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Monday, March 3, 2014

The Beginning Of The End As Guitar Center To Be Acquired

Guitar Center image
As if one blockbuster business deal in our industry isn't enough (see my blog about Avid yesterday), today the news came from the Wall Street Journal that Guitar Center was in talks about being acquired by one of its creditors (see this post for the backstory).

It appears that Ares Management, who owns the majority of Bain Capitol's (the owner of GC) debt, is in discussions to convert the debt into equity by taking over the majority of the company.

Talk about sending shudders through the industry, this is going to change the landscape of music retail, for better or worse.

Ares wants their money, so watch as they squeeze GC by making it leaner and meaner than ever, all at the expense of the customer. If you think doing business with them now is hard, just wait until this comes down. Fewer sales people that turn over even more frequently, less stock on hand, only the latest products and no deep inventory - that's what you can expect. It'll be the way it is now, only worse, if you can imagine.

And expect to see some of your favorite small manufactures either struggle or go out of business, as GC cuts its inventory and SKU's even more. For all those companies depending upon GC for a good chunk of their business, times are about to get a lot tougher.

And we may be seeing the beginning of the end of GC, at least as we know it. Ares could just decide it wants as much money as it can get right now and liquidate it.

The good thing out of all of this could be the rise of the indie music store again. I relish the days of individual services from people who really cared.

Once again, this is a small industry filled with creative people. It's too small for a company to go public, roll up smaller companies, or grow to big box levels without the customer suffering.

I want to thank Eric Garland for his heads up on the story. He's been on top of this from the start.
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44 comments:

Rand said...

"The good thing out of all of this could be the rise of the indie music store again. I relish the days of individual services from people who really cared."

Touche' Bobby. I think that sentiment could also cover the majority of most anything music business related today.

Where's HG Wells and his Time Machine when we need him most?

Hammster said...

"The good thing out of all of this could be the rise of the indie music store again. I relish the days of individual services from people who really cared."

Trouble is, most of the indie stores in our area where even more apathetic than GC. Numerous time of walking into indie stores and not even getting acknowledgement from the hipster working behind the counter, who apparently has been too busy to notice actual customers! And God help you if you weren't in any local band they knew about - the fact I had actual money and could buy something didn't ever seem to matter to the local indie store.

At least GC was interested in selling gear. I get treated like a customer, and not like an intruder.

Guess I'll just have to send all my business to Sweetwater.

Anonymous said...

Only ever buy expendable from them anyways.
Never anything of value.

Anonymous said...

Only way this would work is to combine half the stores with a brothel. This way all the wanna-be rock stars can pay for a wanna-be groupie and GC will easily make their money back 10 fold.

Anonymous said...

Oh the times... they are chagin'

Anonymous said...

I'm not surprised. Maybe if they payed a decent wage, their employees wouldn't suck, and they'd be able to hire people who were worth it. In turn, the customer wouldn't dread going into a guitar center and would actually buy shit. It's a circle, and I think GC deserves what's coming to it.

I'm just curious as to what direction this will take. Either way, I buy most of my gear online.

Anonymous said...

I would agree with Hammster; in Mpls/St Paul there are a plethora of great stores but the prices are SKY high and the employees (and a few of the owners) are self-absorbed assholes. I've like visiting the two GCs in my area, they always have new shit, they always let you try anything, and the few salesmen that I'm tight with will always give me the best deal they can. I hope your analysis is wrong...

Anonymous said...

I can live with the uninformed, young employees at Guitar Center because they are usually pretty friendly and I generally already know what I want when I walk in the store. What I would not want to go back to is the days where the mom & pop music stores were the only game in town. Remember some of the shops where you weren't allowed to even touch a guitar without a clerk breathing down your neck? Some of those little music stores had a positively unfriendly vibe unless they knew you. No thanks, and no I don't work for Guitar Center.

Anonymous said...

A marginally relevant corporation moves closer to total irrelevancy... welcome to the now! This story is as old as the hills, only the name has changed.

An insane amount of cultural flow has shifted in the past 15 years, a lot of the bigger organizations were too bloated and inefficient to be able to adapt to the shifting currents.

Any small business short-sighted enough to allow its own fate to be inextricably linked to that of a machine like GC... well, they have my sympathies.

Anonymous said...

Just visited an indie mom-and-pop music store in Santa Rosa, CA. NOTHING! Not even remotely compared to the Guitar Center, neither in the inventory, nor in the friendly rock-club atmosphere. It's an illusion that indie music stores will rise to become something like GC, nobody will get the bulk purchasing power of GC, Web support, and the unique opportunity to touch and try any gear there before buying.

CaptainVictory said...

I second what Hammster said. Our GC is staffed with knowledgeable, exceedingly helpful people who will bend over backwards to give you what you need. I even had one guy remember me after about two years of not seeing him. And our indie stores ... well, let's just say that GC compares favorably. I hope GC survives.

Wade Vishuddha said...

"The good thing out of all of this could be the rise of the indie music store again. I relish the days of individual services from people who really cared."

Talk about rose-tinted goggles. I've been screwed by mom-and-pop music stores so many times, but always was treated well at GC. An indie store doesn't have to answer to anyone, but the guy behind the counter at Guitar Center knows he will get in trouble if he treats you like crap.

Sjoerd Koppert said...

Has anyone considered that the writing was on the wall the minute Bain acquired GC?
Bain is one of the most notorious asset stripping firms, they make their money from aquiring businesses, running them into the ground and selling their assets.
GC has an enormous amount of highly valuable real estate in prime locations ..... I rest my case

Anonymous said...

It's such a bad experience shopping there that things can only get better first of all. Second, it's the fault of musicians for shopping there instead of the independent stores and buying into the hype of some idiot telling you every five minutes, "hey dude, this is what you need, not that".

Anonymous said...

Sad because a new GC moved into the far west of Houston where I live and it drove a little mom and pop out of business. The real shame was the mom and pop had great tech service, and GC has a 3 to 4 week wait for repairs/setups...

Anonymous said...

"Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you."
Really? Amazon has done as much to squeeze the small retailer as GC has. Hypocrite!

moose @ midizoo said...

It is quite amazing how many workers at Guitar Center actually give a sh*t!! As many people have been saying, a lot of stores have working musicians in them, or have (like me) many years industry experience using & abusing the gear we now sell...

We let anyone come & play on the gear, not just the elite with a fist full of money. Mom & Pop stores didn't always do that!

I care about my customers. My customers care about me, which is why i get a lot of returning faces who sometimes drive 200+ miles to come & talk with their knowledgeable Guitar Center sales guy. Me. Trained. Experienced. Knowledgeable.

Guitar Center is a great place to get the tools to make music. And change lives.

Unknown said...

stop victimizing yourselves in mom and pop music stores. Yes they have to be very careful about their gear. People don't have to be mad friendly in a guitar store. some "indie" stores suck, but in places like twin cities and chicago I can assure they still have the best equipment available. They don't have to hold your hand and be nice to you like guitar center to be a better store. don't go into a music store with serious gear not knowing what your intention is. All that said long live sweet water yada yada ect

Blue Eagle said...

Sorry to hear about your bad experiences with mom and pop/ indie stores. Don't throw the baby out with the bathwater, though. I run a small "Indie" vintage guitar shop. Every customer (or even browser) is greeted enthusiastically, and offered whatever assistance they require. Even the most valuable vintage instruments are available to try out - even if you are not a potential buyer. We offer lots of free assistance (truss rod adjustments, soldering a broken jack wire, etc....). It's a very uneven playing field for private shops when GC and MF sell items for pennies above wholesale. That probably leaves some owners pretty grumpy - and they should vacate the business if they can't deal!

Anonymous said...

To all of the GC supporters complaining about stock available at you local music store being low or the staff not being knowledgeable or helpful. You need to realize that this trend with the retail music industry has not been a quick jump to where things are now. This slide has come for many independent music stores over the last 20 years. Many of your independent music stores had great staff, service and stock once upon a time. The retail music giants like GC and the other various mail order operations have eroded the independent music retailers ability to afford qualified staff and their financial ability to keep stock on hand. This combined with an economy that has made it next impossible to borrow funds to put stock on the floor has crippled the independent music store. Yes I am a former employee and a former owner of an independent music store. I have fought a fight that has crippled me financially trying to save my business. To the point that I may never recover. To all of the consumers that mail order or support GC or other big box retailers I hope you are happy with the contributions your support of those big retailers has done to destroy an industry. You sure knew how to find our independent service departments when your equipment was broken down and needed repair. When we are all gone where will you get it fixed then??????

Anonymous said...

Not that it is at all relevant but the Guitar center and its ilk have never become part of any local community it is run by accountants not musicians or artists. They are there to expand. I equate Sam Ash, to the Guitar Center. I do not even go into one at this point unless I must. I dread interacting with most of the employees. I have spent many thousands of dollars in each and I am still a total stranger when I buy something there. I prefer buying on line. They simply treat me better and they do not make it hard for me to get new students by cornering the market on local lessons. I do remember the days of being on the road trying to find a decent music store. For product availability, Box stores cannot be beat but it is a trade off. Must a chain store or any musical instrument company be that hungry and have so little concern for the everyday folks who have made them what they are? I am willing to bet that for every famous person who shops there a thousand regular bread and butter players also shop there without the rewards. Where is the good will? Do they not realize that some “items” have an important intrinsic value attached to them by their owners? Most musical instrument buyers hold on to their purchases for many years or forever and not only value them but will willingly recant their point of origin as in “where they got it” and the experience attached. At what point does a company find a place for itself in multiple communities. I have written letters to Paul Ash explaining my unwillingness to deal with some of his employees and never received a reply. I have been dealing with the Guitar center since its original Hollywood and Ventura Blvd store. If Guitar Center and Sam Ash disappeared, I might miss the products but would not miss the culture.
Just my two cents..

Anonymous said...

GC IS A JOKE. I will never shop there again they treated me terrible. AMS all the way. :-)

Steven White said...

Happily, my home town of Milwaukee, WI has a healthy collection of indie music stores. Each has its own specialty and are quite boutiquey. I don't know that this will help on the money side of things, I mean quality gear is still and always will be expensive.

But by happily, I mean that when I walk into these stores I am recognized as a customer, receive service and have my questions answered thoughtfully by people with direct experience. And not because any band or recording I'm involved with.

Besides, no one knows about me or the recordings I'm involved with. If anyone did, I'd have people to shop for me, right? ;)

Dave Lopez said...

I third what Hammster said. I've only had great experiences as a GC customer. They know way more then the indie stores because they can carry real gear.

Most indie stores carry low budget equipment that I would never buy. And as Hammster also mentioned, they treat customers as if they're a burden. One place I go to, for strings and picks only, has a staff of three behind the counter. Not ONCE have I ever been greeted when walking in.

I second CaptainVictory, I hope GC survives as well.

jo jik said...

Guitar centers are way too big.
So many crappy guitars filling up space.
I'm figuring 90% of their Gibsons/Fenders are supplied at no charge by the manufacturers, only paid when it sells. If that's not the model yet, it should be. Many mom pop stores are like this, especially with non-famous names.

Honestly, they are screwed. They should just open a coffee shop inside with a small stage, and start selling mochas. Get some tables with WiFi, let people hang out there all day.
Let people record with the gear there, upload to internet, and have fun. Karaoke booth with autotune hooked up. Make money off coffee and pastries.
Watch as people facebook their recordings.


Ken Andrus said...

Whoa . . . that is going to be different! I hope GC survives!
http://www.stoneybrookrecords.com

Anonymous said...

Ma a Pa music stores are lame. I agree with many here. I have more than a few gripes with GC but at least they have lots of stuff and most importantly for me, you can try it in the store AND you've got 30 days at home to figure out if you really like it. Get that from an small store? NOT!

Anonymous said...

Can't wait until they blackballl themselves right out of the market. Let's bring back the true musicians music store that caters to the needs of the artist, not the masss. Hate myself every time I go in there for the "last" time.and as far as lots of stuff.....lots of junk that belongs in Walmart

Anonymous said...

Good comments from all. However, the vendors are to blame for the demise of mom and pops too. They cut deals with GC no one else gets AND GC gets to return the gear to the vendors without a time limit. Mom and pops never got that or ever will.

CaptainVictory said...

To the fellow who said that Bain Capital "makes their money from acquiring businesses, running them into the ground and selling their assets": Utter nonsense.

That entire thesis is built on factual assertions that are easily refuted. First, the best way for an investor like Bain to make money is to make the companies it owns MORE profitable, not less.

Second, Bain has done just that, over and over again. Ever heard of Staples? Burger King? Domino’s Pizza? Dunkin’ Donuts? Clear Channel Communications? Gymboree? Toys 'R' Us? RJR Nabisco? Sealy Mattresses? Michael’s? Burlington Coat Factory? Bain either maintained or improved the financial health of each one of these companies.

So, contrary to what your buddies may have told you, investors don't make money by turning gold into manure.

Anonymous said...

I wonder how anyone decided this is "the beginning of the end" for Guitar Center. Take a breath, everyone. First, it hasn't happened. Second, if it does, it only another company owning GC. Nothing more, nothing less. Bain Capital doesn't own things long term - nothing, ever. They were never going to own and run GC long term. Ares isn't just a creditor of GC, Ares has partnered with Bain in a bunch of things. Chances are, its some kind of bro deal that'll work out for both companies. Last, Ares owns Neiman Marcus - seen anything new going on with them since Sept 2013? No? Guitar Center should be no different.

Anonymous said...

You don't care, or think the demise of GC is a good thing?
Be aware that, beside the retail stores you're bitching about, other related places and things are bound to fall, including:
Musician's Friend, Woodwind AMS and Brasswind, Music 123 and Lyons.
GC also employs nearly ten thousand people.

Anonymous said...

I knew someone that worked for Guitar Center and the salesmans never stayed very long...usually kids without much knowledge of music gear and once they realized they had to work for their pay, they would leave. I myself, had stood around their store or even searched for salesmen for assistance and ended up walking out. SAM ASH is a family-owned business that has expanded their stores throughout the U.S. as well as their website over the past 90 years. I guess GC bit off more than they could chew and this is the result. You drop your prices below your cost enough and you dig yourself deeper into debt.

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Anonymous said...

Hammster, i got that "service" at a local Sam Ash. I dont look mainstream rock. Didnt tell them i had cash on hand to buy a very expensive guitar until the rock looking salesperson had disrespected me and talked to me like a moron. After i was done with him i promptly demoed another guitar in front of the sales floor supervisor removing any doubt as to my skill level. After the supervisor engaged me in convo i told him what an asshole his salesperson was, and told him i would be buying that same model guitar from a local competitor (GC) but thanked him for letting me play it first...it would save me time when i went to GC when i went to buy it. The salesperson lost a nice commission and Ash lost a customer who drops a lot of coin on gear. I WISH we had more independant stores around here.

John Schomisch said...

Your a 100% right!

Anonymous said...

"Let's bring back the true musicians music store that caters to the needs of the artist, not the masses."

Oh yeah right! Music stores don't make money off real musicians! Really successful ones get endorsement deals. Most of the rest just get by and don't have tons of cash, and when they do buy what they need. Music stores thrive on hobbyists with disposable income and GAS. There's nothing wrong with bigger music chain stores. The problem is when they elect to go public with their stock. That is the beginning of the end. This is because when you go public, it isn't enough to turn a modest but reasonably steady profit. Shareholders buy stock in hopes of growth not modest earnings. There is constant pressure to grow or increase earnings per share that might not have been a co0ncern for the private owner. The best thing for GC, or any company that isn't anticipating wild growth would be to go private.

German Martinez said...

As an ex employee of GC I must say I hope they go out of business.In my experience these were some of the issues:

-They carry a lot of crap gear (the majority except for the used stuff)

-They treat their employees like garbage, typical corporate style of running things.

-Working there felt like I was working for McDonalds, or Walt-Mart. We were only missing the drive thru. They only care about the bottom line nothing else. Especially not people.

-Management was absolutely terrible. They played favorites, and are far from professionals. Lots of unnecessary drama went on. Needless to say I was a happy man the day I left.

-Since then I never once have set foot in such a crappy place.

-It made me second guess my love for music. That's how I knew I was at the wrong place. It felt like everything that a music store shouldn't be is what GC is. Unhelpful, rude, and full of crap in every way imaginable. Corporate "culture" applied to music = failure.

SmaaaashTV said...

GC has been a wasteland for a long time now and I don't see it recovering, especially if they're going to cut inventory and raise prices. Online retailers like musiciansfriend, worldmusicsupply and sweetwater will serve most musicians well for all but the high end purchases. The big problem with online retailers is you don't have the ability to try an instrument before you buy it and that's almost essential due to variations in manufacturing and materials used, especially when it comes to buying a big ticket item like an Ernie Ball Musicman Bass, Gibson Les Paul, Marshall Stack or a DW Drum Kit.

Anonymous said...

Guitar Center and all its affiliates are in their final death throes?
Guitar Center comments back in the article:
“The customers are broke,” Garland said. “There’s nobody left to buy these products. We talk about inequality like it’s a philosophical thing. It’s a practical thing.”
IMHO perhaps a more honest statement should have been: "The customers are a joke ... no one wants to buy products from Guitar Center and its affiliates. We talk about customer dissatisfaction like its a philosophical thing. Its a practical thing. Its our corporate culture."
Have they forgotten about all those customers they've chosen not to do business with because apparently GC management was too immature to take criticism? My answer would be ... yes ... they've forgotten .... they've forgotten about customer service. And much of this lack of customer-centric attitude started in 2007 with the Bain Capital buyout.
Apparently they are too ignorant to realize that the real reason is not that customers are broke but perhaps their customer service and quality of products just suck. Who wants to deal with a company that consistently lies about the quality of a used piece of gear or sells "new" guitars or keyboards or effects pedals that have quite obviously been beat up in the store to demo to customers. Used gear that was supposed to by tested by GC employees before the sale ... that quite obviously was defective and had NOT been tested. That was my experience many times and documented in BBB and attorney general complaints. I am finding out that apparently I was not the only customer that has been blacklisted by their ineffective customer service and management. Any company that is NOTcustomer-centric is only destined for failure. Perhaps Washington could be listed as an exception.
Guitar Center is $1.6 BILLION in debt .... good riddance to companies with incompetent management styles and ineffective customer service.
I have gone so far as with my relationships with my musical gear suppliers to suggest that they avoid the same pitfalls as GC by NOT hiring any former Guitar Center (or affiliate) management types to avoid the infiltration of bad management habits .... bad customer service habits ... ineffective management strategies .... incompetent management strategies.
Please share with your management .... the message should be "excellent customer service and products = repeat happy customers = new customers = profitable growing business".
What is curious is how the BBB suddenly dropped their F rating to an A rating for GC despite 27 complaints within the last year that resulted in customers unsatisfied with GC's responses and resolution. In my professional experience as a supplier quality engineer and quality management systems expert that should have been an F rating with disqualified status. But apparently the BBB no longer runs like that.

Anonymous said...

As a follow-up to my last post ... I am a quality management systems and supplier quality expert. I am also a former Guitar Center customer. I had attempted to work with Jeremy Cole and their customer service people to resolve major problems with many purchases of mine. When many of the problems were not resolved I registered the nonconformities to the BBB and the state attorney general. Guitar Center then saw fit to blacklist me as a customer. Apparently I am not the only one. Please advise if Ares Management plans on cleaning up GC's management style and strategy to provide for more effective customer-centric such as highly successful music retailers like Sweetwater sound. While I cannot shop at GC anymore I do advise musicians on where to shop since I have several studios in the Cleveland area as well as international contacts due to my past CD production as featured on NPR in Europe.

Anonymous said...

Well if you weren't so insecure, you could have worked out a great deal.. but instead you chose to do what you did and then come on the internet like a invisible super hero and talk smack. pathetic!

Michael Phillips said...

I'm still playing guitar out at 75 here in Atlanta, and buying at Guitar Center. I especially like their national used market where I can find any guitar/amp used at better than EBay prices, with a great return policy, and instant cash for trade-ins. They honor 15% off for sales of supposedly exempt merchandise, and have free shipping.

I also trade at Ken Stanton Music, with equally good prices on new stuff, but no trades available. They also gave a better guitar inventory selection at the store.

I did 30 years in Wall Street and understand Private Equity, and the attendant accounting trickery. The whole model only works for profitable acquisitions. GC isn't working due to its debt load arising from Bain's too high purchase price.

I hope Ares puts GC through Chapter 11 rather than liquidation, so vendors and customers both have this great market.

Anonymous said...

25 year independent retailer here and I dont want to see GC go. I built this business from scratch. I've employed over 100 people. I have sold literally millions of dollars of gear and still must focus daily on paying my staff and self (occasionally). It's a hard business with super low margins and cut throat tactics by the big box store to undersell us (under cost) which has left many retailers swimming in debt. I have sold everything under the sun from Matchless to Mesa Boogie, Warwick to Alembic, you name it, we probably carried it. I watched how Mars Music (another big box that plummeted to ashes in the late 90's) was going to "show us" independents how to run a music business and they failed. And with their failure came the wave of market saturation of tons of low priced gear/castoffs, that was a shitty year and a half for everybody and it took several years for the marketplace to correct since then. I now watch the landscape change for the worse. If GC goes out of business it going to send shockwaves through the rest of the industry that going to effect ALL musicians, vendors, dealers, manufacturers. All facets of the existing and thriving music economy will be hurt if they go. If it happens, I want them to go slowly and lock the door behind them. We have built our "Ma and Pa" business on quality service and knowing customers names when they walk in the door, what they play, .their style of music, the list goes on and on. But, when it comes down to it, the customers really only care about one thing: Price! You get what you PAY for, NOT! Maybe get some business people back in Washington that know what they are doing and we will see this country turn around and everybody will thrive. Its all going internet, with cheap prices, easy returns, etc. AND If you're ever thinking about making some easy money by owning a music store, get your head examined or get a law degree (now there's some easy money). Don't fool yourself. Unless the economy really has a positive shift, its going to be a while before the Glory Days return. I'm now stepping off my soap box and heading home after another 10 hour day...

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