USA Guitar Center - Debt/loan status - Downgraded from stable to negative

guitars4you · February 2020

Moltisanti said:

the big difference between GC and MUFC is that Premier League football is virtually untouchable as a cash machine whereas the Guitar business is niche and doesn;t appear to be growing.
There seems to be a tipping point with stores too where having too many becomes counter productive - look at Sound Control, they went from one decent shop in Manchester to having them all over the country and they couldn't sustain it and went bump.
It's interesting that Lee Anderton only has one physical shop and hasn;t gone down the multiple stores route probably for this reason.

What was more interesting with Sound Control, was that they and Academy of sound, each had a very profitable business - Each had around 10 stores - Some in the same city like Manchester, Leeds + Glasgow - Other branches in different cities

SC purchased AOS and within around 18 months it had all gone wrong - As 2 separate business it thrived and they were a dominant force in the UK market place, with well over a £35 million turnover between them - Unite the businesses and it flopped - Management changes was part of the issue, but I recall it made a significant loss according to its final years balance sheet - I remember passing a 'flippant comment' at a guitar show, after selling a pack of Martin strings and making a £1 profit, that in that one transaction alone I made more profit than SC did in 12 months with 20+ shops - I don't really know the full reasons for the failure

Dawsons + PMT followed a similar multiple version with more bricks 'n' mortar stores - Yes you are right in that Lee has stayed with 1 store - But in many ways timing has helped with this thanks to the expansion of WWW and Lee's personal development within the business and his understanding of the modern media channels - The Amazon approach has allowed 1 store to be powerful, ditto Thomann - That would not have happened prior to WWW

guitars4you · February 2020

King85 said:

FelineGuitars said:

I must be mad and doing it all wrong as I try to run my business by trying to pay all my bills on time, if not right away, not having any debt hanging over me and no personal credit card debt etc.
I don't really have a lot of money but I don't owe others much either.

That's the beauty of being your own boss, companies with share holders demand constant growth which realistically is impossible and eventually drive companies to fail due to their constant cost cutting to give the illusion of further profit rather than acknowledging there's a realistic cap on the max profit a company can make and being happy with the dividends that that pays.

My business knowledge is simplistic compared to many larger businesses and indeed to those that have 'expertise' in such markets - But I agree that constant growth, year upon year, with each year being better than before, is unsustainable - I see no reason that company A makes 10 million taxable profit in 2020, 7 million in 2021, 9 million in 2022 - Each year is profitable and each year results in an increase in the companies value and aggregate 'retained profit' - What is wrong with this - Any/many privately owned businesses accept such a model, yet go to the Footsie/City etc and it is not seen as progress - GREED ???????

King85 · February 2020

guitars4you said:

King85 said:

FelineGuitars said:

I must be mad and doing it all wrong as I try to run my business by trying to pay all my bills on time, if not right away, not having any debt hanging over me and no personal credit card debt etc.
I don't really have a lot of money but I don't owe others much either.

That's the beauty of being your own boss, companies with share holders demand constant growth which realistically is impossible and eventually drive companies to fail due to their constant cost cutting to give the illusion of further profit rather than acknowledging there's a realistic cap on the max profit a company can make and being happy with the dividends that that pays.

My business knowledge is simplistic compared to many larger businesses and indeed to those that have 'expertise' in such markets - But I agree that constant growth, year upon year, with each year being better than before, is unsustainable - I see no reason that company A makes 10 million taxable profit in 2020, 7 million in 2021, 9 million in 2022 - Each year is profitable and each year results in an increase in the companies value and aggregate 'retained profit' - What is wrong with this - Any/many privately owned businesses accept such a model, yet go to the Footsie/City etc and it is not seen as progress - GREED ???????

Purely greed, I worked at TGI Fridays in my youth and watched it progressively happen. Things like onion rings used to be made fresh in house, then an inferior product was bought in to cost save, staff training dwindled from several weeks and progressive development to a single shift, less and less staff were put on each shift.

The people at the top were happy to see their profit rise but the customers were disheartened with the dropping quality and levels of service so they would stop coming back doing a much more long term damage to the brand.

downbytheriver · February 2020

Moltisanti said:

look at Sound Control, they went from one decent shop in Manchester to having them all over the country and they couldn't sustain it and went bump.

Er, not entirely a correct history of sound control.

impmann · February 2020

guitars4you said:

Moltisanti said:

the big difference between GC and MUFC is that Premier League football is virtually untouchable as a cash machine whereas the Guitar business is niche and doesn;t appear to be growing.
There seems to be a tipping point with stores too where having too many becomes counter productive - look at Sound Control, they went from one decent shop in Manchester to having them all over the country and they couldn't sustain it and went bump.
It's interesting that Lee Anderton only has one physical shop and hasn;t gone down the multiple stores route probably for this reason.

What was more interesting with Sound Control, was that they and Academy of sound, each had a very profitable business - Each had around 10 stores - Some in the same city like Manchester, Leeds + Glasgow - Other branches in different cities

SC purchased AOS and within around 18 months it had all gone wrong - As 2 separate business it thrived and they were a dominant force in the UK market place, with well over a £35 million turnover between them - Unite the businesses and it flopped - Management changes was part of the issue, but I recall it made a significant loss according to its final years balance sheet - I remember passing a 'flippant comment' at a guitar show, after selling a pack of Martin strings and making a £1 profit, that in that one transaction alone I made more profit than SC did in 12 months with 20+ shops - I don't really know the full reasons for the failure

Dawsons + PMT followed a similar multiple version with more bricks 'n' mortar stores - Yes you are right in that Lee has stayed with 1 store - But in many ways timing has helped with this thanks to the expansion of WWW and Lee's personal development within the business and his understanding of the modern media channels - The Amazon approach has allowed 1 store to be powerful, ditto Thomann - That would not have happened prior to WWW

Sound Control's failure was many fold. Not least of which by trying to knock their suppliers/not pay on time, then rob from Peter to pay Paul like a strange game of musical chairs. Sadly the music stopped and they ran out of chairs...

There were some good guys that worked at SC/AOS that I used to deal with daily. It was a rum do when they went under and they were left literally locked out. I remember having to deal with the aftermath - recovering stock to offset the considerable debts etc. But most of all, I felt sorry for those who'd bought stuff on line just before they went belly up - many of them did so on debit cards, which meant they never saw a single penny back. There were literally 100s of them, as I saw the debtor sheets...

GC is going to be significant. They have a massive influence over purchasing and development of new lines with manufacturers in the US. Without that outlet, some manufacturers will *REALLY* feel a pinch (and some could topple). They are incredibly important to the worldwide industry - and if they fold, we will see changes here. Sweetwater are big, but GC were the daddy. Interesting times ahead.

clarkefan · February 2020

GC too big to be allowed fail?

A couple of years ago, when GC were in trouble at one point, they owed 100s of millions to Gibson and Fender, wonder if that's been sorted? The numbers were big enough to really damage both if GC went down.

Hope (cough) Chappers gets cash on delivery terms, but I doubt it.

guitars4you · February 2020

clarkefan said:

GC too big to be allowed fail?

A couple of years ago, when GC were in trouble at one point, they owed 100s of millions to Gibson and Fender, wonder if that's been sorted? The numbers were big enough to really damage both if GC went down.

You might think so, but it will be down to the banks/venture capitalist and any other lending institutions - The suppliers will have no choice in the matter - In the USA they can easily fall into Chapter 11, as Gibson did and I believe still are - Place a 'bubble' around the company, continue to trade, with a view to finding a better solution for the 'share holders + bankers

Yes the debt to Fender + Gibson will be big and yes if GC ever went down it will be a serious issue to those and indeed other suppliers, small or large - Remember 10K debt to a small supplier can easy put them out of business as well as say a 150K debt to a larger account

I dare say many suppliers are in a catch 22 situation - They need to keep supplying stock, to keep the ball rolling, but in the long term would prefer the debt level to come down in the process - As such no/little chance of any supplier with serious debt wanting to issue any court proceedings to recover debt