Guitar Center's woes

[jannusguy2]

Bain Capitol strikes again!

 

http://www.ericgarland.co/2014/03/03/wsj-guitar-center-acquired-major-creditor/

[j45nick]

Reading between the lines, this one is headed into receivership, if not liquidation. Way too much debt, which is fairly typical of corporate raiders. I assume Musician's Friend shares the same owners, but maybe the online business can survive. Presumably they could shift assets around, but that one could be tricky depending on the corporate structure. Don't know if MF is an authorized Gibson online dealer or not.

 

I'm thinking of all those really nice vintage guitars that GC has in their inventory, and wondering how I can get my hands on some at a substantial discount.

[jt]

This outcome has been predicted and circulated in the industry for over a year.

 

An interesting and anticipated development.

[cunningham26]

Does anyone see this as maybe a good thing? Besides Google Adwords and the dominance of sweetwater and MF, I think it gives a boost to other online retailers as well as the used marketplaces like reverb and gbase. I feel like we (IMO) take for granted that we know of places like Wildwood and its ilk, where the shopping experience can be second to none. If people's reason for shopping is the absolute bottom dollar, they can do amazon or MF, but it's been shown that Gen X&Y are willing to pay more for a great customer experience that suits their unique tastes, and have incredible loyalty to places that give it to them. Being between gen x and gen Y and being a guitar buyer AND looking for a quality product AND someone that likes to shop locally, I'd say this is an opportunity for smaller shops to revive themselves a bit as a haven for that type of customer, even if that remains largely through ecommerce. I think GC's ideal business model was to be both low priced and customer driven, and they burned the candle on both ends. Like someone else said, having 10-12 people milling around an empty store isn't going to help the bottom line, and even though I've had good experiences with them, there are plenty that dont get a warm and fuzzy feeling from the big box guitar store.

[Aster1]

At least for the GC's in my State that I've visited, the staff were, IMHO, gearheaded boobs. The C/S was awful, guitars, esp. acoustics, very poorly cared for and just not much help at all. MF, on the other hand, gets me guitars next day (KC to Iowa)w/o frt. charges, free look for 45 days, excellent C/S & the Private Stock help/prices EXCELLENT.

 

Don't think this one is Bain's fault and GC would have been gone years ago if Bain hadn't intervened in GC financial mess they GC created. They can only try to fix the business flaws, but they can't fix poor employees & managers that drive off more purchases than they create. MF has/was a working & profitable business model and I hope not dragged down by GC shortcomings. Again, just what I've noticed in Iowa anyway.

 

Aster

[BluesKing777]

We'll I guess that means the capo they lost for me truly ain't coming....every now again I think the mailman might have it. They lost it, and lost the paperwork and lost me with their attitude, so good riddance!

 

How does my main guitar shop Elderly MI fit in the scheme of things? I hope they are private. I have no affiliation with any shop, unfortunately, but I have bought quite a few used and new guitars from Eldelys, and the service has been first class all round. I know others have gripes, but I hope they keep on keeping on!

 

 

BluesKing777.

[MissouriPicker]

If GC goes, it's simply business. GC took over from other companies and some other company will do the same to GC. There's either a market big enough to have so many music stores or there's not. The bad thing is that people just don't have tons of money to spend anymore. /////////If they do go, I'll be anxious to see what kind of merchandise they start putting in their stores for quick sell. Maybe even a few mom & pop stores will pop-up and thrive for a while. GC is hurting, and so is Target, Best Buy, Sears/KMart is dying, strip malls are loaded with vacant buildings. Times are tough. Internet sales are taking more and more of the money that used to go to retail stores. Something has got to happen. Maybe there's a good change on the way, or maybe another big box outfit will start selling musical instruments.

[modoc_333]

As most of you know, I work for a large independent music store. I thought I would chime in with "our" perspective on this....

 

 

There is good and bad (for my store and for customers) if GC implodes and a lot of it depends on HOW it happens.

 

The first thought for dealers like us is that our little world will become awesome overnight. Our store is as big or bigger than the GC across town. We do more of the higher end than them, but we do plenty of the mid line and beginner items that they specialize in. With them gone, it's easy to imagine getting a huge boost in our business. Of course, this is great. If the GC across town closed, then this would happen.... but when? and how? and what comes with that?

 

there are 2 possible scenarios: 1st, the whole thing just implodes. bankruptcy like Mars Music did several years ago. The 2nd would be for them to shrink drastically, scaling back their number of locations to only the biggest markets and maintaining their online presence. this may ultimately lead to bankruptcy still.

 

If #1 happened, then it would be really hard for competing stores. Our sales numbers would plummet for a VERY long time while GC had a massive fire sale and got rid of what they could (the way Mars did). This would be a rough time that some smaller shops couldn't survive. The bigger shops would make it, but it would be REALLY tough to see it through and arrive in the land of milk and honey on the other side.

 

#2 is a much better scenario. Our town is a smaller one so the local store may be one of the first to go. In this case, they would have a short sale, and then just go away. The company wouldn't advertise a store closing too much because they wouldn't want it to hurt the brand. It would be swift and quiet. Then, all of the local stores could survive it and get a boost in sales after it was over.

 

 

 

 

For customers, #1 would seem like a great thing, but could be a disaster. It wouldn't be like Mars closing. GC is much bigger. That going out of business sale would be great. They would sell things below cost. I would probably pick up a few things myself! but what happens after that? Many of the other shops you like to visit may not survive the lean times. The 1 or 2 that do would have you by the throat. Sure there is the internet, but if you want to try gear in person before you buy, then you would be at their mercy. with GC and the other smaller local shops gone, you would have few choices. It wouldn't be like it was before GC either. These would be stores that had survived and now were looking to conquer. Not all stores would be this way and some places would still be lucky to have great stores around, but other towns wouldn't come out as well.

 

#2 wouldn't give the AWESOME going out of business sale to customers but good deals could be had. When the local GC finally closed up shop, then the other locals would all still be around and be stronger. This wouldn't be as much fun in the short term, but better in the long run for shopping and the local economy.

 

 

 

 

 

What about vendors though? it's easy to forget them. We often only think of the stores and the customers. The vendors are huge part of this equation though. What happens to them? how does that affect the independent shops that remain? how does that affect the customer?

 

well...

 

scenario #1: Total melt down. NOT GOOD FOR ANYONE INVOLVED! Do you like that Fulltone pedal? or maybe some other smallish company that has been growing due to selling through GC. Even if you usually buy it somewhere else, it will affect you. Let's use Fulltone as an example. a small boutique pedal company that struck a deal to sell through guitar center and has gotten much bigger. when that happened, they hired more employees, expanded production, increased distribution, increased profits, etc, etc. what happens when GC goes away? sure, some of those sales will be made at another store. but some will simply vanish. Fulltone won't be able to stay as big as they are. They will scale back production, profits will dwindle, employees will be laid off and their ability to maintain large distribution will suffer. That small store that carries them now, won't have them anymore. Fulltone won't be able to supply them. They will cost more money at the stores that do still stock them. profit margins will be smaller. The dealers that lost the line will be losers here, and so will customers (not to mention Fulltone itself).

 

This doesn't just apply to small companies like Fulltone though. What do you think happens to companies like Fender and Gibson? they have A LOT of eggs in that GC basket. They will feel the hurt. Sure, some of those sales lost at GC will be made at independent shops, but some will still vanish into thin air. When Fender went for it with their IPO a while back, they showed some pretty slim profit margins. how would it affect them for GC to go away? How could they survive? i'm not sure they could in their current state. the brand name has a lot of value, but the company itself would be in big trouble. of course this would trickle down to dealers and customers in the way of higher prices, lower quality, and poor availability. Not exactly the land of milk and honey that dealers envision or the return to old school mom and pop shops that customers see coming.

 

 

scenario #2: This is the only way that it all can live as we want it to. If GC slowly implodes, then vendors could make gradual corrections to production, marketing, distribution, etc which would allow them to survive. There would be some hiccups, but overall it would work. prices would rise slightly for a while and things would get stretched thin, but it would be possible to make it through. In reality, I'm pretty sure most vendors have already started to put this plan into action. I don't have any insider details, but i certainly hope that's true. it would soften the blow if #1 happened and make for a smooth transition if #2 happened.

 

 

What do I think will happen? I put my money on #2. GC, MF, etc has a lot of brand recognition. Even with all of the money troubles and bad articles, most of the guitar buying public is unaware that there is a real problem. They walk into their local GC and nothing has changed. Their marketing dept is pretty good at this. So i don't think it will all sink. There is money to be made and someone will find a way to make it. I think MF will live on. It's pretty easy to keep a purely online music retailer in the black. GC will scale back drastically and become more like a larger Sam Ash. They will have stores in NY, LA, Chicago, and the like. They will still pull a lot of weight, but not on the scale they do now and not as much locally. Sweetwater and Sam Ash will become their peers. Local shops will survive and thrive. Customers will enjoy options, decent prices and good customer service.... At least until the NEXT big box music retailer pops up. (that is the way of retail in the US, right?) Then there is that other tough monster around the corner that is constantly growing: Amazon. That will be a tougher one to figure out because all of the smaller shops are selling there too.... competing with themselves and making their own monster. Not sure about that one yet.... but that is an ENTIRELY different thread to be discussed at a later date I think.

 

 

just my 2¢ for what they are worth!

 

 

 

-Keith

[BluesKing777]

 

 

 

What do I think will happen? I put my money on #2. GC, MF, etc has a lot of brand recognition. Even with all of the money troubles and bad articles, most of the guitar buying public is unaware that there is a real problem. They walk into their local GC and nothing has changed. Their marketing dept is pretty good at this. So i don't think it will all sink. There is money to be made and someone will find a way to make it. I think MF will live on. It's pretty easy to keep a purely online music retailer in the black. GC will scale back drastically and become more like a larger Sam Ash. They will have stores in NY, LA, Chicago, and the like. They will still pull a lot of weight, but not on the scale they do now and not as much locally. Sweetwater and Sam Ash will become their peers. Local shops will survive and thrive. Customers will enjoy options, decent prices and good customer service.... At least until the NEXT big box music retailer pops up. (that is the way of retail in the US, right?) Then there is that other tough monster around the corner that is constantly growing: Amazon. That will be a tougher one to figure out because all of the smaller shops are selling there too.... competing with themselves and making their own monster. Not sure about that one yet.... but that is an ENTIRELY different thread to be discussed at a later date I think.

 

 

just my 2¢ for what they are worth!

 

 

 

-Keith

 

 

 

 

Thanks for that, Modoc.

 

Very interesting to see your point of view.

 

A large music chain in Australia went the same way a while back, and basically once they are gone, they stay gone. But a lot of what you summarised actually happened here. Another small chain waited until it was bargain basement price and bought the lot, sold everything they could, sacked everyone except 2 main shops in the main cities. The acoustic specialist shops are thriving since and a couple of smaller shops have expanded into the junky little stuff. I went in one shop for a look and it really was just junk - not one thing I wanted - the guitar leads were junky and the guitars I have never heard of.....they are still trading a year or more later, so someone must buy that stuff.

 

 

BluesKing777.

[fortyearspickn]

Thanks Modoc. Great insights.

It seems Guitar Center needed to keep increasing profits for investors, like every company does, so they expanded into other musical related items and that increased costs and diluted their niche expertise. Smaller guitar shops cannot begin to stock the variety GC does. If the one in our city disappears, I really do not see Sam Ash or the #3 local 2 store Mom &Pop being in a position to offer even one third the variety of our GC. So, the customers in this city suffer in the final analysis. In a year, I don't think more than a dozen people will drive 5 hours to Fullers when ready to buy. a guitar. The rest will either go online or buy the more readily available Taylor's and Martins.

The problem GC has is their rep. Too many experts go in, find they know more about something than the underpaid sales staff, and run home to post that on line. I use to get people asking me what kind of rheostat the $10 department store Sunbeam iron had when I worked part time for $3 an hour part time in college. Unfortunately, the store frowned on using said iron as a blunt instrument, because The Customer Is Always Right!

[modoc_333]

Thanks Modoc. Great insights.

It seems Guitar Center needed to keep increasing profits for investors, like every company does, so they expanded into other musical related items and that increased costs and diluted their niche expertise. Smaller guitar shops cannot begin to stock the variety GC does. If the one in our city disappears, I really do not see Sam Ash or the #3 local 2 store Mom &Pop being in a position to offer even one third the variety of our GC. So, the customers in this city suffer in the final analysis. In a year, I don't think more than a dozen people will drive 5 house to Fullers when ready to buy. a guitar. The rest will either go online or buy the more readily available Taylor's and Martins.

The problem GC has is their rep. Too many experts go in, find they know more about something than the underpaid sales staff, and run home to post that on line. I use to get people asking me what kind of rheostat the $10 department store Sunbeam iron had when I worked part time for $3 an hour part time in college. Unfortunately, the store frowned on using said iron as a blunt instrument, because The Customer Is Always Right!

 

 

 

good points. and of course the experience will be different in different markets. In our town, we do carry as much or more than the local GC. So that wouldn't create a vacuum. Other towns wouldn't look quite the same afterwards.

[cunningham26]

Great insight Keith- clearly im rooting for shops like yours to pave the way.

 

I have a skewed perspective because I live in a city with GC and great local shops, so while I get the argument that someone isn't going to take a day to go look at and buy a guitar hundreds of miles away, I still think that the quality shop has a place in the current marketplace.

 

Having 12 Les Pauls is all well and good for someone test driving, but if three of them are out of tune and the customer doesnt like the color on some, it's a moot point. Further, shoppers today go into a store having pretty much narrowed it down to a few things to try through internet research, so carrying 100k in inventory doesnt matter as much. What does matter is when the customer doesn't like the guitars they came in to test drive, the staff are able to steer them in the right direction. We all have been in GC where they say "don't like the epi hummingbird? Did you know you can finance the Gibson for 18 months with no interest?" and start the upsell. That doesnt work anymore, but actually listening to their needs and sticking to the relative price point does and builds confidence in the customer.

 

A shop that hones its inventory to quality instruments in all price points, and does a decent job buying and selling, should be able to thrive locally (maybe they do lessons as well) and through ecommerce (bought a used steinberger and no one locally wants it? dump it for cost online). It's all about the experience received and the quality of the product when it's delivered to the customer.

 

Again, I have a skewed perspective being really digital, young, and living in a major city, so maybe I'm wrong but it seems like a lot of places are doing ok by that model.

[aliasphobias]

Good topic! I hope that this stays here long enough to let everyone have their 2 cents. IMO stores are becoming a walk in catalog, you go there to touch and look at your interests, then go home and order. I hope I am wrong. It used to be that if I needed a screw to fix my closet hinge I could go to the local hardware store 5-7 locally (5m radius) the problem was solved. Now it is big box, 2x the mark up, I do not know the salesman, the owner does not live in my town (nor maybe in my country), so I have no chance of reciprocity, and the screw is not as good.

The times are not changing they have changed. The old warehouses sit vacant and empty, waiting to be pushed down, and someone to put the trees and the grass back. We may not ever ride horses into town again nor buy a guitar at the corner record store but that doesn't mean that I wouldn't like to.

[fortyearspickn]

Cunningham26,

To clarify, I meant that the sales in San Antonio currently going to GC, will almost all stay here and go to the #2 and #3. Guitar/Music stores. They have Martins and Taylor's up the wazoo. For Gibsons, or a specific high end Martin or Taylor, people will certainly trek over to Houston and Fullers. But most of the sales of new guitars are, I would think at GC, under $1 thousand a pop. So, while we here, with a bias towards Gibson acoustics, may love the smaller, customer focused shops and make a day trip out of a purchase, we are the exception, I think.

Great topic. Thanks Jannus Guy.

[Buc McMaster]

Having managed a large retail music store for twelve years (during which time GC first came to town), I think any store that survived GC's arrival will survive their leaving town. Some changes? Sure, but the market that was there will still be there when GC is gone.

[Hogeye]

This is a very interesting thread. It seems to me that the whole rumor is being advanced by Eric Garland. This guy freely admits to being a GC detractor and a big detractor of Mitt Romney and Bain Capital. I read the article and several others this so called expert has penned and I see no factual evidence that GC is about to go under. Eric Garland has been predicting doom and gloom for several years now and so far he has been way off base.

 

Don't get me wrong I'm no fan of GC and would like to see them with a smaller footprint in the music retail scene but I'm not convinced that this article is bringing any news to that effect. These very same rumors swirl around Gibson and they have not sold or even gone broke as predicted.

 

I enjoy the speculation of a world without GC and some is quite good but I wouldn't get to excited just yet. You do know that GC has just finished a purchase of a small but robust music chain of 12 stores in the Seattle area and are making a small experimental push into the band rental business. It doesn't sound like something a company going broke would do. I've been wrong before.

[AnneS]

Here's a relevant article, to Hogeye's point:

http://mmrmagazine.com/684-guitar-center-inside-the-big-box.html

Interesting thread....

[fortyearspickn]

There certainly are at least two sides to every story. Eric Garland 'published' this on his own blog. His business is completely dependent on his ability to generate publicity and more business - for himself. He lists Huffington Post and Al Jazeera as two of his biggest media outlets. The former is a politically slanted group, the later .. well, certainly not a 'liberal' rag. He challenges GC CEO to come on his blog to counter. That would certainly drive up his own net worth. If you go to the GC site, you can see they are opening new stores all the time.

It seems, they fill an important need in the market - hands on access to thousands of guitars. They'll let you order a new one, or have a used one shipped across country from another GC - buy it, try it, and return if you don't like it.

[62burst]

... They'll let you order a new one, or have a used one shipped across country from another GC - buy it, try it, and return if you don't like it.

 

Yes, and return it to your local GC. For the 100% of purchase price. That's convenient . And tempting.

[Boyd]

All the Guitar Center hate gets really old. I can only speak from my own experience, and it has been nothing but positive. Have bought 4 guitars there and very happy with all of them. The salespeople in my local store are all nice. The technician has his own company that makes custom acoustics and he literally worked miracles on my 74 J-50 that had been sitting in the closet for years. He did lots of extra work on it but only charged me the standard flat rate for a re-fret.

 

A few weeks ago I went to another store in my region to look at a used 2008 J-50. I'm sure they would have negotiated a lower price but instead I asked if they could include it in the current 0% financing for 18 months promotion. The asst manager said he didn't know, but he would try to overide the requirement that the offer was only for new gear. He was able to do it and I walked out a happy customer with a great guitar that nicely fits my budget and cash flow.

 

I hope they stay around because the little stores just don't have much inventory in my area and rarely stock whatever it is that I'm looking for.

[BobF_]

Yes, and return it to your local GC. For the 100% of purchase price. That's convenient . And tempting.

 

This is a BIG plus in my book. I make every effort to "know" prior to purchase, but sometimes it takes more time or a different environment than you can get in the store.

 

On several occasions (over like many years) I've had GC associates -some with Manager badges- talk me into taking two different things home to decide, knowing at least one item would get returned up front.

[BobF_]

All the Guitar Center hate gets really old.

.

.

.

 

 

Yes, GC hate and Bain hate are both lame. Come to think of it, hate is lame in general

[GuitarLight]

Without Guitar Center (mine is in Whitehall, Pa) ...we will be at the mercy of cheap corner store dealers who carry no decent stock and want an arm and a leg for a guitar. Guitar Center is wonderful. Thousands of us love them, visit them and buy from them. My local corner music store has never been able to touch their service. Guitar Center buys guitars, they sell guitars, they set up and fix guitars, they sell thousands of instrument products. ...Walk into any Guitar Center and get what you need in one place, often with 15% off sale. No begging, no pleading and no groveling with demeaning Mama, Papa, corner scoundrel stores who are out to give you nothing and take all....THAT is why Guitar Center became so popular..because it services the people who need it most...MUSICIANS. Long live Guitar Center.

[Buc McMaster]

Without Guitar Center (mine is in Whitehall, Pa) ...we will be at the mercy of cheap corner store dealers....

....no groveling with demeaning Mama, Papa, corner scoundrel stores who are out to give you nothing and take all....

 

Really? That's how you feel about independent retailers? A family that took all the risk to open, stock and operate a small business to make enough money to feed and house themselves? Does the same apply to Target, Walmart and the like that move into an area and drive all those "scoundrel" independents out of business? Geez. You're hopeless as an American.........then again, maybe you're not an American........

[jannusguy2]

Really? That's how you feel about independent retailers? A family that took all the risk to open, stock and operate a small business to make enough money to feed and house themselves? Does the same apply to Target, Walmart and the like that move into an area and drive all those "scoundrel" independents out of business? Geez. You're hopeless as an American.........then again, maybe you're not an American........

My sentiments exactly.