Guitar Center's Debt

[fronobulax]

Article here. Short version without all the financial terms, is that Guitar Center has some debt coming due and very few analysts expect GC to be able to pay off that debt from operations. Bankruptcy in the next two years is one likely possibility.

 

[gilded]

Read the link.

If I got this straight, Moody's says that retail stores in general are hurting/languishing, so they've downgraded GCI in particular.

Simultaneously , GCI is reducing the staff at all their stores but at the same time opening more stores (so the books will look better to a potential buyer, according to my in-store contacts).

Still, the Big Money isn't due for another couple of years, on 600-ish million and three years on another 300-ish million. So, why is this newsworthy now, instead of a year from now?

 

[mavuser]

Still, the Big Money isn't due for another couple of years, on 600-ish million and three years on another 300-ish million. So, why is this newsworthy now, instead of a year from now?

the bonds they issued have already crashed and are still crashing...investors care *now* for sure!

and the article says they have 1.6 billion in debt. dude, that is a lot of coin. Christmas shopping season only comes once a year! Think about all of that over head, all of those huge stores, employees and operating expenses...

anyway i heard something about this on 1010 WINS AM radio in New York the other day. That's when you know they have a real problem. I am not a professional investment analyst but can tell you, you don't need to be one in this instance to see the writng on the wall. They just have too much debt and their bonds are headed to junk status. maybe if they open bars inside the stores and get good bands to play live shows there and charge like 150 for a ticket and 30 bucks for a beer they could recover, but i doubt it.

 

[Bonneville88]

Interesting article. Been reading of Guitar Center's stressed financial situation for years - gotta
wonder how / if they'll keep going.

 

[Default]

And I seem to remember that Fender sells one out of six guitars to GC. They own Muscian's Friend, don't they?

 

[AoxoA]

The used department might have to lower prices. They may be able to return new stuff to the manufacturer depending on if they can RMA inventory, etc..

 

[walrus]

All the same company: Guitar Center, Musician's Friend, music123, Woodwind and Brasswind, and Lyons Music.

walrus

 

[GAD]

The used department might have to lower prices. They may be able to return new stuff to the manufacturer depending on if they can RMA inventory, etc..

If they weren't so stupid with their used and especially their vintage pricing they could pull in a lot of cash in short order. I've seen vintage stuff sit in a GC for *years* because it had a completely stupid price that they wouldn't budge on.

 

[Quantum Strummer]

I suspect when GC goes boom it'll be a loud boom. Doubt it's still around for any reason other than investors not wanting to face financial reality. The repercussions are likely to be not pleasant at all for instrument & accessory makers with a large GC footprint. Still, they've managed to keep kicking the can down the road for far longer than I thought possible. Maybe they've still got another thwack! or two to go…

-Dave-

 

[gilded]

I think one big problem is that when they valued the biz assets, they used their typical inflated prices on all of their vintage equipment. Not only did they give vintage gear too high a value in their store pricing to consumers, they also gave it too high a value to stock holders when they took it public in the first place and then again when they sold it to Bain Capital and it's successor, Ares-something of other.

Complicate that with the fact that a lot of vintage gear prices are down 30 percent anyway and some people are gonna get SUED TO THE MAX if it all comes tumbling down.

 

[dreadnut]

Hate to see any business fail, but there are always reasons for it. I've bought a fair amount of gear from GC over the years, but mostly inexpensive items. Don't know anyone who has bought a higher-end guitar there. But I also live close to Elderly Instruments.

 

[Neal]

Maybe if they offered more than a single crappy photo of their used guitars, and perhaps a description of the instrument they are trying to sell, they would be able to move some inventory...

 

[GAD]

Maybe if they offered more than a single crappy photo of their used guitars, and perhaps a description of the instrument they are trying to sell, they would be able to move some inventory...

A-freaking-men.

Great example: http://www.guitarcenter.com/Used/Guild/Vintage-1980s-Flyer-Solid-Body-Electric-Guitar-113041679.gc

An '80s Flyer, huh? When it comes to '80s Guild electrics, you could almost just say "guitar". At least we know what the headstock shape is.

Here's the pic. It's a black guitar in front of a black cabinet. The pic is 500x500 but there's like a 200px wide border around the actual pic. Was this taken on a Sony Mavica? WTF?

Not only that (all that white space? It's part of the pic!) but this is listed as a "vintage" guitar which means there's no haggling and there's only a 3-day return policy. They've almost annoyed me enough to take a chance and return it if I'm less than 100% satisfied.

Oh yeah, and the description? Vintage Guild 1980s Flyer Solid Body Electric Guitar Black

 

[mavuser]

Maybe if they offered more than a single crappy photo of their used guitars, and perhaps a description of the instrument they are trying to sell, they would be able to move some inventory...

while I agree with this statement wholeheartedly, they are in a lot more trouble than that. unfortunately

 

[bluesypicky]

while I agree with this statement wholeheartedly, they are in a lot more trouble than that. unfortunately

Yup. We can go on and on about the more than arguable G.C. management philosophy (been there done that here, and more than once), bottom line is, retail is hurting EVERYWHERE, whether you sell guitars or underwear.
Sign of times. I dunno about y'all, but I went from retail shopping only (a few decades ago) to maybe 10% retail / 90% online. (The 10% being mostly comprised of groceries)

I guess operational cost (aka overheads) of these gigantic stores are too big to be absorbed by their online volume (done with extremely squeezed margins)....

Really no surprise here, was just a matter of time.

 

[fronobulax]

So, why is this newsworthy now, instead of a year from now?

I believe it is because debt that is due in two years effects the bond rating today. I see the article as a caution to investors that those portions of GC's valuation that are tied to debt ratings are going to drop significantly starting now and ending with refinance or bankruptcy within the next 24 months.

 

[fronobulax]

Maybe if they offered more than a single crappy photo of their used guitars, and perhaps a description of the instrument they are trying to sell, they would be able to move some inventory...

Yeah, but I don't think the used/vintage market is going to save the company. From talking to at least one collector who has spent tens of thousands of dollars at GC I get the idea that GC is not trying to make a lot of money selling used/vintage and that they only do so as a service to customers who are trading in vintage gear towards something new.

 

[Bonneville88]

What bluespicky said...

... and as a side note, as a guy who's spent the last 20 years building specialty fixtures for retail environments...
damn, it's gettin' u-g-l-y out there. But... considerable irony among those that remain at our shop in the
fact that even as retail businesses started buying more and more custom fixtures overseas... more and more of
our business has turned to fixing / retrofitting overseas fixtures that were built wrong.
Some of the correction projects have been epic. One for Disney stores comes to mind...

As has been noted already... most business situations that fail deserve to. This I believe.

 

[Brad Little]

....The repercussions are likely to be not pleasant at all for instrument & accessory makers with a large GC footprint. ....
-Dave-

I remember an article a year or two back that said that when/if GC goes under they'll take Fender with them.
Brad

 

[griehund]

Every department store I worked in for 17 years is gone now. The move from bricks to clicks is almost complete. I can't recall visiting a retail store other than for groceries yet in 2017.