Is cheap gear about to flood the market?

Discussion in 'Basses [BG]' started by BTL, Mar 4, 2014.

  1. BTL

    BTL Commercial User

    Sep 26, 2006
    Odessa, FL
    Brad Lowe, Lowe Custom Guitars
  2. Unrepresented

    Unrepresented Something Borderline Offensive

    Jul 1, 2006
    San Diego, CA
    Wall Street Journal is too stingy to let those of us who don't wish to subscribe to their publication read their content.
  3. BTL

    BTL Commercial User

    Sep 26, 2006
    Odessa, FL
    Brad Lowe, Lowe Custom Guitars
    Google "Ares Management in Talks to Take Over Guitar Center"

    It should take you right there.
  4. So.. Mint Romney's company (Bain Capital) holds $1.6 billion worth of GC debt? LOL. Here's the first link I found that I didn't have to pay for, but it's a blogger talking about it rather than the story itself:

    Edit: This is actually incredibly sad. G'bye, last large musical store chain in the North. We have no Sam Ash to fall back on up here. Local stores don't stock complete lines (though they ARE, happily, much more likely to stock totally cool unusual stuff. I never buy online unless no store near me carries an item.)
  5. Lichtaffen


    Sep 29, 2008
    Rhode Island
    "Local Stores" - what's that? GC ate them all up in my area. :(
  6. JSpradBass


    Mar 3, 2013
    Columbus, OH
    Here is a copy of the WSJ article:

    Ares Management in Talks to Take Over Guitar Center
    Ares in Advanced Discussions With Bain Capital

    Guitar Center Holdings Inc. may be changing tunes.

    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, people familiar with the matter said.

    The two investment firms are in the final stages of hashing out a deal to convert the Guitar Center debt that Ares owns to equity, a process they are trying to complete outside of bankruptcy court while also keeping valuable tax breaks, the people said.

    Under the terms being discussed, Bain would keep a minority stake in the company, some of the people said. The exact size wasn't clear.

    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. But the 253-store U.S. chain faces competition from e-commerce, and debt payments are eating into its cash flow, the people said.

    Trade publication Debtwire reported earlier that Ares was in talks to swap some or all of its holdings for a majority stake.
    Besides guitars, the retailer sells amplifiers, percussion instruments, keyboards and audio and recording equipment in stores and online. It also offers repair services and rents out rehearsal and lesson space in many stores.

    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, according to its most recent quarterly securities filing.

    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. By Sept. 30, its cash had fallen to $26 million. Results have been declining in Guitar Center Internet business.Net sales from Guitar Center's "direct response segment," which includes websites and catalogs, dropped 5.9% to $198.9 million for the nine months through September.

    "If our financial performance continues on the trend we have been experiencing in 2013, our ability to meet our financial covenants in future quarters could become challenging," the company said in a securities filing.

    "We plan to continue testing different pricing and marketing strategies in an effort to improve customer retention and optimize our promotional tactics; these tests may create volatility in the segment's net sales and gross profit," the retailer said.

    Guitar Center Mike Pratt chief executive a year ago. He had been operating chief at Best Buy Canada.

    Write to Emily Glazer at [email protected], Ryan Dezember at [email protected] and Gillian Tan at [email protected]
  7. And Best Buy has been doing SO WELL. Nice move. [/sarcasm]

    There are some new ones cropping up near-ish me. The vintage-centered store is still hoppin'. We have a few Music-Go-Round stores locally as well.. they're a chain of used gear stores.
  8. M0ses


    Sep 11, 2009
    Los Angeles
    Best Buy has come back in a big way, or didn't you notice?
  9. Figaro


    Apr 8, 2011
    South Carolina
    GC has too many stores and those stores have to compete with their own website. Also, not enough profit from their stores because of their overhead and low profit margins.

    Musicians Friend has a better business plan - Internet sales without the overhead that stores incur.
  10. Handyman


    Sep 4, 2007
    Austin, TX
    So GCs major debt holder wants to the their debt holding into ownership. Presumably this means they want to keep it operating in some form.

    What does this have to do with "cheap gear flooding the market"? This boils down to a sale of the company, not a liquidation.
  11. BTL

    BTL Commercial User

    Sep 26, 2006
    Odessa, FL
    Brad Lowe, Lowe Custom Guitars
    I assumed that "Guitar Center Holdings" included ALL of the GC, MF, M123, etc. entities...storefront AND online.

    Is that not correct?

    Also, my assumption is that Ares isn't interested in being in the music store business and they will liquidate GC's assets to recover their investment capitol.

    Foreclosing on a house isn't the same as buying it, and asset liquidation typically means below market pricing.
  12. tbz


    Jun 28, 2013
    Exactly, if Ares takes controlling interest in exchange for their owed debt it will actually help GCs bottom line. They are struggling due to their expensive debt, and corresponding interest payments more than bad policy, competition, etc.
  13. GretschWretch

    GretschWretch Supporting Member

    Dec 27, 2013
    East Central Alabama
    Happily, there are six within an hour's drive in my area.
  14. nostatic


    Jun 18, 2004
    central coast
    Endorsing Artist: FEA Labs
    Translation - "we'll pick what meat we can off the bones and then bury the carcass."
  15. JimmyM

    JimmyM Supporting Member

    Apr 11, 2005
    Apopka, FL
    Endorsing: Yamaha, Ampeg, Line 6, EMG
    And who owns Musician's Friend? Yes, that's right...Guitar Center.
  16. Bongolation


    Nov 9, 2001
    No Bogus Endorsements
    A number of past threads have remarked on the strangely high prices in liquidation sales and the absence of truly deep deals when chains (like Mars) went belly-up.

    So, I'm thinking the answer to the OP is probably no. I also doubt the whole chain would close, though they're crazy not to dump some stores in areas where they over-expanded in boom years.

    The situation is very weird in that a lot of that floor stock isn't even theirs, but stuff for which they haven't paid. That gear still belongs to FMIC, Harmon, etc., etc. who are carrying their debt on it.

    Of course, there's more actual stock (whoever owns it) involved than the market can quickly absorb anyway. You just can't dump this much gear.

    Anyway, GCH's $1,600,000,000 debt makes FMIC's $300,000,000 debt look positively prosperous.

    Both companies have been pursuing retail models that seem utterly insane to me for years now.

    Some dunce here was ragging on me a few weeks ago for saying my local A-store GC appeared to be shriveling up to nothing. I was just "being negative." :rolleyes:

    The bottom line is that the economy in general is a house of cards running on an out-of-control level of bad debt, and any "recovery" is purely imaginary. GCH and FMIC are hardly the only ones in this mess.

    Nor can a bunch of machers juggling giga-debt make people who no longer have any discretionary income buy a bunch of overpriced music gear -- and that's really the bottom line.
  17. Bassisgood4U

    Bassisgood4U Inactive

    Jan 30, 2014
    I think cheap gear is already flooding the market, seriously. The resources just keep getting thinner out there.
  18. Obviously, the business model of the day is Sweetwater's - they are in the middle stages of yet ANOTHER huge 130,000 square foot expansion.

    Apples and oranges of course - when comparing them to Guitar Center - but you certainly can't argue with the kind of overwhelming success they are having!

    The point being - methodology aside - retailing gear can be more than profitable and Sweetwater is proving it over and over again.

  19. Ironbar

    Ironbar Inactive

    Aug 24, 2013
    Tigard, Oregon
    Has anyone besides me noticed that you cannot read a news article in any of the links provided that does NOT have a grammatical error in it?
  20. Immigrant

    Immigrant In Memoriam

    It's too bad GC didn't stay the way they were over a decade ago. They used to have knowledgeable people working there, the stores were clean, and the products were maintained better than in recent years.

    I don't know about you guys, but when I learned they had been sucked into the Bain vacuum in 2007, it spelled the end for them. Most of Bain's business is to buy companies, part them out, file for bankruptcy, and keep whatever they can in their deep pockets.

    The best thing about GC/MF/Music123 is that it forced local stores to get honest and try to match online pricing or go the way of the dinosaurs. There was a time when MSRP was on the price tag and you had to dicker from there to get a deal.