Guitar Centre Chain - 15th Nov potential day that they will file for Chapter 11

stuartdd

Everything I've read/watched has suggested this year has been good for guitar sales. Assuming they've seen a good % of those sales, then it doesn't seem like it was ever financially viable for them to repay/reduce their debt.

guitars4you

stuartdd said:

Everything I've read/watched has suggested this year has been good for guitar sales. Assuming they've seen a good % of those sales, then it doesn't seem like it was ever financially viable for them to repay/reduce their debt.

The issue for them is not selling gear - They are by a big margin the largest retailer of such products - It is in part that the interest alone on their debt to acquire equity in the business is just to large - Wall St/banks etc know this - They have tried to restructure this - But like a 3rd world country with bad debt, their credit worthiness has been moved down to junk level and below, so they can't borrow at low interest rates any longer 

guitars4you

JayGee said:

There seem to have been reports of them being on the brink pretty much as long as the FB has existed...

It is in fact like a long disease - Their credit worthiness from Wall St keeps getting shoved down a touch - So it keeps costing them more and more to borrow a dollar - So maybe the inevitable is nigh and closer now then ever before 

Venture capitalist have a lot to answer for in the case of GC - But add to that the changing face of retail - When your down, every kick you take is an additional problem

lysander

I visited a Guitar Center in NYC towards the beginning of the year, there was a couple of random people giving lessons with guitars or basses they had taken off the wall, and half of the guitars on display had relicing to make Fender Custom shop jealous, except it wasn't intended.
Seemed like a place people come to to mess around with gear, not to buy a guitar.

guitars4you

lysander said:

I visited a Guitar Center in NYC towards the beginning of the year, there was a couple of random people giving lessons with guitars or basses they had taken off the wall, and half of the guitars on display had relicing to make Fender Custom shop jealous, except it wasn't intended.
Seemed like a place people come to to mess around with gear, not to buy a guitar.

That is indeed a separate problem - I've said many times that the biggest culprit for marking guitars is the public - Granted stores can/should do more to keep them in a presentable condition - No dirty finger marks, in-tune, set-up to a large degree, clean strings - But when your showroom is essentially a 'slot machine/amusement park' the public will just pick them up and play them, many with no intention of buying 

Pete.R

guitars4you said:

Ref those USA sales above - Just to give you an idea, Thomann sales revenue was around 700/800 Million Euros a year or so ago - Gear4Music in the UK is around £120 million

meanwhile more than 1000 Million €

and the most important part is - they are debt-free

Hans Thomann never needed or used any credit for his business

RandallFlagg

I don't know the history of how GC got so deep in debt but it's become unweildy and a huge problem that is not going to go away through constant refinancing and incremental year on year increases in sales and revenue. Have successive owners leveraged the business and taken cash out at various times then moved it on with higher debts? Did they borrow too much to expand and too quickly?

I wonder how much Chapman Guitars is owed by GC after they cut the deal that effectively ended Riff City Guitars. I would imagine they are low down on the list of creditors but if it's a significant amount it could give them some problems if they don't get it back in terms of cash owed and also for future sales as their exclusive outlet for Chapman Guitars in the US.

RandallFlagg

Pete.R said:

guitars4you said:

Ref those USA sales above - Just to give you an idea, Thomann sales revenue was around 700/800 Million Euros a year or so ago - Gear4Music in the UK is around £120 million

meanwhile more than 1000 Million €

and the most important part is - they are debt-free

Hans Thomann never needed or used any credit for his business

The Thomann model of a single massive central warehouse and sales location rather than the GC model of hundreds of local retail outlets is far better suited to today's migration to online sales. The cost of many hundreds of bricks and mortar stores and staff, rent, heating, rates, taxes will be a cost that can be avoided.

It's working for Andertons, Lee hasn't opened stores up and down the country but just has the one shop as do GAK, Coda, Peach etc.

I'm not sure how the centralised retail model works with US consumers though, it's a much, much larger geographical area to cover than the UK or even as in Thomann's case the whole of Europe.

guitars4you

RandallFlagg said:

I don't know the history of how GC got so deep in debt but it's become unweildy and a huge problem that is not going to go away through constant refinancing and incremental year on year increases in sales and revenue. Have successive owners leveraged the business and taken cash out at various times then moved it on with higher debts? Did they borrow too much to expand and too quickly?

I wonder how much Chapman Guitars is owed by GC after they cut the deal that effectively ended Riff City Guitars. I would imagine they are low down on the list of creditors but if it's a significant amount it could give them some problems if they don't get it back in terms of cash owed and also for future sales as their exclusive outlet for Chapman Guitars in the US.

Bain Capital ( Mick Romney and co) purchased GC in 2007 - And did what main venture capitalist do and loaded it with debt

Quote - Bain Capital agreed to take Guitar Center private in June 2007, paying $63 per share. The deal resulted in a downgrade of the company's credit, as Guitar Center took on a $650 million term loan, $750 million in notes and a $375 million credit facility to support the buyout, according to Moody's.

guitars4you

RandallFlagg said:

Pete.R said:

guitars4you said:

Ref those USA sales above - Just to give you an idea, Thomann sales revenue was around 700/800 Million Euros a year or so ago - Gear4Music in the UK is around £120 million

meanwhile more than 1000 Million €

and the most important part is - they are debt-free

Hans Thomann never needed or used any credit for his business

The Thomann model of a single massive central warehouse and sales location rather than the GC model of hundreds of local retail outlets is far better suited to today's migration to online sales. The cost of many hundreds of bricks and mortar stores and staff, rent, heating, rates, taxes will be a cost that can be avoided.

It's working for Andertons, Lee hasn't opened stores up and down the country but just has the one shop as do GAK, Coda, Peach etc.

I'm not sure how the centralised retail model works with US consumers though, it's a much, much larger geographical area to cover than the UK or even as in Thomann's case the whole of Europe.

Agree that the single retail model today looks more effective - But remember WWW is barely 20 years old as a major retail tool - GC started in the late 50's and expanded over the next 4 decades - Close to 300 stores across the USA - And at the time this model worked for them - There was talk about them coming to the UK and had a look at buying Sound Control and/or Academy of Sound but as we know it never happened

They own Musicians Friend which is their own mail order operation 

But today, the need for a multiple retail outlet does not look the best route to market - It might work for stocking say a host of best selling products that are effectively the same/similar, D18, regular USA Strats, Boss pedals, etc etc, - But imagine trying to buy the more boutique end of the market for 300 stores, in that how many CS Fenders, and PRS Custom 24;s and R9's do you need to buy when all such products are far more individual 

Bork

RandallFlagg said:

I wonder how much Chapman Guitars is owed by GC after they cut the deal that effectively ended Riff City Guitars. I would imagine they are low down on the list of creditors but if it's a significant amount it could give them some problems if they don't get it back in terms of cash owed and also for future sales as their exclusive outlet for Chapman Guitars in the US.

Riff City never had shares but Andertons do.  Rob has referred to Lee in  vids as a co owner.   Riff City were a distributor.

RandallFlagg

Bork said:

RandallFlagg said:

I wonder how much Chapman Guitars is owed by GC after they cut the deal that effectively ended Riff City Guitars. I would imagine they are low down on the list of creditors but if it's a significant amount it could give them some problems if they don't get it back in terms of cash owed and also for future sales as their exclusive outlet for Chapman Guitars in the US.

Riff City never had shares but Andertons do.  Rob has referred to Lee in  vids as a co owner.   Riff City were a distributor.

You misunderstood my post. The deal Chapman guitars struck with GC to sell Chapman guitars is what contributed to the demise of Riff City Guitars as it was an exclusive deal with GC for the US so Chapman could no longer supply Riff City Guitars, despite the huge marketing costs they incurred launching Chapman in the USA.

guitars4you

guitars4you said:

RandallFlagg said:

Pete.R said:

guitars4you said:

Ref those USA sales above - Just to give you an idea, Thomann sales revenue was around 700/800 Million Euros a year or so ago - Gear4Music in the UK is around £120 million

meanwhile more than 1000 Million €

and the most important part is - they are debt-free

Hans Thomann never needed or used any credit for his business

The Thomann model of a single massive central warehouse and sales location rather than the GC model of hundreds of local retail outlets is far better suited to today's migration to online sales. The cost of many hundreds of bricks and mortar stores and staff, rent, heating, rates, taxes will be a cost that can be avoided.

It's working for Andertons, Lee hasn't opened stores up and down the country but just has the one shop as do GAK, Coda, Peach etc.

I'm not sure how the centralised retail model works with US consumers though, it's a much, much larger geographical area to cover than the UK or even as in Thomann's case the whole of Europe.

Agree that the single retail model today looks more effective - But remember WWW is barely 20 years old as a major retail tool - GC started in the late 50's and expanded over the next 4 decades - Close to 300 stores across the USA - And at the time this model worked for them - There was talk about them coming to the UK and had a look at buying Sound Control and/or Academy of Sound but as we know it never happened

They own Musicians Friend which is their own mail order operation 

But today, the need for a multiple retail outlet does not look the best route to market - It might work for stocking say a host of best selling products that are effectively the same/similar, D18, regular USA Strats, Boss pedals, etc etc, - But imagine trying to buy the more boutique end of the market for 300 stores, in that how many CS Fenders, and PRS Custom 24;s and R9's do you need to buy when all such products are far more individual 

sorry - had to finish my post a touch early - so additional comments below

But today, the need for a multiple retail outlet does not look the best route to market - It might work for stocking say a host of best selling products that are effectively the same/similar, D18, regular USA Strats, Boss pedals, etc etc, - So nice but maybe a touch and bland - Very much a 'NEXT' style of retail - Nothing wrong with it, but a bit to regular

But imagine trying to buy the more boutique end of the market for 300 stores, in that how many CS Fenders, and PRS Custom 24;s and R9's do you need to buy when all such products are far more individual - You need such gear, but more boutique lines, plus used, to have more character and individuality - Like a Coda and Peach Guitars - Far harder to achieve with 300 stores 

guitars4you

Looks like Nov 15th is a key date to keep an eye on this story as GC 'aim/plan' to file a Chapter 11 bankruptcy protection

Debt to the trade and landlords is estimated at $375 million

grappagreen

guitars4you said:

Looks like Nov 15th is a key date to keep an eye on this story as GC 'aim/plan' to file a Chapter 11 bankruptcy protection

Debt to the trade and landlords is estimated at $375 million

Ouch - gotta be some ripples into the wider industry based on those numbers..

JayGee

grappagreen said:

guitars4you said:

Looks like Nov 15th is a key date to keep an eye on this story as GC 'aim/plan' to file a Chapter 11 bankruptcy protection

Debt to the trade and landlords is estimated at $375 million

Ouch - gotta be some ripples into the wider industry based on those numbers..

Suspect most of the manufacturers are on the hook for $lots - probably not a coincidence Rickenbacker pulling the plug a little while ago...