, which operates such music retailers as FYE, Wherehouse and Sam Goody, announced yesterday a comparable store sales decrease of 6% for the five-week period ending December 30, 2006 (read press release). For the nine-week period that ended the year, comparable store sales dropped 5%. Chairman and Chief Executive Officer, Robert J. Higgins, said sales were below expectations and the company will report lower than expected earnings.

In a conference call yesterday (read transcript at SEC.gov), president and COO Jim Litwak revealed comp sales were down 12% in music and only 2% in video. (Music improved a bit, though, as third quarter comparable sales were down 14%.) Growth came from electronics and accessories. Music represented 37% of Trans World's business during November and December. Future emphasis will be given to DVDs, portable media devices and accessories.

Answering an analyst's question on its digital music strategy, Litwak described Trans World's plans to roll out a limited in-store test later this month.

"We’re going to be testing -- we’re going to roll out in January to 25 stores our mix and burn strategy, which enables us to either burn CDs in stores, or to download to specific portable devices. So, you can do one or the other, depending upon what portable device you have. Or if you don’t have the one that works, you’ll be able to burn a CD, bring it home, and upload it and download it into another device. That’s going to go into 25 stores. ... Ultimately, the feeling is is that if this is successful, it’s something that we could migrate into the LVS system. In fact, we’ve got a few where we are testing it through the LVS system now. But ultimately that will be the play; that we could bring it all the way through into the LVS system."

LVS is the tag for Trans World's next-generation listening and viewing stations that allows customers to sample CDs and DVDs by swiping the product's barcode at the LVS. Asked what portable devices would work with the digital program, Litwak said,

"It could be a Coby player; it could be a Sandisk player; it could be an [iRipper] player. It is not an iPod player. But in fact, what you could do there is you just burn the CD, you bring it home, and then you could upload it to your iPod."

And there's the problem. Asking iPod owners to take an extra step is a poor way to serve your customers. Litwak pointed out that the stores will stock compatible MP3 players. "That's the beauty of it," he told an analyst, as if stores will cash in on demand for both hardware and software. But the cart is coming before the horse. In order to take part in Trans World's digital strategy, most of its customers will have to first purchase a new MP3 player. That's a big assumption.