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Tuesday, April 1, 2014

Guitar Center: The Sad Story Continues

Guitar Center image
When I wrote about the financial condition of Guitar Center a while back, the post received a huge response, maybe the biggest I've ever had. Much of it came from customers who disliked the company's business style, some of it came from supporters, and a few from GC employees at various levels. Now analyst Eric Garland has written a long post on his blog on the current financial wrangling of the company that's truly an eye opener. Who thought selling guitars and amps could be this complicated?

To briefly and simply recap, GC was bought by private equity firm Bain Capital 6 years ago and has a huge billion dollar debt as a result. Ares Management, who holds much of the Bain's debt, announced at the beginning of March that it was converting its debt to equity and assuming management of GC. Since then there have been a number of announcements regarding the complex behind the scenes financial engineering to sell a number of notes to other private equity companies to raise the necessary cash to keep everything afloat and pull some money out before the whole thing implodes.

Eric discusses this in his article, and compares what's happening to the lead-up to the mortgage crisis in that the same kind of financial engineering is taking place. The deals are all complex to keep analysts and regulators from easily figuring things out, but he managed to get to the bottom of the everything thanks to the help of some extremely literate finance experts, who all seem incredulous at the situation.

Here's the bottom line. Guitar Center is owned by a bunch of Wall Street .1%ers who don't give a crap about you, the industry or music in general. It's strictly all about money, and they'll do anything to squeeze as much out of the industry before they leave it in the dust.

I really feel sorry for the manufacturers that are caught in the middle. They have to hang in there because they've geared up for the sales volume that GC brings, but I bet they're holding their collective breath that they won't get caught holding the bag when the fire sale happens.

Read Eric Garland's post, then decide where you want to make your music purchases. And no, this is not an April Fool's joke.
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1 comment:

Anonymous said...

Guitar Center is the musician's Walmart. They've got everything you need or want, but most of it is crap and way overpriced. Everything is the same. The really high-end instruments are kept well away (and for obvious reasons) from the wanna-be amateur shredders who seem to use the store as their career springboard.

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