• TalkBass has been independent since 1998. Add your voice.
    Create a free account to reply to discussions, view embedded media, and browse with fewer display ads.
    Join free Log in
    Want zero display ads or expanded classifieds tools? Compare plans.

So, what if Guitar Center DOES go under...

#63
Troph said:
First of all, Romney had cut all ties with Bain by August 2001, about 6 years prior to the GC acquisition (even earlier if you count his leave of absence for the Olympics starting in 1999). Citing his name here is nothing more than a baseless political smear.

Second of all, calling the Guitar Center acquisition "vulture capitalism" demonstrates a pretty serious lack of understanding of scenarios where that term is more applicable. This buyout was neither a "hostile takeover" (Guitar Center management approved the deal, as did shareholders), nor did it involve liquidation of assets. By all accounts, Bain wants the company to succeed.

This was a pretty straightforward public-to-private leveraged buyout (LBO) deal that just hasn't really panned out. At the time of the deal (mid-2007), everything looked good on paper. The resulting debt ratio needed to go private seemed very manageable ($2.1 billion to go private, vs. operating profits in the ~$70 million range). But the subsequent recession starting in 2008 hit Guitar Center's sales substantially, and now the company is worth considerably less than the $1.9 billion raised to purchase it, and its operating revenues struggle to service the purchase debt, not to mention operating debt.

That's a worst-case-scenario for the financial sponsor of an LBO (e.g., Bain), and certainly not what they wanted to happen. Bain was almost certainly hoping to have sold off Guitar Center Holdings at a profit by now, rather than struggling to keep it afloat. Many analysts have suggested that if it weren't for Bain's reputation being attached to Guitar Center Holdings, they wouldn't even be able to borrow any money right now to try to stay afloat.

This is just an example of the volatility involved with taking risks based on past performance. Here a group of investors (e.g., Bain) thought they could buy the company from public shareholders and turn it around for a nice profit, but they simply over-estimated the company's future potential (or under-estimated the risk, either way). Goldman Sachs, who floated the LBO loan, stands to take the biggest financial hit if the company defaults. They can hedge against taking a catastrophic loss by paying for a credit default swap insurance premium, which they almost certainly have already done. But collecting that policy would almost certainly not recoup their investment, so they would much rather see Guitar Center succeed too and see their loan repaid with interest.

The only people who want to see Guitar Center fail are those who have purchased credit default swaps against GC but have no capital at risk (pure speculators), and of course GC's competitors. Both Bain and Goldman-Sachs have a strong incentive to see GC succeed. Suggesting otherwise is simply ignorant.
Click to expand...

What he said ... +1
 
#65
If they do go under, I guess I'll have one less place to shop with a product selection I don't like and ESPECIALLY a bunch of employees who make brain damaged cows seem wiser than Yoda by comparison.

My local GC had a "salesman" who informed me that I couldn't bring in my bass to test a pedal I was interested in buying. My local GC had a "salesman" who sat down and proceeded to go into a bass solo when I asked about trying an amp in which I was interested in purchasing, he took the bass from me and I thought he was going to make sure the amp was set flat, the bass was plugged into the right input, but no... After a couple minutes of his poor solo I walked away... AND HE DIDN'T EVEN NOTICE! Another GC experience had me at the accessories counter asking about a particular product (not an effect pedal) and the Nimrod "salesman" starts rattling off the stats of some multi-effect he had a hard-on for.

I personally couldn't care less if GC goes under, they don't hire responsive salespeople, or they don't train them, or they don't care about a damned thing because they think they have a business which is somehow beyond the laws of rationality on my part. I cost to spend my money elsewhere, for the most part.
 
#66
GM60466 said:
The affordable care act will take its toll in all retail businesses. GC has a target on its back.
Click to expand...


Yup. Any business that is just getting by will be choked out in the next year or two. And higher minimum wage will wipe out many entry level jobs. We'll be ordering our Big Macs and Lattes from touch screens. It will be cheaper for companies to automate.
 
#67
Michedelic said:
I realize that realistically the investors or the board won't let it happen completely, but then again Borders Books limped along for a long time before it fell. JC Penny is wobbling; they weren't doing too well, then they did that weird pricing thing that really damaged their PR. Best Buy, are they on life support yet? Anyway...will GC throw their Starbucks-like expansion in reverse, closing a big number of stores? Shave their inventory down to convenience store variety, &/or folding it all into Musicians' Friend? How much is Fender gonna get hurt? Will there ever be a resurgence of the mom'n'pop, especially if GC would severely downsize or dissapear? Or has the internet totally destroyed brick & mortar music retailing? Let's hear some theorizing...
Click to expand...
GC can leave the planet and I wouldn't shed a tear. On another note, every time I walk into and GC, in the greater LA area, Its packed with people, is there evidence they're going down??
 
#74
We have two in the area, both a decent for a metropolitan area (Wash DC) that isn't known for it's music scene. I've only gone there for specific items - strings, straps, cables - I've never had any work done nor have I bought any big ticket bass items there. I did buy a keyboard for church from GC and got a reasonable deal. The staff were friendly, helpful, and somewhat informed.

I do wonder if there will be a correction in the music instrument market to correspond to the correction in the live gig market discussed in another TB thread. The instrument market will lag the gig market by perhaps 5-10 years as being a gigging musician potentially wanes in popularity.
 
#75
Last year, I spent about three months out of the country. When I returned, there was a new debit card waiting for me, because my current card was about to expire. I activated said card, and that card's first and only purchase was made at my local CG, for a strap and a set of locks.

I say "only" because in about three days, I got a call from my bank's fraud-bot, alerting me of a potential (later confirmed actual) fraudulent use of the card, for a $400 nightclub charge on the other side of the country.

Thanks, GC. Needless to say, I haven't returned to that store again. I'm not surprised to hear that the franchise is in bankruptcy proceedings, nor will I miss them. Every time I've been there it has been bereft of customers, just a showroom of shiny, decadent desolation. Plus any company that assumes that their customers are crooks (based on their anti-shoplifting policies), while the employers are themselves stealing from their customers, is due for some serious karmic ass-kicking. I say, see ya.

(Edit: Sorry, that catharsis was long overdue. Back to your regularly scheduled programming.)
 
#77
vishuddha said:
To be fair, they are still opening stores and I haven't heard of any GCs closing. Having Musicians Friend certainly isn't hurting. That being said, Bain Capital doesn't have a great track record.
Click to expand...

Bain has an amazing track record for doing what Bain does, which is make money. That doesn't always work out for the customer, or employees, but you won't see Bain stockholders complaining.

The system has weird quirks. You can actually make millions closing something down. It is what it is.
 
#79
Michedelic said:
Correct me if I'm wrong, but isn't Music123 a part of GC also? Same warehouse address in Kansas City, MO as MF. It seems that the M123 'brand' is just a cynical pseudo-competitor ploy that gives off the false impression that there's an 'alternative' to MF. No, GC is well poised to continue online if the retail stores wither.
Click to expand...

There's a little more to it than that. I don't claim to know anything about how corporations work, but there is a functional difference for me as a consumer between GC/MF and M123.

Companies have to charge sales tax in whichever states they have a significant presence. As a Washington state resident, I have to pay sales tax on anything I buy from GC or MF. I don't pay any sales tax on anything I buy from M123.

So even if M123 is a "cynical pseudo-competitor" (and IMO cynicism is an underrated virtue), I actually save money when I buy from them vs buying from GC/MF.

Of course, before I buy anything from them, I also check out Zzounds, Sam Ash, Elderly, Sweetwater, SameDay, etc.
 
#80
BlueTalon said:
There's a little more to it than that. I don't claim to know anything about how corporations work, but there is a functional difference for me as a consumer between GC/MF and M123.

Companies have to charge sales tax in whichever states they have a significant presence. As a Washington state resident, I have to pay sales tax on anything I buy from GC or MF. I don't pay any sales tax on anything I buy from M123.

So even if M123 is a "cynical pseudo-competitor" (and IMO cynicism is an underrated virtue), I actually save money when I buy from them vs buying from GC/MF.

Of course, before I buy anything from them, I also check out Zzounds, Sam Ash, Elderly, Sweetwater, SameDay, etc.
Click to expand...

You may not be aware of this, but actually you are responsible for a "Use Tax" on any goods or services used in WA for which you did not pay state sales tax. The Use Tax is identical in rate to the sales tax. You can read about it here:
http://dor.wa.gov/content/FindTaxesAndRates/UseTax/

Very few people actually pay this tax, and at least so far, the state has been very lax in collecting it. I'm just waiting for the day when the state decides to enforce it rigorously, because I'm betting virtually 90% of the population is in violation. :hmm:

State sales tax policy is a thorny issue, but I think the "use tax" concept is a complete scam. It's difficult for anyone to argue that WA has done anything to "deserve" to collect a "use" tax on an online sale for anything other than the transportation costs in getting the product to the WA resident. The source state almost certainly funded the infrastructure necessary to operate the business providing the good/service purchased, and if anyone should wish to collect a sales tax, it should probably be that state.

In the meantime, we can hope that more states won't follow Washington's lead into the "use tax" money grab.
 

Latest posts

Top Bottom
Back