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I've followed Eric's analysis and forecasts for a while, and he has been pretty spot on so far.

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

We'll see....

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Eschew obfuscation, espouse elucidation.

Well, the internet definitely changed things for the music business from when I was serving a local store back in the 70's, 80's, and 90's. I'm not sure it was for the better. One thing is for certain - Guitar Center came to be regarded as "the devil" by many folks I know still in retail. They can't keep help, and their sales mantra included no true customer service that I can discern.

If they blow up, I predict one of two things happening: Other online sellers will pick up their slack - with no real changes in the view of the public, or the whole system will collapse back to the Mom & Pop stores with instruments, lessons, instrument rentals, and real service and repair all under one roof. Call it a market correction.

I prefer the latter, but the former will probably prove to be true.

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"Act your age, not your shoe size" - Prince

I went into one of the three Guitar Centers in the Seattle area last week to look at hard shell guitar cases. I was shocked by how empty it was. Not just people but more importantly, gear. This particular store is quite large and it used to be jammed with literally several hundred guitars, lots and lots of amps, and all the rest. You couldn't move without bumping into something. The other day, the main floor area had wide open spaces. You could have put a bunch of pool tables in there and held a small tournament. When I went there a couple years ago to buy a guitar case, they had something like sixteen different models to choose from, multiple copies of each. This time, they had a grand total of three and just one of each. Strangely enough, the acoustic guitar room was still packed to the rafters with Martins and Taylors and a variety of other brands. The main part of the store looked like it was on its way out though.

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Once in a while you get shown the light in the strangest of places if you look at it right - Robert Hunter

Perhaps the most interesting part to me is the (speculative) possibility that they could lack sufficient funds to make bondholder payments due in April. If this occurs, it would render them ineligible for chapter 11 protection if they do not file for it before then, and leave chapter 7 as the only option.

Of course as Eric pointed to there may be other tricks they have in mind to deal with this, but if they did go full belly-up with chapter 7, I wonder how the rest of the market would fare 1/4 of the musical instrument inventory hitting the market at 10¢ on the dollar. Or how well would companies like Fender (who seem to be in shaky times as it is) fair in bankruptcy settlement?

They're certainly not too big to fail in the big picture, but within this 7 billion dollar market could cause some serious ripples in what they leave behind.

Guess I'll make some popcorn and sit back...

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Eschew obfuscation, espouse elucidation.

Interesting Jay. I haven't been in to one in some time - might be curious to stop by and see how the local one looks now.

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Eschew obfuscation, espouse elucidation.

I have never been in a Guitar Center and have no intention of going in one. You see, I am only 2 hours from Elderly. I suppose there is a place for a big chain like GC. That place being sellers of cheap, entry level instruments. Most pickers i know want to deal with a full service shop filled with knowledgeable. Sales people and skilled repair techs.

This is how evil Guitar Centre is. I am "forbidden" to open the link. I'm guessing it's some anti Canuck thing. Do you think I should sue?

Ooooooh. Eric Garland's whole site is down.

Wonder if he exceeded bandwidth, or if it's something more.....

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Eschew obfuscation, espouse elucidation.

I think you should litigate PDQ, and get in the line-up for 10 cents on the dollar. I guess that would be closer to 7 cents on the dollar, Canadian!

Alex

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"Indecision is the key to flexibility" .... Bumper sticker

Threatening to sue eh? You are sounding more and more like a USoninan; welcome, glad to have you.

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Bryan Bear PMoMC

Take care of your feet, and your feet will take care of you.

Got into the link earlier and now I can't get in either. hmmmmmmmmmmm

If GC goes down, and Eric's analysis is pretty persuasive, I would also worry about their suppliers, especially those that may be in a weak financial position.

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Steve Smith
"Music is what feelings sound like"

I have typed that link in my Corona Typewriter 6 times ant it still isnt working !

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Seems they employee about 8000, I wish then well -- I've been to the one in Kalamazoo, nice store not as cool as Elderly, nobody made me go there.

Guitar Center, Inc. operates as a retailer of music products in the United States. It operates three business segments: Guitar Center, Direct Response, and Music & Arts. The Guitar Center segment offers guitars, amplifiers, percussion instruments, keyboards, and pro audio and recording equipment through its retail stores and online. It also provides repair services, and rehearsal and/or lesson space. As of October 21, 2013, this segment operated approximately 250 Guitar Center stores The Direct Response segment is involved in the catalog and online sale of a range of music products under various brand names. This segment operates musiciansfriend.com Web site The Music & Arts segment rents an...
Detailed Description
5795 Lindero Canyon Road
Westlake Village, CA 91362
United States
Founded in 1959
7,738 Employees
Phone:
818-735-8800
http://www.guitarcenter.com

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Ken Cierp

http://www.kennethmichaelguitars.com/

You are indeed lucky to be able to go to Elderly. That's one of the great instrument stores. To be fair though, Guitar Center has done a lot more than just sell cheap, entry level instruments. They have high end Martins, Taylors, Gibsons, PRSs, etc. Elderly has them beat by a mile on acoustic instruments, but GC has always had a bigger selection of electrics and a much, much bigger selection of amps. And then there are the keyboard and drum sections of the store. In my experience, the average person working at Elderly is much more knowledgeable and committed to helping customers than the average GC employee. Finding a good one at GC is a very hit and miss proposition and I think that has been a common experience that hasn't helped the store's reputation.

If GC goes under, hopefully it will benefit some of the smaller stores like American Music or Dusty Strings in Seattle which are local institutions.

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Once in a while you get shown the light in the strangest of places if you look at it right - Robert Hunter

Maybe you should try using an IBM Selectric.

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Once in a while you get shown the light in the strangest of places if you look at it right - Robert Hunter

In case no one knew this, Guitar Center is owned by Musicians' Friends - the biggest shop-by-mail music retailer around. And if I remember correctly, Guitar Center has already been through one bankruptcy event. It's my understanding they are tens of millions in debt.

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"Act your age, not your shoe size" - Prince

They're actually property of Bain Capital, or at least were until they restructured their debts in a sneaky bankruptcy alternative with an equally shady vulture capital firm, Ares Management. I'm not entirely clear on the details of the Musicians Friend relationship, but my understanding is that they were acquired by Guitar Center rather than the other way around.

They are hundreds of millions in debt (actually over a billion I believe), and struggling to make interest only payments of tens of millions a year, with no foreseeable way to settle the balloon payments as the debts reach maturity in a few years. They may (or may not) pull some innovative tricks to get by this hurdle and maybe the next, but I don't see it lasting too much longer.

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Eschew obfuscation, espouse elucidation.

There's an awful lot of rhetoric and hyperbole in Eric's "analysis" that doesn't quite qualify as analysis. Also a lot of conclusions about Chapter 7 and Chapter 11 that completely misunderstand how corporate reorganizations work.

Guitar Center is struggling financially; he has that part correct. There will be some significant changes. But even if we assume that GC has to go into bankruptcy, GC still won't go away. There is no chance of a Chapter 7. And contrary to his analysis, Chapter 11 is available even if you can't pay all of your debt and some creditors get shortchanged (see, eg., GM). Eric simply doesn't understand Bankruptcy law.

The way this works is that, if GC files for bankruptcy, the company will shut down the less profitable stores and relationships while keeping the profitable stores going. The creditors won't get paid in full, but they will have a chance to get some money from a company that, after the reorganization, will be profitable enough to pay them something.

GC isn't going away.

We need a laugh track here. Thanks, I needed that. Just had a long day of cabinets. Sorry Alex. I like curves as oppose to square.

That's pretty darn funny too Jim.

I agree that it's highly unlikely they will disappear. In Eric's defense though, I don't believe he tried to portray this as any form of complete fiscal analysis, but rather a personal blog post from the perspective of an economist who is obviously frustrated with the shell games corporations like this are allowed to play.

If they do end up having to file chapter 11, then I could foresee this as being about as bad for the market. Flood the market with surplus from a chapter 7 liquidation, or let them continue on with an unfair advantage of continuing to sell products with an even greater disparity (compared to smaller brick and mortar stores) in their cost of inventory after negotiating settlements. Either way, both big manufacturers/suppliers, and other dealers big and small, would seem at risk of being affected by ripples through the market.

I'm certainly no economist, just a luthier. Still, everything I hear about the Bain/Ares GC seems to point to the most optimistic revenue outlook maybe coming close to meeting interest payments. If they're scrambling so hard to shuffle the shells right now, what are they going to do in a few years when these debts actually mature? By how Moody's seems to appraise them, I doubt investors will be lining up (and can't imagine an IPO would bring too much enthusiasm either).

Dunno. We're comfortable here at our shop, and I would say very unlikely to feel any notable effect whichever way it goes. It will be interesting to watch how they play this out over the coming months and years though.

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Eschew obfuscation, espouse elucidation.

Fwiw, they just opened a store in my town, Asheville, and it's very popular. I've no need to go there, but a lot of consumers are eating it up. I don't see it going away...


Ken Jones
Mountain Song Guitars

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Mountain Song Guitars www.mountainsongguitars.com

If the individual store weren't chained to a much bigger corporate anchor, it may be able to sail through just fine. Unfortunately success of a company this size can rarely be appraised by performance of isolated locations. Their survival is dependent much more on financial juggling by strategists who have never played a guitar, and surprisingly little on the success of individual retail locations. The store on Main Street might be hoppin', but it's the suits on Wall Street who actually make or break the company.

Reminds me a bit of a little book store we had here in Ann Arbor. Every location I visited, from the flagship store here in town to a shopping mall sized Borders in Singapore - they were always packed elbow to elbow, with lines at the register longer than an amusement park ride. In the end this didn't matter, because they tried to grow too fast, spent too much, and carried too much debt. You could never guess from the sales floor that they could ever fail, because that's not where it happens.

Of course then there's Radio Shack, where you can smell failure when you get within 30 yards of any of their stores, but that's another case all together.

Borders tried chapter 11, but when settlements could not be reached and buyers not found, they eventually reverted to chapter 7, eventually having most of their assets taken over by Barnes and Noble. Maybe GC could be taken over by Sweetwater (I could see them maybe doing it if they could get their assets for 10¢ on the dollar).

Who knows. Maybe it's all a red herring and nothing will happen. Should be interesting to watch in the comin years though.

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Eschew obfuscation, espouse elucidation.

Then there's the S&P restructuring watchlist -

http://www.forbes.com/sites/spleverage/ ... watchlist/

They added GC to the list two months ago. If they feel it's worth watching, it probably is.

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Eschew obfuscation, espouse elucidation.

A lot of people in chi-chi-Chin a are crying right now.


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Ken

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Ken