Hasbro taking a hit on earnings due to Toys R Us closing

Just_Guild

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Recent article in WSJ citing how Hasbro, the toy maker, is taking a big hit on earnings due to losing Toys R Us as their main distribution channel. Couldn’t help thinking a similar fate would be in store for Fender and Martin Guitar if Guitar Center succumbs to its overwhelming debt.

I’ve posted before that my friends cousin is a production manager at Martin, who claims without GC, there is no Martin Guitar.

Thoughts?
 

HeyMikey

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The internet is good for some things, especially when you know what you want. However casual physical browsing and being able to hold something on your hands is highly influential. It can often lead to the primary sale and also additional unplanned purchases. We would often wander around Toys r Us just to see what interested the kids. Same dynamic with any store that has a sizable inventory - GC, Home Depot, Barnes and Nobel, Wegmans grocers... I rarely get out of those stores with only what I went there to buy.
 

fronobulax

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I was not aware that that much of Martin's sales volume was attributed to GC. If GC falls it might bring a lot down with it.

Since we are talking of giants falling, I remember when I was a kid I would page through the Sears Christmas catalog for days. But even then there was always a list of toys I wanted to see/hold/inspect before I talked to Santa about them. (Same holds true for some people and guitars, I know). So IMO there will always be a niche for a physical showroom until we invent another form of sales and distribution that allows people to inspect a product at home without having to put up the cash first and deal with the cost and hassle of returns.

My gut suggests that if there are enough big players (like Fender and Martin) that will go down with GC, then GC will not be allowed to fail (or will not be dissolved in a bankruptcy) and the manufacturers will invest in order to keep the retail channel open. (But don't listen to my gut. Every investment I have made in the stock market based upon my gut has lost money, so I don't do that anymore).
 

Quantum Strummer

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My gut suggests that if there are enough big players (like Fender and Martin) that will go down with GC, then GC will not be allowed to fail (or will not be dissolved in a bankruptcy) and the manufacturers will invest in order to keep the retail channel open. (But don't listen to my gut. Every investment I have made in the stock market based upon my gut has lost money, so I don't do that anymore).

I think your gut is right on this one. It's probably why GC didn't go down 3–4 years ago when their financial situation first entered unsustainable territory. It's being propped up as a kind of distribution loss leader.

If I were Fender or Martin I'd be seriously looking for additional ways to retail my products. Maybe they're doing just that…

-Dave-
 

mellowgerman

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hmm Hasbro... reminder of my favorite toys growing up (I actually still have this one)

WWF-Hasbro-MOC-Shawn-Michaels-Series-7-Yellow.jpg
 

merlin6666

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Recent article in WSJ citing how Hasbro, the toy maker, is taking a big hit on earnings due to losing Toys R Us as their main distribution channel. Couldn’t help thinking a similar fate would be in store for Fender and Martin Guitar if Guitar Center succumbs to its overwhelming debt.

I’ve posted before that my friends cousin is a production manager at Martin, who claims without GC, there is no Martin Guitar.

Thoughts?

I'm not much of a financial guy and have not followed the GC story much, as we don't have these stores here in Canada. But I got the impression that the instrument manufacturers are in fact among the main creditors to GC, which I would interpret that the debt of GC consists of a large chunk of payables to their suppliers. In that case if it comes to liquidating the inventory of GC I would be curious if that is actually still "owned" by the suppliers and could be returned?
 

Just_Guild

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I'm not much of a financial guy and have not followed the GC story much, as we don't have these stores here in Canada. But I got the impression that the instrument manufacturers are in fact among the main creditors to GC, which I would interpret that the debt of GC consists of a large chunk of payables to their suppliers. In that case if it comes to liquidating the inventory of GC I would be curious if that is actually still "owned" by the suppliers and could be returned?

Good question. Maybe Canadian Tire would take over?

Kidding aside, if I was Chris Martin, I would be very concerned. The handwriting is on the wall. Visit the factory and you'll see what I mean.
 

adorshki

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In that case if it comes to liquidating the inventory of GC I would be curious if that is actually still "owned" by the suppliers and could be returned?
Highly unlikely.
Technically that's considered "consignment" and means GC has no obligation to keep the inventory, therefore they aren't really "sales" and the makers can't use those outstanding payables to forecast income.
Which kicks in a whole other slew of ramifications.
BUT:
If it did get that tight, I suspect GC would be making inquiries about returning unsold product.
At that point it'd probably behoove both parties for the makers to recover that inventory at cost rather than taking a risk on bigger losses from a bankruptcy liquidation.
But it's a tough call.
Who's gonna buy what're probably "old" models?
How's that sudden inventory inflation gonna affect production and then future sales?
Looking at it from a maker's angle: Fender considered it more cost-effective to liquidate inventory twice, in Corona and Tacoma, than to attempt to market "obsolete" models through the dealers, piecemeal.
Most manufacturing entities want a deal to be done when the product's delivered, kindly pay us according to the terms, thanks.
 

JohnW63

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I don't see how any writing would be on the wall for Martin, they are the second largest seller of acoustic guitars in this country. Only Taylor beats them. Of course Yamaha is in there for low end product that neither of the US companies sell in. Given Taylor sells through GC just as much as Martin, wouldn't they have scribbles on the wall too ?
 

davismanLV

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A lot of almost all the decent or good manufacuers would take a HUGE hit if GC went down. It's a "try it out store" as long as it's something they normally stock. Remember they also have muscians friend and they do online business Very well, so......

People will need to find new guitars to buy. And regardless of GC or any other big company, the market just redistributes. "Oh, I can't buy it at GC? Okay, maybe I'll go to Sam Ash, or maybe do Musicians Friend. Trust me, they're GREAT and you have 30 days and if you don't like it, send it back. You lose shipping (i think) but I've kept everything. If all their divisions worked as great as as the other's do! But GC is just lost. I tried to buy my last two there. Bad, beyond bad. Thanks to people on the forum I found I got one through Musicians Friend (thanks TX..... the blue one) and ALSO check out Springfield Music in Springfield, MO (Thank you, Sandy for that website!) BEST people ever.

Last time in GC Don and i both were pretty ready to buy this past year!! GC didn't give a $*** and we both saved a combined of $1100!!!! Ain't life grand????

FOR BETTER GUITARS!!!
 
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adorshki

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Given Taylor sells through GC just as much as Martin, wouldn't they have scribbles on the wall too ?
I agree, in fact I just came to Frono's deduction myself: who knows but that the biggest suppliers may well be investing in GC themselves?
(I'm sure the answer could be ferreted out by normal investing research, but that's outside my interest at the moment)
And as Tom says, it's not just the brick and mortars stores, there's the whole MF side of the business as well. Most makers of anything believe that's where the future lies, today.
One other question occurs to me:
Who actually owns the property (and buildings) the stores sit on?
They may well have a "hidden" cash reserve that's been appreciating nicely over the last few years, might have given them a bit more leverage at re-structure.
I'm reminded of that "guy" who owns Sears: Even if they go down the tubes and he takes a bath on the stock, his hedge fund still owns all their real estate......so according to one source he'd come out well ahead no matter what.
 

JohnW63

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I don't know. Big stores that close end up as 99 cent or Dollar General stores around here or just stay vacant. I have a very little used, nearly new used to be Lowes a mile from me and it's been that way for 8 years or so.
 

Quantum Strummer

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I don't know. Big stores that close end up as 99 cent or Dollar General stores around here or just stay vacant. I have a very little used, nearly new used to be Lowes a mile from me and it's been that way for 8 years or so.

The closest Home Depot to me first opened ~15 years ago at one location, then maybe two years later moved a mile north on the same road into a just-opened shopping complex. The original building has been unoccupied ever since, with the parking lot mostly used by a car dealer or company to store light trucks & SUVs.

My long-time favorite local grocer closed down after the owner retired…no-one wanted to buy the business. It was a Dollar Something store for a short time, now an okay-but-not-great produce market. Much the same has happened in recent years with more than one local family-owned restaurant. Folks prefer eating out at the cookie cutter chains instead.

-Dave-
 
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