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Tuesday, May 12, 2015

More Evidence Of Big Changes Coming To Guitar Center

Guitar Center Store image
Guitar Center has been in and out of the news lately mostly thanks to Eric Garland’s excellent analysis of the company’s woeful financial state. The huge musical instrument retailer has been treading water for some time, but now it looks like it might be readying itself to finally sink.

To recap, Guitar Center was acquired in 2007 by Bain Capital, who took on a huge debt load of $1.6 billion in the process. More recently Bain’s partner Ares Management turned it’s debt into equity when Bain had trouble making payments and took over the management of GC. Suddenly there was less inventory, fewer SKUs and fewer vendors, but there was also the matter of 5 stores unionizing. Ares was allegedly very slow in negotiating a union contract with these stores and was then hit by an unfair practice charges by the Retail Workers Union to the National Labor Relations Board.

Garland has stated all along that this was a financial hole that GC could probably never crawl out of, and that at some point the company would have to declare bankruptcy and regroup. The latest evidence that this might might be in the offing comes from a new employee agreement (as seen below) that resulted in decreasing sales commissions from 10% on profit and 2% on gross down to 0.25%.

Not only that, the company has decreased the number of work hours for both salesman and managers to the point where the inside joke is that the company is at “liquidation staffing” levels. To grind the corporate heel in the salesman’s face just a little more, the company has raised the cost for employees to purchase new gear (one of the major reasons for musicians wanting to work there) by 10 to 15%. Read more on Forbes.

1 comment:

Anonymous said...

They have also laid off the few remaining contract luthiers and are replacing them with direct employees called "Garage Technicians". Yeah, I'd want a "Garage Technician" working on my high end acoustic.


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