Index Of All Articles

Opinion - Guitar Center - Goodbye and don't let the door hit you on the way out! (Wishful thinking)

By Tim Gillespie

October 30th, 2012

I have been waiting for a long time to write this column. And before anyone accuses me of grinding an axe, just let me say this. I am!

I started my small business helping guitarists in 1995. At first I was a little intimidated by all the big stores and established musicians and professional music administrators (mean it) out there. After all, these guys bought products every day costing thousands of dollars and here I was on the phone asking them to slow down enough to look at my guitar books and please put in an order of a hundred bucks or so. Oddly enough the whole scheme worked. I quickly grew in size and developed several hundred very good accounts in 46 different states. After a while I started to realize these are not just accounts but are people that have given me a chance to establish my little business. That made them very near and dear to my heart. I showed up asking and was given a chance.

That was before the Internet took hold and changed the musicscape forever. I suppose it is interesting to say I saw the whole thing, but honestly there was some rough road in there. Many times I would call a good account only to find the door shut and the talent dispersed throughout the town. At first you think it is the end of the world, but then later you learn it is actually death by a thousand cuts. Not so much for me but for some of the people I have grown to care about. And watching them die a slow, painful death is difficult to say the least. After a while you go a little numb.

So as we are seeing consolidation in the music retail space, another very interesting development occurred. The rise of the mega stores. To be fair there have been a number of 800 pound gorillas in the past. Music and Arts comes to mind as does Sam Ash Music and Guitar Center. But they had a different business model than Guitar Center. Guitar Center burst on to the stage early on and established a presence in several major cities. I remember the local dealers in Atlanta reporting the effect to me in a rather shell-shocked sort of way. And then I witnessed the mess first hand. Sales of my books stopped almost overnight to these local dealers for awhile. They had no idea of how to compete with these giant discounting companies and it showed. After a while, when they saw I would not sell to Guitar Center, they bought more of my books in an effort to offer something Guitar Center could not. They still went out of business or changed shape to the extent that they no longer are the same company.

After Guitar Center decimated Atlanta with their low cost / no service strategy, they repeated that feat in other major cities, each one falling with the silent cries of music professionals that have been faithfully serving the public most of their adult lives. And when they left, it was without so much as a whimper. I know because I called them all and talked over the course of many months. I know! I have heard many, many stories about someone who buys an acoustic guitar from Guitar Center and then they realize the guitar is un playable or so poorly set up that they need to take it to a repair shop just so they can play it. Often times they would take it in to a reputable shop, not Guitar Center, and try and get it serviced. Those store owners know full well where that guitar came from and where the money went. The customer almost always felt ripped off and then could not understand why a reputable dealer then needs to charge them to fix their new guitar. But the damage was done. The sale lost, the money went to a big out of town company, the local economy did not experience the multiplier effect of the money working it's way through many hands in the community before it left and these little businesses failed. They are still failing today. And we cannot afford to see them go. And oh yes, the customer never learned how to play that guitar. EVERYONE LOSES! Everyone!

Let me explain why these mom and pop shops are so important. Because they contain many years of music experience, they care deeply about the customer and they live in the local town. These are your guys and if you have a problem with them, you know where to find them any day you need them. That is until they have been driven out of town by large, ruthless companies that care no more about the local economy than they do a failed, fourth quarter, earnings report. Well today I did a little searching to bring myself up to date on the company and I found exactly what I thought I would find, just more violent. For anyone who does not know this, Guitar Center was sold to Bain Capital in 2007 for 2.2 billion dollars. Really! In case you think I am going to delve into the political ramifications of this, forget it! Even I would not do that.

But I would be more than happy to point out what has happened to this large company competing in the music retail space. It turns out they are in the process of being violently ripped apart. As of this writing the company is still intact. But they have been saddled with 1.5 billion in debt by Bain Capital. That's right the usual treatment for a company taken under the wing of this venture capitalist company. Here is an article taken from a blog called Daily Kos, this article highlights the usual Bain Capital technique for financing an acquisition. First they purchase the company then they saddle it with debt. Then they pile on huge consulting fees, transfer as much equity as possible to their company and then release a very crippled company incapable of even servicing it's own debt. That seems to be Guitar Center's fate. Right now they have been saddled with 1.56 billion in debt (most likely to help pay for the acquisition), next come the huge consulting fees that offer no hope of making anything better and eventually after they suck the life out of the company they will sell it or make it attempt to stay in business on their own. That almost for certain will end in bankruptcy. Goodbye to a real pain in the a$$. Excuse my language.

Almost immediately I begin to think of a landscape without these overbearing companies. I begin to imagine small music shops free to open their doors without the threat of ruthless competition and poor service. Is that even possible? Hard to say! The competitive landscape is still full of problems with map pricing, Internet dumping and gray market deals. I don't think we will be returning to the easy-does-it years of the mid 90's any time soon. But now there has been a powerful change agent unleashed on one of the most ruthless competitors the industry has even seen. I for one, welcome this change as I still contend that this industry needs thoughtful, considerate, seasoned professionals that are not out to skin you alive as they do anything to achieve their sales goals and maybe even keep their job. We need people to help guide these very important decisions as a young person starts out on a journey of music. People that will be there over the long haul. Remember mistakes in this endeavor when learning to play guitar sometimes take years to erase and correct. Sometimes they cannot be corrected. Hiring a bunch of young musicians with no training and replacing them as the turnover rate skyrockets is no recipie for success.

And one last thing, how many jobs disappeared with the destruction of Guitar Center? How many?