Guitar Center is Doomed

Re: Guitar Center is Doomed

john lutz said:
Eric Garland has posted another article - more in depth follow up on the shaky financial doings behind GC and others. How to get beyond the parasite economy

Hard to know who to believe these days, eh?
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I found this quote from the beginning of the article very telling, I knew our entire industry was pretty small but it's great to see it in perspective.

http://www.ericgarland.co/2014/03/29/parasite-economy/ said:
I never paid too much attention to the musical instrument (MI) business in my profession of strategic analysis; it simply does not represent enough cash flow to have significance in national economies. For example, the global MI industry is around $13 billion a year. I used to do high-level analysis of the market for antipsychotic medication, something most people know nothing about, which has the same annual sales revenue in the US alone.
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Re: Guitar Center is Doomed

And professional audio is the flea on the ass of the small dog. :-)

MI was a sleepy inefficient market until a few decades ago and now is indistinguishable from other mature industries with widespread offshore manufacturing and web distribution, siphon waste out of the distribution channel.

The local mom and pop music store went the way of the local hardware store or drug store, some time ago.

JR

PS: I enjoyed the coincidental association between MI and anti-psychotic medication.

PPS: I'm shocked that there is wheeling and dealing in money-ville.
 
Re: Guitar Center is Doomed

Ares Management has taken control of GC. Ares held most the GC's debt and worked a debt-to-equity deal that immediately eliminates $500 million in debt and saves about $70 million a year in interest payments. They'll limp along for a while longer.
 
Re: Guitar Center is Doomed

All bricks and mortar are under a lot of stress due to shifting shopping trends to buying over the internet. GC has the bad combination of excessive financial engineering and a shrinking top line.

That Eric guy sounds a little hyperbolic (like a short seller selling his book, but it appears GTRC stock is already delisted). There is no doubt GC is due to get a major corporate flush. It seems they should have been able to anticipate and manage the internet sales trend using their Musician's Friend division but never effectively combined the two, perhaps to avoid state sales taxes. Lots of big box retailers use their bricks and mortar presence for web order fulfillment that reduces the pain of all that overhead.

It seems to me there is value in those two brands, but perhaps no value left in the corporate shell. Lots of stockholders and debt holders will take (or already have) a haircut, no matter how this plays out. I doubt the brands will go away, but the company probably will.

JR
 
Re: Guitar Center is Doomed

From the linked article
The objective truth is that the growth of the last decade was financed by banking fraud, and that financial trickery of this sort only fools people in the short-term. Eventually, you must have a product people demand, sold by competent people who care about the business, financed in a way that makes sense.

This unforgiving reality will work great for local stores and entrepreneurs with a classic, cautious approach to business management. For a while, suspending our disbelief in reality allowed standard-issue corporate financiers to run a pump-and-dump scheme on all kinds of retail, selling risky ventures to “dumb money” and reaping the rewards for a select few. We are all wiser now, and the market conditions simply will not support that behavior.
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Re: Guitar Center is Doomed

Tim McCulloch said:
From the linked article
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Yup that is exactly the type of hyperbolic ranting I was talking about.

While I will not sign on to his characterization of "banking fraud" the central bank's artificially low interest rates for several years now has fueled a lot of debt based risky business behavior, that more prudent business people avoid.

I appreciate the central bank trying to juice employment with money supply, but we need tax policy and spending reform too. The central bank has enough work to do just managing inflation (which equates to the actual value of our currency). Government can't create jobs (the big lie or one of them) but they sure can hurt new job growth. Just keep doing what they have been doing for the last few years (GDP growth still <3% 6 years after the economic trauma).

JR
 
Re: Guitar Center is Doomed

frank kayser said:
No believing outward signs? The GC store in Glen Burnie just sunk a ton into a complete store makeover. But so did Radio Shack.
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The most visible signs would be scarce floor stock, as they run short on capital their vendors will be reluctant to front them as much trade credit, to keep the hot products in stock.

Rat Shack has had a failing business model for decades. The shock is that they stayed open this long... too many stores selling too much stuff that people don't need. They had evolved into being a phone store or whatever...But we don't need more phone stores, either.

JR.
 
Re: Guitar Center is Doomed

John Roberts said:
The most visible signs would be scarce floor stock, as they run short on capital their vendors will be reluctant to front them as much trade credit, to keep the hot products in stock.

Rat Shack has had a failing business model for decades. The shock is that they stayed open this long... too many stores selling too much stuff that people don't need. They had evolved into being a phone store or whatever...But we don't need more phone stores, either.

JR.
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I had a little soldering project and needed another "helping hands" work positioning/holding thingy. Radio Shack online said my local store had one. They did. The staff looked genuinely surprised to have a customer and were so stunned they didn't try to sell me a phone.

Part of RS's problem was that they eventually tried to sell the same stuff as the big box stores - cell phones, computers, electronic toys & games. The real juice is in accessories, but try and find most audio doohickeys and thingamajigs... adapters or cables... and there's a good chance what you need is not in stock. They used to have a great selection of TV/video accessories at reasonable prices. No more. There's a lot of nostalgia for the old days. The old DIY and kitbuilding era is long gone, but we're seeing a nascent revival with the "maker" movement and now that there might be a niche market, RS will probably go the way of Circuit City.
 
Re: Guitar Center is Doomed

Tim McCulloch said:
I had a little soldering project and needed another "helping hands" work positioning/holding thingy. Radio Shack online said my local store had one. They did. The staff looked genuinely surprised to have a customer and were so stunned they didn't try to sell me a phone.

Part of RS's problem was that they eventually tried to sell the same stuff as the big box stores - cell phones, computers, electronic toys & games. The real juice is in accessories, but try and find most audio doohickeys and thingamajigs... adapters or cables... and there's a good chance what you need is not in stock. They used to have a great selection of TV/video accessories at reasonable prices. No more. There's a lot of nostalgia for the old days. The old DIY and kitbuilding era is long gone, but we're seeing a nascent revival with the "maker" movement and now that there might be a niche market, RS will probably go the way of Circuit City.
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All I needed was flux. Just a tiny bit for a project. Went to 5 different RS locations - not one of them had any of any kind in stock. Neighbor ended up having some extra, but I'll be honest, it's very disappointing.
 
Re: Guitar Center is Doomed

I still use a rat shack VOM and buy some part or supplies from RS maybe once a year or so... I will order stuff from their website as often as going to the store since the closest one is 25 miles away.

Having so many stores was part of their old business model, I think they could be profitable as a web only presences, but it would be a smaller business.

JR
 
Re: Guitar Center is Doomed

What killed Radio Shack for me was homogenization of their inventory. At some point they eliminated every other sku (or more) from their shelves and drawers, so most of they time now they have an abundance of items I don't need but never have the one thing I do need.
 
Re: Guitar Center is Doomed

Max Warasila said:
Ironic if you ask me. JR must have caused a ripple in the space time continuum...
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I shut down my kit business in 1985, the DIY hobby industry has been in decline that long. This decline correlates nicely with advances in low cost manufacturing. Back in the '80s low cost gear was made in Japan.

This has been a slow moving trend, but I suspect mall/store traffic is down as more people let their mouse do the walking.

JR
 
Re: Guitar Center is Doomed

Tim McCulloch said:
..., RS will probably go the way of Circuit City.
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Funny you mention those two in the same sentence.

Radio Shack disappeared in Canada about 10 years ago, replaced by a retail outfit called "The Source". Most of the old products that I was interested in were still there (perf boards, resistors, capacitors, etc. although in ever diminishing quantities), and they even seemed to use the old part numbers. The odd thing is that The Source is/was owned by Circuit City, although that company has never had any significant presence in Canada.

As a kid, I though the Shack was the greatest place on earth. There were all kinds of projects I could build from scratch, and RS had all those parts available. It was quite common for articles in magazines to list the parts and the part numbers from the RS catalog. Later on, when I discovered real industrial electronics suppliers, I hardly ever darkened the doorway of the place, not even for a free battery! How long can a place survive when the only customers they get are people desperate for some small part on a weekend when the preferred suppliers aren't open?

GTD
 
Re: Guitar Center is Doomed

It is easy to make a little money in the music biz: Start with a lot.

For my children's sake, I hope that the 'Vampire Squid" mentality of these past decades recedes and business is conducted on a model that regards honesty and fair practice as necessary inputs.

But I'm a dreamer.
 
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