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The 7 things I learned about business from Guitar Center

Eric Garland Guitar Center, Retail Trends 5 Comments

As many of you know, I’ve been tracking the fate of Guitar Center for more than two years now, my mad, toothless Ahab against the White Whale of its private equity-blooded, retail Leviathan. When, oh when, shall it finally wash up bloated on the beach, a thousand harpoons from inconsequential bloggers, disgruntled former employees, and nonplussed customers festooning it from all sides as I drop acid and quote liberally from Chapter 42 and make a bonfire and paint my face with mud?

When can I stop pacing my kitchen, thinking madly of the crowning analytical piece I would sling as an epitaph about The Important Things I Learned From This Whole Affair?

When I can I finally shower and shave and stop obsessively checking on Guitar Center’s bonds just to see if I Was Really Right All Along, when as we all know, I could be composing all-bass remixes of Adele’s Hello and racking up major street cred on No Treble or TalkBass?

After all, aren’t the intel networks hot right now? Haven’t a bajillion people asked me for updates in way too unusual a timeframe? Aren’t Guitar Center’s secured bonds in the crapper again? Didn’t Guitar Center just ask all of its employees not to, like, sue them or anything uncool, but, like, totally arbitrate (thanks, broheim, no reason, LOLz!) I feel like Richard Dreyfuss sculpting mashed potatoes in Close Encounters of the Third Kind, freaking my family out and insisting This Means Something.

I then dispel these ideas by snorting some Robotussin and taking a brisk walk around the neighborhood, wondering if this phenomenon could possibly be identified in the DSM-5 manual or covered by insurance with a new ICD-10 code. My thoughts of grandiosity sort of melt away into the background of the current political economy, a psycho-circus exemplified by Sarah Palin endorsing Donald Trump for possession of the nuclear launch codes, the Fed getting ready to raise interest rates, St. Louis mourning the loss of the opportunity to spend $1 billion on a building for ten games a year, and the bizarre political tapestry of America in 2016. Calmed by the Robotussin hitting the blood-brain barrier, a soothing thought goes through my prefrontal cortex with the feeling of smoothing fine silk with your hand: Guitar Center is an illusion. There really isn’t a Guitar Center, and it doesn’t matter when you write a thinkpiece.

There is no end, only complex structured finance and press releases and a group hallucination.

There is no end and no beginning and change is all just change. All you can do is flow with it.

We are all Guitar Center.


Live a little.

Now my first recommendation is do NOT substitute brand-name Robotussin for the Walgreens’ brand before writing; I don’t care what they say, those are not the same active ingredients. Second, there isn’t a specific DSM-5 diagnosis for this, but I am working with researchers at NIMH on studying my specific case to help future generations. Third, I’m not kidding, these are in fact my observations. With the number of people who have been fired, rightsized, swapped, or Encouraged to Flourish Elsewhere at Guitar Center, the company I’m writing about today isn’t the company I wrote about in 2013 except for the brand and the principal economic activity. Yes, the company does provide a Center in which to find many Guitars. Otherwise? The CEO who yelled at me on my Facebook page is gone. Executives who yelled at me behind the scenes? Elsewhere. The shocked employees who flamed my initial post? Many were laid off, and some even sent letters of apology to me, which was seriously gracious therefore they must all be bassists or something. Owners? Swapped out for bondholders holding the bag. Bondholders? Judging by the FINRA database, it’s not even the same companies holding the debt, necessarily. And as for the rest of the employees, let’s just say there is some turnover.

So what or who is Guitar Center? As the sweet Robo-buzzin’ subsides, this serious question gently embraces my mind, and the only answer I can formulate is that Guitar Center is literally an illusion that is still held by the good people of the musical instrument industry and the American consumer, operated by Standard American Corporate and Financial Management behind the scenes. It could be a flower shop, it could make auto parts, it could make apps for kids. It doesn’t matter. It’s just an opportunity to make some salary and billable hours and float some bonds for a few technocrats. The business model ain’t built for 2020 and beyond, and so at some point there will be another announcement of some importance. It will be couched in PR language and misinterpreted. That douchey writer guy…Eric Whatshisname will write another 2000-word piece (what the hell does he do all day, anyhow?) And life will go on.

Still, DAMMIT, I have my thinkpiece about what I’ve learned and I’m coming to the conclusion that there will not be One Seminal Event That Spells the End of Guitar Center So That Everybody Knows The Truth. So without further ado, apropos of nothing, here is my thinkpiece for no particular reason.

The 7 Things I Learned about Business from Guitar Center

Some background: I grew up working at my Dad’s farm store in Vermont and thus developed a lifelong commitment to Real Business. We sold cow shit, so complex explanations were considered suspect. If anything, the post-post-postmodern tale of takeovers and debt structures and endless growth and fantasy has only served to reinforce my old fashioned belief in simple principles of business management. Here are a few observations.

1. Public relations is no replacement for a business model

I need to give a shout out to lifelong keyboardist and CEO Bob Berman of Instrumart who taught me a lesson I’ve never forgotten on the day I left his employ to go do fancy consultin’:

Yo Eric, have fun using big words, but never forget what business really is: Buy Low, Sell High, Collect Early, Pay Late. Have fun with the Harvard Business School guys, but never forget what business really is.”

From the first days of my contact with Guitar Center executives, it was clear that the last couple years have been a public relations play. Every time something bad happens in a financial sense, they dispatch their PR and marketing to shout down any conclusions you might make. Take one look at the books, and the story tells itself. PR and branding and message discipline – it’s good for a business, it really is. But if you’re not taking less money out of the drawer than you put in every day, it doesn’t exactly matter. At some point, your business needs to be fundamentally sound and profitable.

2. Complex financial structures are no replacement for a business model

Back in the go-go 1990s, when you could get a job from the newspaper and college cost 70% less than it does now and when American business management actually looked smart, one dreamed of hooking up with VCs and angel investors and Wall Street financiers to Make Something Big Happen. After all, we had just won the Cold War, we were making money hand over fist, and our complex financial techniques were the envy of the world. Well, it’s 2016 now and the newspapers are out of business, it’s a quarter million for that degree in Underwater Basketweaving, and American finance just looks shady much of the time. Small business people have been convincing to ooh and aah and cower at the mention of Billions of Dollars and Very Sophisticated Dealings, but they shouldn’t. In my practice as a competitive analyst, the more complex the financial structure, the weaker the business model.

You know what isn’t sophisticated, but really works great? Buy Low, Sell High, Collect Early, Pay Late. Avoid debt. Avoid entanglements. Pay your people and your vendors and your taxes. It’s so simple it sounds stupid, but it ain’t stupid.

3. Be nice

If you want to know the long-lasting impact of treating people poorly, write a viral blog post and see who comes out of the woodwork with stories. Employees, vendors, customers – human beings – they all remember how they are treated, especially when someone has power or influence over them. Nobody likes to be dismissed or told they are weak or unimportant or lesser than. Therefore, the past, present, and future of any business enterprise lives and dies by its culture. If that culture is supportive of individuals and organizations, then it will have an impact well into the future. The same is true for cultures that fail to meet those standards. Eventually, this turns into results you can quantify in either direction.

4. Bankruptcy looks different for big companies than small ones

One thing I kept hearing this past year was “well, you said End of Guitar Center, and they’re still here.” Yup, true. And how many of your businesses could stand for an investor to walk away from hundreds of millions and then proclaim that the company had an “improved capital structure?” How much would Wall Street be willing to step up to buy your junk bonds after that kind of trouble? How many times could you take a “haircut” on “an overweight debt structure” as opposed to your bank just calling in your line of credit and your spouse leaving you for the babysitter/pool boy and you packing your remaining stuff into your used Hyundai?

Radio Shack – named after radios for Christ, and still somehow alive in the 21st century – was on the way out for years, seemingly untouchable by unsolvable problems. Why? Size, scale, complex debt. There was much maneuvering, much unraveling to be done before it got Officially Declared Bankrupt. When you’re a little guy, you’re just cooked. When you owe the bank a million, it’s your problem, but if you owe them $100 million, it’s the bank’s problem. So make sure you don’t confuse the financial dynamics of huge companies with normal businesses that do weird stuff like remain fiscally solvent and pay down debt and stuff.

5. Incrementalism and lack of strategic vision is an endemic problem among executives

It is human nature to think that the current moment is somehow Normal and that a major change on the horizon is by definition Extreme. Sometimes, believing in the status quo is the radical position, despite the social support for the current normalcy. In reality, the statistically normal situation for the musical instrument industry is that occasionally large companies enter the industry with plans of empire building and they find out that in fact this is an industry run by obsessive freaks who care about weird shit like germanium transistor overdrives and Neve consoles – whatever the hell those are – and who don’t really care what the numbers say on the books. Therefore, it is more normal for dominant, corporate-backed players to rise and fall on a regular than it is for them to remain influential permanently, even though the consensus of industry leaders arrived at the opposite conclusion. Sometimes, though, it’s revolution that is more likely. Leaders need to be ready for all eventualities, not just the comforting ones.

6. The musical instrument industry is special

It turns out that it has been a long-standing tradition for executives to arrive in the musical instrument industry and claim that knowledge of advance MBA techniques are equal to or greater than knowledge of the specific business vertical. And true enough, if you’re an executive for FedEx and responsible for a massive logistics chain, maybe popping over to Cardinal Health, with a similar enormous scope and logistical issues, might be a good fit. Not so with industries run by people who can name Eric Johnson’s battery preference and why, or those who know how to actually pronounce “Moog.” In musical instruments, the map is not the terrain. You better know your shit or your credibility is toast – and your business decisions might be toastier.

Fact is, musical instruments are a terrible business to be in. Constantly shrinking margin, shifting consumer tastes, working with musicians in a business context.

The bass player from your old band, but actually running a company. Think about that.

But for those of us who love it, we couldn’t care less. And that’s why not every MBA will get what’s going on here. However, if they want to stay they should pick up an instrument and join a band. Any band. It will all make sense in time.

7. A business is made up of quality people – and nothing else

As I stated above, there has been such a massive overhaul of people at Guitar Center that I am speaking in general about a cultural dynamic which emerged and not about individuals because I’m not sure that most of the staff who made Guitar Center what it was – a pretty cool company, by the way – are even still involved in the operation of the business. Many, many talented professionals in the MI business have gone on to prominent positions at other companies. If there is a problem anywhere in Guitar Center, it has been the unstaunchable bleeding of cultural memory and organizational knowledge and specialized skill as people have walked out the door. And as previously mentioned, you either know what Alnico or PAF stands for, or you don’t. It turns out that the old HR aphorism, “This company’s greatest asset is its people,” actually means something. And this isn’t even to insult the current staff of Guitar Center who have a pretty tough job every day as near as I can figure – but the people no longer with the company still matter. In fact, when we get beyond all the corporate and financial nonsense, not only do they still matter, but hopefully, they are still among us. God does not create you a drummer or vocalist or bassist or bassoonist only to suddenly take it away. Chances are you’re in this life for good. Soon enough, it will probably be revealed that what remains of the company is a service mark and some patents and some logos and some bond payments to be made. Really, that’s just a structure for people from our (most beloved) industry to work together.

I suspect that the real members of the MI community will see each other again, sorta like when you’re putting together bands in the same town. Hey, everybody always needs a bassist. You know, unless you’re an MBA who never cared for the biz in the first place, in which case, all good – maybe PetSmart is hiring execs?

Moving forward

I’m looking forward in 2016 to writing a whole lot more about the musical instrument business because there are inspiring new ideas and business models and OMG PRODUCTS. There is turbulence and shakeup, but that actually is completely normal. Technological disruption does that to industries, and it’s completely natural that mobile Internet and killer computing power and new consumers would result in new vistas for all retail, but especially musical instruments. After all, damn near every phone now includes the capacity to record music digitally that would have cost tens of thousands of dollars just twenty years ago. Something had to give. And the people of the musical instrument industry are showing themselves to be remarkably resilient in the face of it all.

So let’s rock.