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

[marko138]

The Harrisburg GC just dumped a bunch of their better basses as well. They are down to about half of what they had a couple months ago. All the cool stuff is gone, and there wasn't much there before really. But now it's all low end stuff and a single MIA P and J, and a lone EBMM.

 

[Bluemoon4655]

The one I go to in Houston seems just fine. They have everything from low to high end basses. They have an abundance of guitars and they have like a retro and designer guitar section where everything costs a butt load. So i dont think im having the low end crap problem where i go

 

[BawanaRik]

When I can hit a buy button and get the generic widget I need than that's what I''ll do.

I recall a local music vender that had a "cool" guy running his shop. I would go in and talk and usually buy a CD. During my last rip there I noted he was replaced with a young qt3.14. I enquired into the a new Jaco release.

I was greeted with a high pitched screech "oh Micheal Jackson has a new CD!"

Brick and mortar will stay in business if they provide a marketable service that people can't get from the online options.

A erudite individual behind the counter will bring people and if the they come they might buy.

Skip Henderson and City Lights was a mecca in New Brunswick. GC should get coffee like the book store tried to do.

 

[eddododo]

I teach bass at a newer guitar center. The business is convoluted, poorly organized, and the employees are NOT up to the task of giving anybody quality service with an informed background

Its the most poorly managed job in which I have ever been involved

 

[Gravedigger Dav]

I love em for used basses. I check out http://used.guitarcenter.com/usedGear/index.cfm?srch&category=38 almost every day. It'll suck if they go under.

Now you've gone and done it. Just when I thought I had cured my GAS problem. I will hunt you down and coat your strings with monkey dung.

 

[Gravedigger Dav]

Actually, this is incorrect. I don't know much about Guitar Center specifically (not American) but in the guitar shop business the real money is in student model gear, not high quality stuff.

GC's problem is not the merchandise. It is the same old money grubbing crap at the top. The sleezy owners shuffling money and leveraging themselves into excessive debt. Also, when the number say sales are flattening out, YOU DON'T KEEP BUILDING MORE STORES!!!. (business for super dummies, page 2.)
They have saturated the market. I like the idea of mom and pop shops, but they can't afford to sell for the prices the big boxes do and they can't afford the depth of inventory we would hope would be there.

 

[Gravedigger Dav]

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.

Wow, someone who actually has read up on the situation and has a good understanding of it. And yes, it was just another crude baseless political swipe that usually comes from someone who thinks they know more than they do.

 

[Gravedigger Dav]

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.

And that big mac that now is about $4.00 will cost about $6.00 when the new minimum wage kicks in. Labor is the most expensive cost for a restaurant at an average of 22%.

 

[Pajama_Bottoms]

And that big mac that now is about $4.00 will cost about $6.00 when the new minimum wage kicks in. Labor is the most expensive cost for a restaurant at an average of 22%.

Cutting a 22% cost will result in a price drop of 33%?

 

[buldog5151bass]

The more you buy on line, the more brick and mortar stores (mom and pop or otherwise) will be shuttering their windows.

 

[Gravedigger Dav]

Cutting a 22% cost will result in a price drop of 33%?

How will raising the minimum wage by $3.25 cut costs? It would increase the cost.
Here is the math.
The current minimum wage is $7.25. A Big Mac is about $4.00 (it varies by region from $3.29 to $4.10). Labor cost @ 22% = $0.88
If the minimum wage goes to $10.50, that is an increase of 69%.
So now the food cost goes from $0.88 to $1.30 and at a target 22% labor cost, that would translate to $5.90 for the same Big Mac.
And that does not include the increase in the price of products McDonalds buys to make burgers because their suppliers are also having to pay the 69% increase, so my original swag of $6.00 is too low.
So the minimum wage worker will be no better off at $10.50 than he was at $7.25, he will just be paying more in taxes. (can you spell government conspiracy).

 

[Remyd]

Cutting a 22% cost will result in a price drop of 33%?

It certainly could. I've always budgeted at least 25% of cost-of-goods-sold for labor at parties (I'm a caterer).

Those percentages aren't in the same units; wholesale (labor) and retail (at the counter, with markup) in this case.


... and now, apologies for the hijack, but...

And that big mac that now is about $4.00 will cost about $6.00 when the new minimum wage kicks in. Labor is the most expensive cost for a restaurant at an average of 22%.

I STRONGLY disagree with the premise. There's no earthly way that fast food prices will shoot up like that if labor costs go up just a little bit (maybe $3k per year per part timer, $60k for a million dollar store). It doesn't pass the BS test, regardless of what the pundits say on the news.

Demand driven economics means you start with price and work backwards. That's how the entire food service business works. Labor costs are a percentage, so are ingredients, energy costs, etc. If any of those costs (of goods sold) go up, then the profit goes down. It has very, very little to do with the pricing strategy, which is an entirely different beast, driven overwhelmingly by the market-level pricing (ie. if MacDougal's sells a better burger at $2 than I do at $3, I can either deal with less customers, change my prices, change my menu, or change my business).

Also, in that example, the theoretical Mickey-Dees would need to sell maybe 10 additional burgers per hour to ENTIRELY make up the increased cost, which is just dumb. The reduced demand due to stupid-high price increases would basically kill their entire business model and drive a giant percentage of their customers to, you know, somewhere where there are business guys on the staff to prevent such a silly move. You don't get to have 35,000 (or whatever) stores if you're not really, really good at dealing with cost increases.

 

[Pajama_Bottoms]

How will raising the minimum wage by $3.25 cut costs? It would increase the cost.
Here is the math.
The current minimum wage is $7.25. A Big Mac is about $4.00 (it varies by region from $3.29 to $4.10). Labor cost @ 22% = $0.88
If the minimum wage goes to $10.50, that is an increase of 69%.
So now the food cost goes from $0.88 to $1.30 and at a target 22% labor cost, that would translate to $5.90 for the same Big Mac.
And that does not include the increase in the price of products McDonalds buys to make burgers because their suppliers are also having to pay the 69% increase, so my original swag of $6.00 is too low.
So the minimum wage worker will be no better off at $10.50 than he was at $7.25, he will just be paying more in taxes. (can you spell government conspiracy).

Your math doesn't add up - you're adding the price to the burger twice with "target 22% labor costs". They're not going to up all of their advertising and spending and the size of their burgers and everything else to make sure that labor costs are going only going to be 22% of their costs. Assuming a direct increase based on labor prices, hey would add the .42 cents to the burger, bringing the price to 4.42, a 10% increase in price for a 69% increase in pay to their minimum wage workers. And those suppliers and other places that increase prices would also result in more people actually being able to afford something not on the dollar menu.

 

[Gravedigger Dav]

Your math doesn't add up - you're adding the price to the burger twice with "target 22% labor costs". They're not going to up all of their advertising and spending and the size of their burgers and everything else to make sure that labor costs are going only going to be 22% of their costs. Assuming a direct increase based on labor prices, hey would add the .42 cents to the burger, bringing the price to 4.42, a 10% increase in price for a 69% increase in pay to their minimum wage workers. And those suppliers and other places that increase prices would also result in more people actually being able to afford something not on the dollar menu.

My math is exactly what businesses use to calculate costs.
Current labor cost is 22% of $4.00. That is $0.88
so .88 / .22 = $4.00
Labor cost increases 69% or up to $1.30
so 1.30/ .22 = $5.90

And apply that increase to McDonald's suppliers and the increase get bigger to allow for the increase in food costs.

 

[Pajama_Bottoms]

That's like saying your rent is 15% of your expenses, and your rent just doubled, so now you have to double all your other expenses so that rent is still 15%.

 

[aggrokragg]

If GC closed (or just shifted all business to their online outlets) it would definitely have a wide-reaching impact. I used to shop there in the late 90's / early 00's frequently, and while I think my local one has a decent used inventory, it's the severe decline in customer service that drove me away. Save a few good ones, all the knowledgeable staff moved on.

Luckily, I found a local music store with friendly knowledgeable staff and a good selection.

If more sales of instruments go online, I suppose locals that do lessons and instrument setups could benefit since most online purchases (IME) arrive in less than playable condition. That said, I don't know if 17 year old kids care about getting their guitars and basses setup as much as a bunch of folks on a musicians forum do...

 

[Gravedigger Dav]

It certainly could. I've always budgeted at least 25% of cost-of-goods-sold for labor at parties (I'm a caterer).

Those percentages aren't in the same units; wholesale (labor) and retail (at the counter, with markup) in this case.


... and now, apologies for the hijack, but...


I STRONGLY disagree with the premise. There's no earthly way that fast food prices will shoot up like that if labor costs go up just a little bit (maybe $3k per year per part timer, $60k for a million dollar store). It doesn't pass the BS test, regardless of what the pundits say on the news.

Demand driven economics means you start with price and work backwards. That's how the entire food service business works. Labor costs are a percentage, so are ingredients, energy costs, etc. If any of those costs (of goods sold) go up, then the profit goes down. It has very, very little to do with the pricing strategy, which is an entirely different beast, driven overwhelmingly by the market-level pricing (ie. if MacDougal's sells a better burger at $2 than I do at $3, I can either deal with less customers, change my prices, change my menu, or change my business).

Also, in that example, the theoretical Mickey-Dees would need to sell maybe 10 additional burgers per hour to ENTIRELY make up the increased cost, which is just dumb. The reduced demand due to stupid-high price increases would basically kill their entire business model and drive a giant percentage of their customers to, you know, somewhere where there are business guys on the staff to prevent such a silly move. You don't get to have 35,000 (or whatever) stores if you're not really, really good at dealing with cost increases.

So I can value the credibility of your statement, what is your experience in food service business? I agree that often to meet competitve pressures, they start with a price, but they still have to cover cost and make a profit. You can only sell below your costs for a short period of time to attract the competitions's customers.

I will also agree small increases in cost are often absorbed, but not a 69% increase in row that is 22% of the overal COGS.

Using the model I have been working with, the increse in minimum wage would cause food cost to go from 22% to 37%. No restaurant can survive paying a 37% foold cost. Some, but not all, of the other costs will also increase. There is no option but to raise prices. Maybe they will do some of both, raise the price less dramatically (for now) and eat some of the costs.
The only thing that benefits is the IRS. All the minumum wage earners are making more and paying more taxes.
(that would be fewer customers, not less customers)

 

[tbz]

My math is exactly what businesses use to calculate costs.
Current labor cost is 22% of $4.00. That is $0.88
so .88 / .22 = $4.00
Labor cost increases 69% or up to $1.30
so 1.30/ .22 = $5.90

And apply that increase to McDonald's suppliers and the increase get bigger to allow for the increase in food costs.

Not to derail but...

Dav, they've kept 99 cent menus at most Fast Food places since the early/mid 90s despite the fact that raw food costs have more than doubled or tripled in that time. Those companies are rarely hurting for a profit at the top end. They can cut at that layer and still keep the Big Mac down to $4.25.

As-is there are several countries that serve Big Macs that have a substantially higher minimum wage that we do. Folks in those countries pay what we pay, or within ~10%. McDonalds can figure it out and still make a profit.

Worst case, they can steal executives from Costco and have them fix stuff. Costco pays their employees, provides health care and still delivers low prices.

That argument of "but your price will HAVE to go up" makes very little sense in an age of exorbitant executive pay.

This, technically, is where capitalism is supposed to regulate things properly. McDonalds raises prices, Burger King doesn't and they decide to tighten the belt to compete. In theory Burger King would win.

 

[SanDiegoHarry]

Skimming this thread - you folks aren't seriously suggesting that increasing minimum wage is what is putting GC out of business... right? It's their parent company's financial problems + competition from the internet that's killing GC.

 

[Gravedigger Dav]

Not to derail but...

Dav, they've kept 99 cent menus at most Fast Food places since the early/mid 90s despite the fact that raw food costs have more than doubled or tripled in that time. Those companies are rarely hurting for a profit at the top end. They can cut at that layer and still keep the Big Mac down to $4.25.

As-is there are several countries that serve Big Macs that have a substantially higher minimum wage that we do. Folks in those countries pay what we pay, or within ~10%. McDonalds can figure it out and still make a profit.

Worst case, they can steal executives from Costco and have them fix stuff. Costco pays their employees, provides health care and still delivers low prices.

Yes they do, but those are lose leaders. You buy a 99 cent sandwich and get a 1.49 drink that costs them 10 cents. They are not loosing at that.