Guitar Center, Under Crushing Debt, May Get New Owners

guitar-center-repoThe Wall Street Journal reports that Guitar Center may soon have new owners:

Ares Management LLC, which owns the majority of the music retailer’s debt, is in advanced discussions with Guitar Center owner Bain Capital to take over the company.

Guitar Center has about $1.6 billion in debt, much of it stemming from Bain’s $2.1 billion leveraged buyout of the company in 2007. The company is on the hook for about $144 million in annual debt payments through 2016 and about $150 million total in 2017 and 2018.

Guitar Center reported a net loss of $398.7 million in the quarter ended Sept. 30, compared with a $25.7 million loss a year earlier.

In a leveraged buyout, an investor (like Bain) buys a company by using the assets of the acquired company (Guitar Center) as collateral for loans used to complete the purchase. When a company is over-leveraged, though, it can’t sustain its debt payments and risks bankruptcy.

In Guitar Center’s 2012 Annual 10-K Financial Report (pdf), it warned that “We cannot provide any assurance that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our and Holdings’ indebtedness.”

56 thoughts on “Guitar Center, Under Crushing Debt, May Get New Owners

  1. Saw this coming a mile away. Every since GC stopped their old employee training and moved to “no discounts” except if you bust their balls…

    The staff of the 3 I frequent in NY have been replaced over the years with clerks who, at least in the Keys/recording depts, have no idea what they are doing.

    Also, their stock of professional gear has gotten to the point where you are lucky if they have anything but workstations, crap interfaces, and low-end preamps in stock. They began catering to the whole pro-sumer market, alienating the guys who actually do music for a living.

    GC was in financial trouble before Bain bought them… they have been operating on bailout money ever since. As a former GC employee (keys and recording dept manager) in my college days, I know for a fact that the employees are making less than I was when I worked there 10+ years ago. I also know from friends who work there that the original company culture has died out in place of wal-mart esque clerking and rigid return policies. Shame…

    1. I got the impression that Bain makes is money by buying “distressed” chains– not by rescuing and fixing them, but by gaming the financial system WHILE the giant dies. (A bit like maggots, I suppose).

      1. Bain Capital is a division of MittRomneyCo. Open a window, the corporate raider stench is getting thick in here. I have no idea of where Guitar Center may have gone wrong internally, although the general economy has been shaped to benefit raiders and nail the rest of us to a wall. That’s part of why music gear has become so cheap, why pro gear is harder to find and why box stores are dying off. It puts too much on a desperate footing with unreasonable demands. If a business falters through incompetence, okay, that’s true in any realm, but never let sociopaths have the wheel. They instill a rot that ruins the show.

  2. if Bain had not bought Guitar Center in 2007 GC would already be history. Guitar Center was just about ready to go down the drain into bankruptcy. Should have let them drown back then.

    1. If you look at $25.7 million ‘loss’ for last year and take into account the $144 million/year debt payments that Bain saddled them with, it’s pretty clear that they could be profitable if not for the financial shenanigans.

    2. Not true. I worked at GC Corp in Westlake Village during that time period. I was management in one of the finance departments and actually our credit rating was pretty decent and the if you look at the GC financials from 2006 and 2007, the company was doing quite well. The officers at GC had their eye set on expanding internationally and when Bain claimed that this would be the direction they would go in by taking the company from public to private under them, they bought the rhetoric and were so struck by the shiny object that they never knew what hit them.

  3. Yea, music retail is a joke. Employees are paid horribly and their business model punishes salespeople for helping manage the store and help the customer. Also doesn’t help that most of the new gear coming out these days is utter shit.

  4. Funniest thing I’ve heard all day: a music store that gives a shit about employees. On what planet? Retail music is the armpit of jobs. They pay crap and train their people to sell based on markup – for example, Samson markup is way higher than Shure on mics because Shure is a popular brand, so employees are trained to sell shitty Samson mics over Shure. Next time you are in a music store, just for fun ask an employee which brand of mic they recommend – it won’t be Shure.

    GC’s death is welcome news if it means that small individual music stores will make a return.

  5. I remember that from my GC (and Ash) days: Sell what makes the most GP!!!!!! (gross profit)

    They had me selling audix i5 over a shure 57, Beyer cans because they had a huge 80 dollar gp margin, KRK monitors over Dynaudio, Roland workstations over korg and yamaha… it’s a shitty way to train salespeople.

  6. I own a small mom n pop music store that opened 9 years ago. GC created the *race to zero* lowering prices to a point the margins are so slim most can’t make it anymore … Especially when GC moves in down the street. Their business mentality has resulted in huge losses and still Fender, Gibson and other major brands bend over and give them huge deals where small stores can’t compete. Furthermore, many major brands quality has suffered to a point I won’t even consider carrying the line any more. It’s really sad to see greed and power take over some of these iconic brands that were built by being in every mom n pop shop across the country. This industry has lost its soul. Very few companies still have it and the ones that do are small now but could be the major players of tomorrow. If GC does shut down or drastically reduce its operattions, the Fenders and Gibson’s of the world will be forced to come crawling back n pop shops. They won’t be welcome at mine. Unfortunately that won’t matter either because these companies are more than happy dominating google searches over hooks in your local guitar shop. The next time you are ready to buy, give your local shop a chance. Even if it isn’t a brand you know – there are lots of small manufacturers making great quality instruments … Forget what it says on the headstock. If it plays good, sounds good and looks good … It is good. Rock on folks!

    1. Well can’t say as I’m surprised. I think the thing that none of the stories of GC’s crushing debt say anything about the CRUSHING inventory debt which according to the last report I read was somewhere around $155,000,000 (that’s right…million not thousand) and climbing. In April 2013 the talk of their demise was rampant because they had a huge debt payment due somewhere around $130,000,000+. How did they pay it?? Well they drained the cash on hand (for operational expenses) from around $75,000,000 to under $8 million (if memory serves) and essentially stopped paying their vendors which at that time was about $116 million which climbed 32% to the figure we see today. “My compliments to the Bean Counters who work for GC!!” Yes you are right about the race to the bottom mentality of the industry, the lack of overall service (Thank GOD since my business is mostly service oriented) and the overall lack of knowledge coming from the WalMarts of the music industry. The products from every major vendor (Gibson, Fender, Ibanez, Schecter, ESP etc) EXCEPT GODIN products seem to suffer from the thing. Huge Suck Disorder. So many product lines are watered down and far too many come from China. Kudos to Robert Godin who kept production in North America. Right now it seems to be the only string instrument line that you can actually make enough profit to keep your doors open with. When the economy tanked none (NONE) of the biggest vendors slowed down production in order to adjust to decreasing demand for their respective products. It was easier to jam them down GC’s throat and keep over saturating the market. 6 years and counting. Thankfully I WILL NEVER again buy from the majors even if they come crawling back. I would prefer to give my business to Dipinto, Eastwood, G&L CMG, and Reverend. BTW four of these vendors refuse to sell to big box. Hmm after reading this story it is easy to figure out why.

    2. holy crap don’t say that at my church, most of the guys there believe that if you don’t have a Taylor acoustic or a Gibson acoustic or electric or maybe even a very high end Gretsch you might as well not even bring it in the church.

  7. I am a former sales manager at GC, having worked at one of the Musician’s Friend stores that they took over. Back in 2000 GC internally touted the motto of Global Domination of MI retail. When Bain took them over that sealed their fate. Read this excellent article at RollingStone for an explanation of how Bain works.

    They don’t turn companies around, they attach themselves to it like a lamprey and suck all of the money out. They borrow fantastic sums of money to complete the buyout, borrow even more to pay out enormous bonuses for themselves and the major officers, and then leave the carcass to die by the road. It is vulture capitalism at it’s worst. The saddest thing about this is they may bring down some of the major brands as they fall. They owe Gibson, Fender, and others, millions!
    So Marty and the guys at the top of the GC corporate chain will walk away richer than they ever dreamed. The employees, small stockholders and vendors will get screwed. To say nothing of all of the smaller shops that they put under on the way.

  8. As long as the US government continues to allow the Chinese to flood the markets (most all consumables) with sub standard, slave wage manufactured dirt cheap shit, people will but it.
    This seriously hurts US based business’ and the US economy.
    We need Fair trade not FREE trade.

    The EPA is also making it near impossible to manufacture anything in the USA so all we can afford to offer are services. Next time you’re in front of your Chinese made television take notice of the commercials.
    Unless it’s not an advertisement for something you can eat, medication or a vehicle then it’s most likely for a service of some sort but not something you can put your hands on. What a shame this is since manufacturing is what made the USA the great country it once was…….

    1. Don’t blame the EPA for the downfall of US manufacturing. It is bad enough we have the shame of poisoning our own water in W. Va. and elsewhere. And remember that China has been in the news for its epic air pollution.

      The problems are complex, and there isn’t an easy solution, sadly. But we can’t sacrifice clean water and air for a short-term economic gain.

      1. “Don’t blame the EPA for the downfall of US manufacturing”

        Who is to blame????
        One cant even fire up a forging furnace in the USA today without having to pay exorbitant fees.
        I guess it’s alright to pollute the air as long as you pay to do so.

        It’s a shame because the money from these “fees” which was originally designated to be spent on keeping our environment clean now goes in a general fund which is used to pay the salaries and pensions of the Washington parasites. Face it, clean manufacturing is very much a possibility but politicians have made too many back room deals to suppress it for their own personal gain.
        The prosperity of millions is squelched by the greed of politicians.

        1. Anthony – it’s called ‘globalism’.

          Workers in the US are now competing against workers in the entire rest of the world, who are happy to take our jobs for a fraction of what people int the US used to get paid.

          Trying to blame this on the EPA is just ignorant. Those jobs are not coming back to the US until the rest of the world’s living standard rises to be closer to ours. Until that time, there’s always going to be someplace in the world where companies can find cheaper labor.

          1. “Who is to blame???”

            Blame corruption, blame Citizens United, blame the Kochs, blame de-regulation, blame trade-policies that favor wealth & power and screw the workers & environment, blame a media system that is largely owned by those interests and fails to inform our citizens.

            Smart regulation and policy is what is needed, but when wealthy corporations select and control policy-makers, we will just see increased concentrations of wealth (and power– i.e., control of policy).

            Anyone who suggests that the problem and solutions are simple is perhaps deluded. It is complex, with many interests, moving parts, and ripple effects. It will require a solution that is complex, nuanced, and involves compromise. Right now, the solution being employed is simplistic: it is still trickle-down economics, and the works and environment be damned.

            1. Amen brother. Yet people continue to watch Fox News, everyday sliding deeper into ignorance, adopting the ideas and politics of the rich people who are destroying the country. The “southern strategy” combined with trickle down economics have truly taken their toll.

              It’s amazing to me douchebag in charge of company like Bain nearly became the president of the USA.

              Politics aside, guitar center kind of sucks anyway for a variety of reasons. It doesn’t surprise me they are failing. I buy some stuff there sometimes if I want to buy something from a major manufacturer, but usually because I want to take advantage o my existing line of credit wih them.

        2. That’s right, DON”T BLAME THE EPA! Blame the corporate KOCHsuckers and their lobbyists. Blame the lined-pocket politicians who have loaded just about all regulatory agencies with industry insiders and literally leaving the wolves to guard the hen house. And lastly, blame morons like you who think that profit is more important than the air we breath or the water we drink. In Florida, I could shoot you as, thinking like yours puts me in fear for my life and the life of my wife,my. children, and my grand children. You want to breath and drink poison, go ahead, the world will be better off. But when your thinking advocates doing it to the rest of us, then you are part of the evil that will destroy us, and need to be exterminated.

  9. I wouldn’t assume that the return of the small mom-and-pop retail shops will be the best thing ever. I’ve had plenty of bad service and arguments with un-knowledgeable staff in small stores. A good retail store, whatever it’s size, is worth it’s weight in gold.

    1. Conversely, I have shopped at the same store, owned and operated by the same guy, for 20 years. Besides having a great selection of new and used instruments, it is the place that other small stores in the area send instruments to be repaired. You can’t walk into the place and grab a guitar to find that it’s intonation isn’t properly set. When asking a question about any instrument, this guy can give accurate details about it and offer less or more expensive alternative. Have never had service like that at a GC or any chain music store, when I used them while touring.

  10. This says a lot about MI industry in general. Fender also laid off about 60 people recently and now have new VC owners. If GC are bleeding, so are the major brands.

  11. Sweetwater is the only “major” retailer I do business with…coincidentally, they also seem to be the only larger MI reseller that gives a damn about customer service. They are also the only such company that I would consider buying a guitar or bass from – their “Guitar Gallery” is probably the best online sales platform for such individual instruments.

    1. Sweetwater has an attractive catalogue but bottom line is that they sell near retail price. If you want a good quality guitar sold by people who know their product, buy from Dave’s Guitar in La Crosse, WI. They knock SW right out of the ring.

      1. I don’t doubt Dave’s Guitar offers great prices on quality gear, BUT I have been buying from Sweetwater for years and I NEVER pay close to retail. The listed sale prices on their website is for suckers ;-). Once I contacted my Sales Engineer, I was able to negotiate and no one has yet to match Sweetwater’s quoted prices to me. Maybe I’m just lucky…

  12. GC….Go out with your head held high. You had a good run and now the model is obsolete. Close the doors and refuse refuse Bain’s offer. They are scum and bad for business (except Mitt et buddies).

  13. I just cannot comprehend corporate finance. How do you end up deep in debt from someone else buying you out? Doesn’t being bought out mean capital coming in? Did they sell for less than the company was worth? No, never mind, I don’t want to know. I have a headache.

    1. I hate to say it, but I agree, this is the same as when someone put on FB that Morgan Freeman had died, 1 person sees something from a 10 year old news clip and throws it up again, next you have 15,000 people spreading it around and commenting on it, I only read articles anymore just to see the stupid comments people write.

  14. As an insider, GC is going nowhere. These articles have been around for many MANY years. It’s like any doomsday prophecy. Such and such thing says this, so it’s all coming to an end. Then it never happens.

    Guitar Center has debt, yes. However it is making ALL of its payments on time to its Debtors. All 258 brick and mortar stores are cash flow positive. So why the hell would you consider closing any? In fact GC is building new brick and mortar stores at the rate of 15-20 per year, renovating and expanding older locations. Sure doesn’t smell like bankruptcy to me.

    These Artie’s come out based on half truths, and out of context information the financial media use to stir up all this negative conjecture. Why, because who doesn’t love to take a swing at the big guy? I get it.

    Just remember that GC and it’s sister companies support over 10,000 US jobs, not to mention the thousands more jobs held under musical instruments manufacturers that WILL die if GC dies.

    1. I have make a point on “GC making it’s payments”. GC is paying with BORROWED MONEY! It’s like borrowing $500 at 9% interest to make the min payment on your Visa at 19% that you used to pay your car loan. You now owe WAY more than the $500 even if you made the payments on time. And tIF the store WERE “cash flow positive” they would be $1.8 BILLION in debt! In fact, some vendors are pulling out of GC. GC is an evel empire that has ruined the industry! Plain and simple. A 5 yr old understands that if you sell a dollar for 50 cents you’ve lost money.

    2. That all changes if Ares takes control of the company. They don’t care if GC is cash flow positive. All they care about is getting their money back now. Being cash flow positive doesn’t get them their money back. Selling assets does. And here is how they will do that. Sell musician’s friend, music 123 and to Spin Music and Arts off either publicly (probably won’t happen) or privately. Liquidate a large number of the GC’s. Your point about being cash flow positive is true. A finance guy, which Ares is, will assume they will be more cash flow positive with fewer stores and less overhead. With some inside info, I know neither Bain nor Ares are happy with this investment or the long term prospects of it getting better.

  15. I wish Guitar Center wel,l but I’ve had much better experiences with Sweetwater. Bain was the worst thing to happen to GC. Bain are venture slumlords, that’s all.

  16. Maybe it has to do with advertising online they have stuff in stock but when you drive to the store to purchase you are told that the item is not in stock. I quit doing business because of that.

  17. Guitar center will colapse under it’s own weight. The growth (pre Bain) was wil good intentions untilt he economy took a dump. ALso, G.C puts HUGE strain on the vendors for deals. Thus causing companies like Fender, Zildjian, etc to expand their operations to accomodate GC’s demands. Now a lot of the vendors are owed $$ from GC and are forced to sit on over stock. GC has ruined the music instrument market (I’ve worked in the market for 20 yrs) and have seen the smaller stores close in GC’s way. GC will be forced to close most stores to see a profit. We’ll see how many mom and pop store come back!!

  18. While Guitar Center has not been good for music retail, they are not the reason for the death of small mom and pop music stores. I’ve owned a music store for 5 years. The music retail business is being killed by craigslist and ebay. The amount of musical instruments being bought, sold or traded on the “grey” market is huge. We do a fair amount of repair work and have 5 or 6 guys who keep our fretted repair guy fairly busy. While these guys don’t make a living buying and selling instruments, they love doing it and have zero overhead other than their time. One of these guys told me he personally sold over $100K worth of instruments in ’13. BTW – my guess is he may have broke even. Long story short, there is little to no money to be made retailing guitars, amps, drums or keyboards. And now, the accessory business is moving either on-line or to things like online apps. Metronomes and tuners used to be good margined items but now most use their phones. Because we have a large lesson program, we’ve always done fairly well with books. For the first time in ’13, our book business declined. It’s continuing in ’14. Just the other day, a woman was buying a percussion book for her son who takes lessons at the store. It was pre-priced by the publisher at $5.95, of which I make a 40% margin less freight. As I rang her up, she asked me …. “is there a better place to buy that book?” I said “are you kidding me” She said, I’ll bet I can get that cheaper at Amazon and returned it. My point is this – you’ve got to figure out how you add value. The customer will not support you long term because you’re their friend or the neighborhood store. If someone else can do what you are doing better or cheaper or worse yet, both, you better either change what you are doing or find another business.

  19. Even with all the deep fincial problems GC has they have the nerve to have a Blackball list that is rather large.They need to instead be making evry dollar that they can.and quit cutting people off who thet can still make money off of

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  21. J’ai commandé un récupératuer d’eau de pluie (par les temps qui courent, c’est de saison !) et j’ai reçu ma livraison 5 jours après comme indiqué. J’ai eu droit au racordement au cheneau en cadeau. Bref, bonne .

  22. While we all vilify Bane let’s not forget the owners that made mucho dinero by selling and screwed their employees and investors. And Sweetwater is a fabulous place to shop if your local shop doesn’t carry what you need.

  23. Didn’t this company screw Electronic Drums inventor Dave Simmons over his own name, and then produce shit electronic drum kits that look or sound nothing like the originals?
    Sounds like what’s gone around and came around and kicked them square in the nuts.

    1. Yes the very same guitar center that somehow acquired the Simmons name and now re-brands cheap Chinese drum machines as Simmons Drums.

      I wonder how they acquired the name in the first place – and it would be interesting to know if the included, original Simmons samples, have any kind of clearance.

      I believe that Dave was tentatively seeking legal action, and while I wish him well, I can’t help but think that it would be very costly and stressful for him.

      Those exorbitant legal fees would probably be better spent, bringing a new analogue drum machine to market (pretty zeitgeist, what with Tempest, Rytm, Tanzbar and Rhythm Wolf) Heck just call it the Simon Drum or DS-Drum or something. Bob Moog didn’t have the rights for his own name for a while and it sure didn’t stop him.

      1. Blame ourselves. Buy USA or buy nothing. If we keep our industry here, it will stay here. Maybe USA businesses were offered tax incentives to move elsewhere but people continue to support imported goods, even patronizing them. I buy DW and Ludwig drums. I have seen quality issues, here and there but I am a Union worker and work hard for my money. I want to see the people who live next to me, my neighbors, also enjoy a good standard of living. The only way they will have this, is if I support local industry. What did you say, Romney? “Corporations are people, too!” Bullshit! Yeah, and your God is happy that you care about yourself, while all others fall by the wasteside? You’re a disgrace to the human race! Be an American, buy American. It’s not prejudice, it’s common sense! Would you live a good life, while your fellow humans are in the street?

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