Music retail on the auction block.

guitar_center

The current state of the economy, combined with failing business models can have a negative effect on the every day musician. With the purchase in 2007 of “Guitar Center” by the omnipresent BAIN Capital we saw huge growth in both brick and mortar stores and online sales. (Yes Bain also owns “Musician’s Friend” a subsidiary of GC). Now after a little over five years the company finds itself in debt to the tune of over 1.6 Billion dollars. Let me say that again 1.6 BILLION! How on earth does a company allow itself to get so deep into debt so fast? The answer is simple. Pay your stick holders dividends, give out huge bonuses and grow at a rate that does not fit your budgets. Then when sales drop even a fraction of a percent post losses and stiff your suppliers. This business model has caused the death of many popular chains both owned by Bain and other greedy investment firms. We have seen it in the press repeatedly and it also happens undercover, then springs up when we least expect it. Nothing, however happens until these tilted money grubbers suck out as much as possible when the end is growing near, leaving behind an even bigger mess.

In 2007 corporate executives changes the rules. No more bargaining or haggling, cheaper brands, untrained sales associates who had no clue what they were even selling. Then came the economic crunch and they had the perfect excuse for holding out on the suppliers. “Just let us get through the rough patch and we will get everyone caught up” they implied. All along this was nothing but a lie. Fender Guitars is now owed more that 15 million dollars by Guitar Center. In the long game that might not seem like a whole lot, but just imagine for a moment what 15 million dollars of Fender Guitars and amplifiers might look like. The worst part is Fender can’t pull the plug as up to 8% of their annual sales come through GC. Talk about being stuck between a rock and a hard place. They can’t afford to not ship units to Guitar Center or risk losing even more money. Even worse Fender is only one of hundreds that are not getting paid for their products they produce. I’m sure Behringer, JBL, Roland and all the rest are in the same boat to some degree. The response from GC; build more stores! Sorry GC that’s the wrong answer, or is it? Maybe they are counting on selling off some real estate as the end draws near and there is also the tax write offs, and bankruptcy profits for the stockholders when the time comes to shutter. Two hundred and fourteen stores will certainly have some value to the scrappers once they close or maybe a mom and pop will take over some of them bringing back the good old days of real customer service and product knowledge. We can dream I suppose.

Most will say the internet is to blame. Brick and mortar stores are failing because the web has made it all too convenient for shoppers. One click and the next day it’s on your doorstep. This is not the case when it comes to Guitar Center as many may not be aware that Musician’s Friend is a subsidiary of the sinking ship. That’s right GC owns the popular web retail site Musician’s Friend. So the money that is owed to Fender and all the rest is all part of a business model that no longer works. Let’s try this again. Take a moment and picture what 15 million dollars worth of Fender equipment might look like. How many truck loads do you see? The answer is of course too many. Now consider what that might look like if you add in the rest of the suppliers, employees’ benefits, contractors, banks, shipping companies, web designers, managers, and all of the rest who are owed this massive sum of money. Not a pretty picture.

Keep in mind we are dealing with decisions on a corporate level. They are well aware of the amount of debt that is piling over their heads. To them this is all about sucking the last dollar out of every corner of the business. Ask any one of them who sits around the conference table the difference between a Telecaster and a Stratocaster and they will probably look at you like you have three heads. These are people who deal in commodities. The product makes no difference to them. The only thing that counts is the bottom line. Someone should have told them that they are dealing with creative people who in many cases use these tools to make a living. From my experience musicians are real people, who care about the earth and also those who live on it. Ask your buddy in the band why he plays a Fender. Guaranteed it has nothing to do with the store it came from, but rather how he felt in his heart when it landed in his hands. Too many times in recent years we have seen iconic brands vaporize into thin air. It is painfully obvious that these losses come not from lack of interest, but rather the greed of those hiding behind the curtain.

Music is a living breathing thing. Its growth in recent years with the development of online video sites has exploded, and along with it has come the corporate rats bringing the plague of bad business and corporate excess. Is this the end of the nation’s largest music instrument retail chain? The jury is still out on that one, but if who ever is driving the bus keeps on this road the probability is likely. Musicians might benefit in some ways from cheap or knock-off products. It’s not a secret that being in the industry is not always a good way to build your retirement fund. The crew at Bain will certainly not lose out on that house in the islands though. I found it interesting, now that this is coming to the surface a new CEO and others are taking over the reigns at CG. Smart move for those heading out the door and what appears to be another batch of sacrificial lambs taking over. Do they care? Not one bit. With out a doubt there will be huge bonuses for those who help broker the closing deals.

Where does this leave the little guy who needs a set of strings or some drum sticks? Our thinking is that maybe, just maybe, we will see a return of those awesome mom and pop music stores that had what we needed, knew their products, and helped us without worrying about commission levels. Just because we care about something does not make it a right. Remember Toys-R-US?

-Eric Baird- Crush Media Boston.