Editor’s Note: The Music & Sound Retailer recently reported that Fender is preparing plans to sell all its “Fender” brand products direct to consumers through its Web site. In this op-ed, Gabriel O’Brien, Sales Manager at Larry’s Music Center, a prominent brick-and-mortar retailer, addresses the broader issues at play. The writer’s opinions are his own, and should not be construed as reflective of the views of the publisher or The Retailer.
Independence is what started rock ‘n’ roll: independence from our parents, from Big Brother and from the status quo. The nature of independence is self-sufficiency, individual choice and setting our own course.
The spirit of independent rock ‘n’ roll, though, has now been co-opted by some of the same Wall Street bankers who brought you the dot com bubble and the housing crisis.
We are witnessing a consolidation in our industry similar to what has happened in media, banking and telecommunications. Private-equity firms have been buying up both retail stores and wholesale manufacturers, mostly using leveraged debt backed by junk bonds for the purchases. By owning both wholesale and retail, they are selling themselves product, and then selling it to consumers.
One well-documented case is Weston Presidio, which owns stakes in Fender and Guitar Center, a fact that is proudly displayed on the portfolio page of its Web site. The pitfalls of this have been discussed by market analyst Eric Garland in an excellent series he has published on his Web site, ericgarland.co.
Heritage brand names like Fender have been built on the backs of independent brick-and-mortar music stores. Purchasing decisions used to be in the hands of retail stores. However, they have progressively shifted into the hands of manufacturers and wholesalers that are dictating terms, pricing and SKUs.
Independents continually complain about Internet sales and big-box stores while, at the same time, buying products from manufacturers that sometimes share ownership by the same private-equity firms. By purchasing from these companies, we are propping up our big-box competitors.
Three years ago, Larry’s Music Center Owner Brad Shreve and I began evaluating the way in which we choose products and our vendor relationships, and we developed a simple set of criteria: we want only to carry the coolest products we can find and we want to buy them only from independent-friendly companies that demonstrate they have our best interest at heart.
This new business philosophy quickly raised some questions about lines we were carrying. We have since eliminated several traditional suppliers in favor of companies with better or comparable products, terms that are more favorable, better customer service and stocking demands that are less stringent. One brand we discontinued carrying was Fender.
After 25 years as a Fender dealer, we had been struggling with constantly evolving requirements we had to meet, as well as the way in which they were prescribed. As a result, we were no longer able to decide for ourselves which products worked in our stores, which items met the level of quality we wanted and which products were sufficiently profitable to be worth our while. Those terms were being dictated to us in ever-increasing increments. And, despite a banner year, the demands were getting higher.
Last year, Fender announced a custom-design program offering consumers the ability to build a custom guitar and buy it directly from the company via its Web site. Taylor Guitars offers a similar program, except the sale goes through a dealer, thus keeping the dealer relationship intact. At the time, and despite assurances from our Fender sales representative and his boss that only high-end custom guitars would be available direct, it seemed like a test balloon for further direct sales. After careful consideration, we deemed these business practices untenable and, as a brick-and-mortar retailer, we decided it was best for our store to terminate this relationship.
Some of these decisions were difficult at first, given the perceived weight particular brands hold when assessing our value as a store. The simple truth is MI retail stores are slow to adapt and stuck in the past, often anchoring themselves to brands less because of their current value and more due to their historical significance. In a marketplace as fast-paced and dynamic as today’s is, this is simply not good business.
We admitted to ourselves that we had been afraid we wouldn’t be perceived as a “real” music store by giving up a marquee brand name. However, as soon as our new philosophy was put into practice, we realized our fears were unfounded.
We live in a fortunate time when there are more great brands and quality products to choose from than ever before. Now that we aren’t spending so much of our buying power in one place, we are free to explore other brands. These are not B-level brands without any name recognition, either.
We have acquired lines—some of them include Duesenberg, Reverend, EarthQuaker, Marshall and Washburn—with buy-in requirements that we consider more favorable, all while getting better margins. We have maintained our relationships with other brands—these include Taylor, Korg, Vox and Yamaha—all of which have buy-in requirements that we feel are fair and meet our needs. And, we continually buy plenty of used Fender products to offer our customers.
Being independent is an asset, and it should be treated like one. As retailers, we must take back control. If we don’t, these manufacturer-dictated terms will become progressively more difficult to adhere to. We should be deciding what we carry, negotiating for terms and pricing, and doing what’s best for our stores. We do not make decisions by committee or because of stockholders; we make decisions based on what we believe is right for our business and what our customers want. Independent dealers must assess the value of their product lines, and of the companies that own those lines, based on the market as it is—not according to our memories of decades past.
Gabriel O’Brien is Sales Manager at Larry’s Music Center in Wooster OH. The store was recently named one of NAMM’s 2014 Top 100 Dealers.