GC Instruments

Annual Media Day Event Provides Insight Into GC’s Strategic Positioning

On August 5, Guitar Center hosted industry trade publication editors, including me, at its Westlake Village CA headquarters for the 3rd annual Guitar Center Media Day. The daylong program allowed MI journalists to better understand GC’s strategic positioning, retail-store strategy and industry-outreach initiatives, as well as offering a view of the company’s financial strength in the wake of leadership changes and rampant Internet speculation. Guitar Center executives described the retail chain as a robust business, which boasts 269 cash-flow-positive storefronts, that is building on a strong first half of the year and that’s looking toward eventually matching (or beating) its record Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in 2012 of $200 million. Darrell Webb, President and CEO, and EVP and CFO Tim Martin affirmed that GC will require no further recapitalization in the short or intermediate term in order to service its debt and the interest on it. Expansion, in fact, is still on their mind, even as retail locations begin to approach 300.

Instruments to PlayOne of the most illuminating components of the Media Day program was our group’s visit to an actual Guitar Center store: the location on Russell Ranch Rd. in Westlake Village. That is where the chain’s emphasis on “The Gold Standard”—a philosophy that Michael Amkreutz, EVP, Merchandising, Marketing and Ecommerce, passionately espoused—most fully came into focus. The store, which celebrated its Grand Opening on April 30, exemplifies the standard that GC says it will strive to meet in all of its stores. The facility’s open floor plan allows a prospective customer, upon entry, to see virtually the entire sales floor. The floor plan is highly organized, with clean, crisp displays that feature clearly visible pricing. Digital signage has largely replaced the paper signs of old, adding to the sleek, technology-integrated atmosphere. And, perhaps most importantly, stools are out and picks are available, ensuring musicians can play before they buy. The intended vibe, Amkreutz said, is “Grand Opening look daily.”

“The Gold Standard” extends to improved customer service, as well. At the Westlake Village location, the store’s Manager, John Contreras, spends 95 percent of his time on the sales floor, ensuring he is accessible to customers who need him. This is illustrative of Guitar Center’s burgeoning effort to improve its customer friendliness, a tacit admission to the fact that, although GC has always been strong on pricing and breadth of inventory, its reputation relative to providing attentive, knowledgeable service to customers has sometimes been weak.

Rental Sign 1Repairs Counter 1One of the ways in which Guitar Center intends to cater to its shoppers is by dramatically increasing its investment in a robust services offering, inclusive of lessons, rentals, repairs, consignment and the like. As regards lessons, the Westlake Village store had nearly 200 students enrolled after the first weekend. And, with lessons currently offered in fewer than 90 locations, the numbers GC has attained are already imposing: 16,000 enrolled students, about 1,000 instructors and approximately 310,000 hours of lessons over the past year. With respect to repairs, the retail chain currently employs about 400 techs, who, last year, completed 280,000 customer-owned-instrument repairs. Rentals (principally of backline gear) have already rolled out in about 100 stores, with more to follow. The Westlake Village storefront, which is a model for future locations as well as for existing ones scheduled for refurbishing, offers a full complement of services.

During an executive briefing that also included Ron Japinga, EVP, Supply Chain & Private Brands, the leadership team emphasized Guitar Center’s transition to becoming “a mature, professional, disciplined retailer,” a strategy of which “The Gold Standard” is a part. Relative to inventory, GC plans to focus more intently on the brands and SKUs that customers are most enthusiastic about, thereby eliminating an inventory glut that can clutter the sales floor, while also dramatically improving in-stock percentages. Called “assortment rationalization,” this process will allow the retail chain, the executives said, to build strong vendor relationships with the brands that resonate with today’s musician. The executives also expressed a desire to create a more inclusive Guitar Center, across lines of gender, genre and generation. This commitment to diversity will manifest itself not only in the in-store experience, but also in GC’s marketing campaigns.

Guitar Center’s plurality share of instrument sales in the music products market, as well as its ability to operate on tight margins and carry a wide assortment of brands, makes it a difficult competitor for the mom-and-pop shops who read The Retailer and whose livelihood is dependent upon earning their slice of the pie. As such, GC’s newfound positioning as “the most trusted standard for all things music,” including not only gear but also services, has the potential to discomfit the indie stores that are already struggling. In response to that, though, as well as general charges that Guitar Center is trying to “bigfoot” the little guy, Amkreutz alluded to GC’s multi-million-dollar investment in Aspirational Content Creation, which is content that promotes music, inspires potential music makers and stimulates the act of making music. This investment, he said, makes the overall pie larger, thus increasing the size of everyone’s piece of it.

In speaking to Guitar Center’s management team, my fellow editors and I were presented with a picture of a company that, far from collapsing under its own weight, is investing in meaningful improvements that will enable it to thrive in the future. As the months pass, The Retailer will closely monitor Guitar Center’s sales figures, earnings, lessons enrollment and other quantifiable data points to see whether the music products industry’s 800-pound gorilla is once again ready to climb.

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