Guitar Center reportedly facing "imminent bankruptcy"

[Miles Archer]

Guitar Center, the largest chain of music equipment stores in the U.S., is reportedly facing “imminent bankruptcy." Digital Music News said that financial service firm Standard & Poor’s recently downgraded the business to CCC– status, indicating that a default event is expected in the near future.

With 269 stores across the nation, Guitar Center has a history stretching back to 1959, when it began as Organ Center then The Vox Center before a final name change in the ‘70s. Despite dismissing 180 employees in 2015, it’s carrying a debt of over $1 billion and narrowly avoided defaulting on repayments this month, which led to the downgrade. Another financial service company, Moody’s, warned investors: “The rating outlook remains negative.”

The crisis follows similar problems at Gibson Brands, Inc, the manufacturer of Gibson guitars. Earlier this year it emerged that urgent reconstruction was required to avoid its collapse. Last month it was reported that $560 million was needed to cover debt repayments by the summer, following a round of staff layoffs, and investors were pressuring CEO Henry Juszkiewicz to step aside in favor of a new management structure.

In an earlier interview, Juszkiewicz had argued that guitar businesses had struggled to recover from the 2008 financial crash, and said he’d been trying to persuade guitar stores to modernize their offerings. “I’ve been arguing with retailers for a long time that you have to be a place where [customers] can sit and take in the store, and be a destination that is friendly. If you walk into most music stores, there's nowhere to sit. Give me a break! Most stores aren't comfortable places. … t’s all about making the customer feel welcome, and helping them out by being knowledgeable. That's what the industry needs, because it doesn't have it. We have to get people involved in music, and offer them a helping hand.”

http://ultimateclassicrock.com/guitar-center-imminent-bankrupcty/

[Eliot Rosewater]

1. fuck

[oberliner]

2. The problem is that there is no place to sit?

I don't think so.

[Loki Liesmith]

3. That would suck.

[Dream Girl]

4. Vultures - isnt this Bain capital?

[Dave Starsky]

7. It would have to be some bullshit like this.

Guitar Center's been around forever, and there are always people in there whenever I go. And musical instruments aren't the easiest, most convenient things to buy online. If there were some Romneyesque financial shenanigans behind this, it wouldn't surprise me.

[KY_EnviroGuy]

10. They'll probably merge it with something like PetSmart...

and claim it's the perfect marriage and synergy. These vultures just don't care about America's culture.

.....

[FarCenter]

9. Guitar Center to Be Acquired by Bain Capital for $1.9 Billion

https://www.cnbc.com/id/19456958

AP - Published 9:20 AM ET Wed, 27 June 2007

Guitar Center, the largest U.S. musical instrument retailer, said Wednesday its board had accepted a $1.9 billion cash buyout offer from a private equity firm.

The deal with affiliates of Bain Capital Partners came amid speculation that a buyout was in the works. Guitar Center had hired investment bank Goldman Sachs to auction the company.

[treestar]

16. Bain - as I recall they deliberately

load the businesses with debt.

[Dave Starsky]

20. That's exactly what they do. That's ALL they do.

They murder businesses in order to walk away with huge cash bonuses for people at the top. It's the business scam of the last century.

[FarCenter]

24. That's the general idea, but the ploy is more complicated than that

THE END OF GUITAR CENTER

...

I am not going to provide a long-hand analysis of Guitar Center’s capital structure and every gruesome event in the company’s recent history; if you are so inclined, you may review my past work and browse Google.

A quick summary tells the tale of how close we are to the end, but first we should revisit the beginning. Guitar Center grew with the help of private equity firm Weston Presidio to become a national competitor and, eventually, a publicly-traded company. With the leadership of Marty Albertson, Larry Thomas, and others, the company continued to grow and prosper as a public company until leaders enlisted the help of Bain Capital to take the company private through massive leverage just prior to the largest financial crisis in a century. As you consider any of the other events associated with the present, this Original Sin of the past is the very root of the problem.

Private equity firms like Bain take mid-sized companies and pump them full of debt with the express intent of making them industry-dominating competitors, selling them to the stock market as a candidate for massive growth, and cashing in. To make this possible, private equity’s stake in the company is usually represented by “payment in kind” (PIK) notes, a type of bond that pays crushing interest – in this case 14.09% – but requires no cash outlay until the bond’s maturity. So that 14.09% is accruing, but it isn’t due for years, ideally after the company has been sold to what is often charmingly referred to as “the dumb money,” the retail investors who buy a stock without knowing the company’s true financial position. Before any of the company’s real problems are revealed, the private equity firm receives its payback in the form of stock, since PIK notes can be paid back in any medium of exchange. If all goes to plan, the stock price shoots up after the IPO and the PE firm makes a tidy profit – all in about three to five years.

Bain made two critical mistakes from which it cannot recover. First, it attempted to run this playbook on a company that had just done this very thing with Weston Presidio five years prior. Second, it did so just as the housing fraud and financial insanity which characterized the late 1990s and early 2000s nearly destroyed the U.S. dollar and left us with martial law. Every business maneuver that follows this initial error is too little, too late. Compound interest on debt is the strongest force in the universe, and retail has changed too much for any predictable corporate management technique to have a noticeable effect. The rest of this story is details.

https://www.ericgarland.co/2015/02/03/end-guitar-center/

[melm00se]

26. then Ares Capital came in

[Iggo]

5. Uh-oh. That's my toy store. (n/t)

[CountAllVotes]

6. Another brick & mortar store gone

Makes me really sad to read this.

Where else can one go to try out a guitar they might care to buy?

Sure you can buy one online used but who knows what you'll end up with.

There is another place called "Musician's Friend" but their prices are overboard IMO.

[Miles Archer]

8. The problem is licensing

A store has to jump through a series of hoops to become a "licensed" Fender, Gibson, etc. dealer.

I lived in a very small town in Nevada, and one of my clients was a music store. He's gone now...hung on for as long as he could, and then closed up shop. His issue was that 100% of his guitars were "no name knockoffs." Plenty of guitars that LOOKED like Les Pauls, Strats, etc, no brand names that anyone would recognize. There's so much peer pressure among musicians to own a "name" instrument...even Epiphones catch flak because they're "not Gibsons."

I have three sites that I frequent...Guitar Center, Musician's Friend, and Sweetwater. From what I see on a regular basis, Sweetwater is extremely competitive with Guitar Center. That said, no...there is no substitute for walking into a brick and mortar shop and picking up a "real" Gibson, Fender, etc. When I lived in Colorado, there was a Guitar Center about two miles away, and I was in there at least once a week, just dreaming and admiring. The closest one here is in Charlotte, and I've never been. Trips into Charlotte can either be an adventure or a pain in the neck. I've been in three times since moving here. Haven't had the adventure yet.

[mshasta]

11. Thank you

Just got me thinking here in Sacramento they are very good costumer service

[CountAllVotes]

17. Is Bananas at Large still around?

They were in San Rafael.

I bought my Martin 000-28 from them and got a very good deal on it NEW.

Very pleased with my guitar. This is the third 000-28 I've had. I lost the other two to pawnshops when I was broke.

[CountAllVotes]

19. Seems they are still around

Would strongly recommend them! YES!!!

Glad to know they are indeed still around!!

https://www.bananas.com/

[OneBlueDotBama]

32. GC Owns Musician's Friend as well

Be interesting to see how this shakes out.

Personally I've found in decades of sitting and playing guitars, the same guitar model can have different tonal characteristics, thus I can't see buying new online, even the pick ups between one guitar and the next exact model, can have different tones or warmth. Vintage amps, effects and guitars online... to date haven't been burnt.

[Adrahil]

21. Sweetwater Sound...

And if you live anywhere close, their retail store in Fort Wayne, IN is incredible. Any guitar over $200 gets a 55 point inspection and a free set-up.

[Eko]

33. Guitar Center owns Musicians Friend.

[ismnotwasm]

12. I read that the sales of electric guitars have been declining

This article from a year ago. I was talking about it with my grandson, who just loves guitar.

Standing in the center of the biggest, six-string candy store in the United States, you can almost believe all is well within the guitar world.

Except if, like George Gruhn, you know better. The 71-year-old Nashville dealer has sold guitars to Eric Clapton, Neil Young, Paul McCartney and Taylor Swift. Walking through NAMM with Gruhn is like shadowing Bill Belichick at the NFL Scouting Combine. There is great love for the product and great skepticism. What others might see as a boom — the seemingly endless line of manufacturers showcasing instruments — Gruhn sees as two trains on a collision course.

“There are more makers now than ever before in the history of the instrument, but the market is not growing,” Gruhn says in a voice that flutters between a groan and a grumble. “I’m not all doomsday, but this — this is not sustainable.”

https://www.washingtonpost.com/graphics/2017/lifestyle/the-slow-secret-death-of-the-electric-guitar/?utm_term=.f685ae5d5555

[Hoyt]

13. There have been rumors of such for years. Someone will purchase what's left of them and salvage

whatever is easiest. Some creditors will get screwed and they'll close a bunch of stores. Heck, where I used to live, they had at least 7 or 8 within 50 miles.

Not a big fan of GC, but every now and then they would get some cool instruments in worth having.

[cbdo2007]

14. This is another retail model that isn't paying attention to consumers...

The entire guitat industry has moves past Fender and Gibson and to build it kits and customization that sound nearly as good. My nephew recently bought a kit for a couple u please hundred bucks at an online shop and it seriously sounds as good as any of my overpriced Fenders or Gibson's.

Also the management of these companies takes on huge amounts of debt without changing their business model, just hoping the business will all change on its own and that's just not a good way to do business.

[Adrahil]

22. And Epiphone is an affordable alternative to a Gibson...

But honestly, a nokidding Les Paul is a thing of beauty.

[blake2012]

15. Not surprising

[MineralMan]

18. Some place to sit. Yes!

While I was stationed in Turkey, while serving in the USAF, I often visited a music shop in downtown Samsun, Turkey. It had all sorts of instruments, from traditional Turkish folk instruments to more familiar western instruments. I spoke Turkish very badly, but I spoke music pretty fluently.

Every time I went in that shop, there would be a group of local musicians, sitting in chairs and playing music together. The first time I went, I just looked around the shop and listened to them. Later, I showed up with my 5-string banjo and sat down with them. I didn't have to speak Turkish. Little by little, I got what they were doing and joined in. I passed that banjo around the room, and taught some licks to the folks playing there. They'd never had one in their hands before. It was great fun.

Over time, I bought several traditional Turkish folk instruments in that shop. Each time, one of the musicians hanging out there showed me how it was tuned and played and I sat in with them and played it a little until I learned the ropes of it. We didn't talk much, but we laughed a lot and made music. I shipped all of those instruments home with me and still have them, 50 years later.

Successful music shops welcome musicians and have places where they can sit and make music. That's how it works. Walls and displays of instruments without that are a lot harder to sell. Hand the instrument you want to sell to the customer and let him or her work with it, and maybe join in the music that should always be going on and you'll make more sales.

[Adrahil]

23. Awesome! NT

[Beakybird]

28. What a great story

Getting saddled with debt by Bain Capital is a big minus.
Having to charge state sales tax is a big minus.
But not having an inviting atmosphere is also a big disadvantage.

[USALiberal]

25. No more guitar heroes! nt

[tonyt53]

27. It had to happen. All of trump supporters are buying banjoes instead.

[OneBlueDotBama]

29. Just Another Bain Capitol Success.

Thanks Mitt...

[DrDan]

30. Good - as a player/collector for years, happy to see this

Ventured in once years ago and left vowing never to return.

[radius777]

31. Rock is not as popular w/youth as it once was.

Everything goes out of style eventually. Millennials are more into pop and hip-hop than rock, which for decades has been more of a white music scene, whereas the youth are more diverse now, and so gravitate to diverse scenes.

Even amongst my gen (X) the type of rock that was in was punk/alt, and those artists' ethos were all about buying second-hand stuff or self-assembling from used parts. They wouldn't have been caught dead in a Guitar Center.

[Eko]

34. Pretty much every year

for a while now there is an article that says this. And yet they are still here.