Analysis: Is the End Near for Guitar Center?
Earlier this week we published an article, originally reported by Gear Gods, about a round of layoffs that recently took place at Guitar Center’s corporate headquarters. The article also contained some surface-level analysis of the poor state of Guitar Center’s finances, and some speculation on the chain’s future.
The reaction to that piece has been staggering. Through comments on this site, social media, and private emails sent to MetalSucks from multiple sources (including ex-Guitar Center employees), it’s clear that this topic hits a nerve. That shouldn’t be all too surprising: Guitar Center accounts for 28% of musical instrument sales in the U.S.. What is surprising is how little media coverage this story has attracted elsewhere.
To put it in perspective, take this quote from financial analyst Eric Garland, who has been following Guitar Center’s troubles for the past year and published an update on the troubled chain on Tuesday:
Moreover, the media which covers the musical instrument industry is deeply uncritical. Nearly everything I have read regarding the current situation has been either a regurgitation of corporate press releases or a subjective analysis riddled with factual errors and shallow knowledge of business in general and finance in particular. I am told that the tight budgets and intimate nature of the industry make some publishers afraid to engage with controversial subjects that might jeopardize a customer relationship. Either way, many industry professionals are basing their assessment of the market on dangerously incomplete information.
Emphasis added, because based on our own experience with that segment of the music industry, Garland’s assessment is completely true.
So what is this “dangerously incomplete information” of which Garland speaks? You’ll need to read his article for the nitty-gritty. After laying out some financial events that have taken place over the past couple of years, Garland drops the hammer:
The fact is, the die is cast. In a couple of weeks, Guitar Center will need to report its Christmas performance to its bondholders. If things do not look good, its bonds will be ripped apart like Radio Shack’s. Moreover, if I had to guess, the $10 million in Guitar Center’s coffers will not be enough to make the payment to their bondholders due in April 2015. In advance of that, they will need to seek protection under Chapter 11 of the bankruptcy code. Maybe they have another ultra-complex trick to bring out of the private equity playbook, but this whole thing is a waste of time. None of this sells guitars or inspires kids to be better musicians in a world where laptops play the tunes. We’re all analyzing the most mundane details of the terminal symptoms of this sickness that has seized American business culture in the past twenty years. Perhaps we need to heal that disease before we can back to fun things such as playing guitar and running profitable companies.
What leads Garland to that conclusion? Rather than re-hashing his argument here, I highly recommend you read Garland’s analysis. If you play any sort of instrument at all, it’ll be worth your while.