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Private Equity Firms Suck Money Out Of Guitar Center

Discussion in 'Miscellaneous [BG]' started by Bunk McNulty, Apr 4, 2014.

  1. Bunk McNulty

    Bunk McNulty It is not easy to do simple things correctly. Supporting Member

    Dec 11, 2012
    Northampton, MA
    Music, you see, is about about way more than just money – it is about a crazy, primal, uncontrollable passion. Most people who have dedicated their lives to music realize that it is an irrational thing – a little unhealthy but strangely fulfilling. The “industry” is actually a culture built by men and women who obsess over the rich sound of analog synthesizers; the warm thud of Leo Fender’s Precision bass; the sublime beauty of the sunburst on a vintage Les Paul; the roar of a Marshall amplifier; the silky vocals behind Neumann tube microphones. Note the prevalence of family names in these company names – the real industry was built on the artistic endeavors of individual geniuses who acted out of pure inspiration, not banks. Financial return represents but a small fraction of the motivation behind the involvement of the vast majority of people in the musical instrument business.

    Yet for Bain Capital and Ares Capital, it is 100% of the reason for their involvement – and that is not good enough for the rest of civilization.

    Read the whole thing.
  2. theduke1

    theduke1 Supporting Member

    Dec 22, 2010
    Manitowoc WI
  3. berman3313


    Jan 14, 2009
    Bunk - thanks for posting. Very good read.

    We can't put the genie (Internet) back in the bottle. In the old days (not too long ago) Guitar Center and some mom and pop music stores were destinations - palaces of awe.
    Now, retail is a 3-D showroom so people with smartphones can check out the goods before shopping for the lowest commodity price on the 'net.
    Just look at the life and death of chains like Borders and probably soon, Barnes and Noble - up against Amazon.

    Before Internet (BI) and Talk Bass - you might have sold your used stuff to a store and people would come by to look at it. Even though GC and others have used equip sections still - they can't make a go of it easily.

    It's a much more economical model on the 'net - rather than paying for utilities, property taxes, security systems, insurance, etc.

    So, I'm not sure that Bain Capital is killing retail music and the manufacturers that provide product - rather it's something we use every day and every time we peruse TalkBass.
  4. Interesting article, but as many of the comments to it ask, "How can you tell which retailers (and possibly manufacturers) are tainted by Private Equity groups?". And if Big-box retailers are the only game in town, what's left? It's a similar situation to the arrival in many towns in the US of Wal-Mart. Once they set up shop and forced out all the Mom & Pop stores, what would be left if they in turn were to go under?

    It's a 'dammed if you do, dammed if you don't' scenario. Taking the musical industry "back" from "parasites" sounds good in principle, but exactly how would this be accomplished? The article suggests that the people who nearly ruined the Western economy with the Sub-prime fiasco are still at it, so what's to keep them from doing it a third or fourth time? What's the plan, if any?
  5. theduke1

    theduke1 Supporting Member

    Dec 22, 2010
    Manitowoc WI
    We must remember we too are part of the problem.
    We look for the best price on the best quality item no matter what we are buying and we expect a 30% return on our 401k or whatever we have put our long range savings into.
    So in some respects we sre all at fault. Would you agree?
  6. MrLenny1


    Jan 17, 2009
    It's the American way.
    The company I work for was recently sold to a large conglomerate
    which answers to Wall Street.
    So far 2 layoffs, no yearly bonus and any new hiring will
    be contractors.
  7. fhm555

    fhm555 So FOS my eyes are brown Supporting Member

    Feb 16, 2011

    Unless the inventory you ship to your online buyers is also digital, you will need an actual warehouse with all the fees, taxes, etc., that come with building occupation/ownership, and employees to work that warehouse to process all those online orders. While the idea of having such an unfair advantage over local stores by saving all that cash and trouble, it's simply not true. The only real difference between online and in person sales is where the people are located. In person sales the people are out front convincing you that version of Smoke on the Water you just played on that new jazz bass you are drooling over was the coolest version they ever herd. In a mail order situation, that guy is in the warehouse pulling the jazz bass you have finally decided you are tried of drooling over and went online and pulled the trigger on.

    Agree. The for profit only crowd may cripple the business in the short term, but when it once again becomes something that won't supply enough return, it will once again become the purview of the mom and pop shop, of the obsessed guy who knows he can build something better in his workshop than can be produced in a CNC equipped factory. Years ago all the folks "in the know" in the music industry were predicting the demise of anything not electronic, that the days of the guitar, bass, piano, etc., were in their end stages and the future of music was all electronica. Time proved them so wrong, and I feel sure time will once again be the music lovers ultimate ally. When the short term profit weenies tire of raping the music manufacturing industry and discard the desiccated corpse, the true lovers will ease in and revive it one more time.

    As long as their are those who love music, there will be instruments available.
  8. SirMjac28

    SirMjac28 Patiently Waiting For The Next British Invasion

    Aug 25, 2010
    The Great Midwest
    I have zero problems with Bain Capital or Guitar Center making money I remember the "good old days" when those sweet mom and pops were price gauging because they were the only game in town and the only recourse were pawnshops or catching someone upgrading their gear in the classifieds of the local paper today more people can afford gear than ever before thus putting more instruments in the hands of future great musicians. I know my opinion may not be a popular one but my attitude changed the day I saw the owner of a local mom and pop driving a car worth three times the price of mine I quickly realized the only pockets I care about lining are my families.
  9. Ukiah Bass

    Ukiah Bass

    May 10, 2006
    The situation is a symptom of the information age, where there's been a massive leveling of knowledge on a real-time basis about value and the ability to procure things without having to rely on traditional multi-tier distribution systems. We see those systems collapsing all around us every day. Yes, people in those systems are being hurt. But I don't see many musicians complaining about their ability to procure good, inexpensive gear in a way that's immensely simpler than old ways.
  10. So this guy says we will fix the problem if we boycott Guitar Center, Music & Arts, Musician's Friend, GuitarCenter.com, LMI, Giardinelli, Musician.com, Private Reserve Guitars, Woodwind and Brasswind, Music 123, and Harmony Central.
    I'm not sure that's gonna happen.
  11. nutdog

    nutdog when I'm a good dog they sometimes throw me a bone Supporting Member

    Feb 19, 2009
    In the dog house.
    Bain is a family name.
  12. Altitude

    Altitude An ounce of perception, a pound of obscure. Supporting Member

    Mar 9, 2005
    Denver, nee Austin
    It's interesting to superimpose this conversation on top of the "clubs should pay musicians what we are really worth" conversation.

    Candidly, it seems like we are playing either side of the same argument, as it suits us.

    In this conversation we say that music stores are sacred places and they should be allowed to operate under a different financial model than other businesses because of the way they serve the arts community. Even if that penalizes the people who invested in them.

    In that other conversation we say that we, as musicians, have the same rent to pay, food to eat, and gas to buy as anyone else and so we should receive a financial deal on a gig that might not make sense for the bar.

    I'm not taking sides necessarily, but I do see an inconsistency in the arguments.
  13. Ukiah Bass

    Ukiah Bass

    May 10, 2006
    That's exactly why I order my booze over the Internet and drink it through a straw plugged into the microphone jack.
  14. Interesting read. I'm not sure boycotting CG is the answer to solving the 'parasite economy' or even its spread into the MI biz.

    Although, I can't remember the last time I even bought something at GC. There's a pretty decent mom and pop shop near my house that I use in a pinch or to get something small, like the harmonica I just got my 4 yo son. Anything else is off of TB, BSO.com, and other smaller online retailers.
  15. Laurent

    Laurent Supporting Member

    May 21, 2008
    Napa, California
    The Guitar Center saga continues.
    Selling these bonds might not be that easy as mentioned here considering the recent history of the company.

    Moving $600M of inventory will require some serious price slashing in a market that is already saturated. That could in turn hurt many instrument makers. First in line would be Fender who itself was recently sold and Gibson.

    Ebay has become GC most direct competitor and that is complicating the market dynamics. Amazon has been trying to get a piece of the action as well.

    I hope that the employees of GC and smaller suppliers don't get hurt through the transition but my guess is that there are some turbulences ahead.

    If I was an instrument maker I would put GC on a COD basis, make some very conservative plans, downsize and diversify distribution as much as possible.

    Fender already took that approach by investing into a direct to consumer business model. I would expect Gibson to do the same. Less iconic brands will have a harder time doing the same. Meanwhile Carvin is looking at all this most likely very happy to be on the side lines. Small is beautiful?
  16. GBassNorth


    Dec 23, 2006
    Isn't it all just a normal part of business evolution? Think about a market that rapidly evolved during most of our lifetimes - the movie rental business.

    There was a time before cable TV when you watched whatever was on the broadcast channels and occasionally got treated to a movie that had been out of the theaters for years. Then came cable TV and channels like HBO where you could catch a movie that had only been out of the theaters for about a year. Then came the VCR and Beta players and you could run down to the local gas station or 7 eleven store and pick up a movie that was also showing on HBO but you could watch it at a time that was best for you vs the HBO schedule. Then came the mom and pop rental stores with much larger selections and actually more than two available copies of a given video for rental. Then came Blockbuster and slowly all the mom and pop shops folded. Then came Netflix and Pay Per View cable and Blockbuster folded. Now days we're seeing an offering called RedBox at local grocery stores and 7 elevens and Pay Per View is still going strong.

    The point is that all business models evolve to meet market demands. Bain (and other holding companies) are just the latest stage of the evolution. I wouldn't be surprised if someday soon its announced that Fender has just been bought out by a holding company. And guess what, some day the holding companies will be bought out or gobbled up by something else - maybe a conglomerate, maybe a government, who knows.

    What's important to me is that good gear choices still exist at fair prices from places that care about customer service. I get that today at a number of places including GC and Sweetwater. So I'm happy.
  17. socialleper

    socialleper Bringer of doom and top shelf beer Supporting Member

    May 31, 2009
    Canyon Country, CA
    Sadly the front line employees are always the first ones to get hurt.
  18. socialleper

    socialleper Bringer of doom and top shelf beer Supporting Member

    May 31, 2009
    Canyon Country, CA
    I don't think anyone is suggesting that GC, or any business, just run in the red forever. The problem with companies like Bain is what they actually do when they get a hold of a company. They buy them up with the explicit purpose of using their debts and assets as casino chips for gambling elsewhere. They will load the company up with debt if its suits their purposes, let it crumble under the weight of the gambles they've made with the company's assets as security, and make more money buy liquidating all of its assets. They are the financial equivalent of strip mining. They have 0% interest in the long term survivability of the companies they purchase. Holding companies don't "fix" the companies they buy, they see them as a resource to be used, pillaged, then disposed of.

    Physical stores with durable goods that can by easily bought online are having lots of problems. That's why computer stores, movies stores, record stores, and music stores are all having such a major problem. Couple that with the fact that everything MI stores sell really are luxury goods, music that uses actual instruments is on the cultural ropes, and the music industry has become a non-profit endeavor for all but a few high ranking musicians, you have yourself a recipe for disaster.
  19. hdracer


    Feb 15, 2009
    Elk River, MN.
    And how does this affect you or me?
  20. nukes_da_bass

    nukes_da_bass Banned

    Feb 19, 2006
    west suburban boston
    Might make it harder to try out a new Fender or Music Man product.