In the nearly four years I’ve been Editor of The Retailer, not to mention my many previous years’ experience covering the music products industry, no period of time has been more packed with drama, uncertainty and controversy than right now. In short, these are consequential times, and none of us is quite sure if, or when, a metaphorical earthquake might reshape the MI landscape…and what this sort of upheaval might mean for brick-and-mortar dealers, the vendor community, and the long-term health and viability of our industry.
In ordinary times, music trade magazine editors like me devote our attention to who’s hired whom, what the newest guitar amp or effect pedal might be, and whether dealers are doing better with their acoustic guitar stock or their electrics. Now, though, things seem different. The Internet’s abuzz with social-media chatter about once seemingly invincible music products mega-chains possibly entering their death throes. Dealers are speaking with a louder voice…and saying things that most certainly could ruffle some feathers. Longtime industry figures are reaching out to The Retailer and speculating about a future that might look very different from today. What’s going on here?
We’ve got to start somewhere, so let’s begin with Eric Garland. An industry analyst and the Executive Director of Competitive Futures, Garland, on February 3, published a piece, “The End Of Guitar Center,” which traced the downfall of Guitar Center, our industry’s largest retail chain. He predicted GC’s demise in the wake of former CEO Mike Pratt’s ouster in November and the recruitment of new President/CEO Darrell Webb, who, in Garland’s estimation, was brought on board not to drive MI innovation but, instead, to facilitate an orderly bankruptcy. The article, whose tone was arguably somewhat strident, exploded in MI circles. It crisscrossed the globe on Facebook and Twitter and elicited a deafening reaction…not surprising given that, of the nearly $7 billion in music products sold annually, an unsettlingly large percentage is through Guitar Center and its properties.
It would be very difficult to dispute that many vendors’ fates tie into that of Guitar Center—especially those that haven’t focused their strategic direction on the independent, mom-and-pop stores that are the MI market’s lifeblood. Arguably, then, our little industry has its own version of “too big to fail”: a phrase whose popular use traces to a congressman in the ’80s but that most vividly harks back to the Great Recession and the Emergency Economic Stabilization Act that bailed out the American financial system. Perhaps these stakes are one reason why Music Inc. Publisher Frank Alkyer penned an editorial, “Be Careful What You Wish For,” that attempts to cast doubt on Garland’s thesis.
Let me be clear: the demise of Guitar Center would likely have an impact on the music products market that would far exceed the impact that Bear Stearns’ collapse had on our financial system. And, for that reason, I do not root for Guitar Center’s failure. On the contrary, I’m rooting for it to succeed…for the music products mega-chain to somehow wrap its arms around its debt problem and position itself not merely to grow its store count and to increase its YouTube channel hits but, instead, to return its accounts to something resembling normalcy.
But we must remember that the undesirability of the consequences of something does not make that thing untrue. And, to me, a generic statement from Guitar Center that alludes to “prior statements regarding the health of [GC’s] business and the adequacy of [GC’s] capital” isn’t particularly reassuring in the weeks and months after the firings of a few dozen corporate executives (many of them prominent and well respected) and a slew of regional managers. And I can’t help but wonder: if Darrell Webb has no history with, or particular knowledge of, music products, then what skill set does he have that made him appealing to the dollars-and-cents guys at Ares Management? Would he be the choice if Ares truly intended for GC to be the shining light of music retail, sowing the seeds of music’s next generation and nurturing tomorrow’s music makers? A reasonable person could doubt it.
But even if Guitar Center proves its detractors wrong—and I hope it does—a great deal of turmoil still swirls around us. Purchases and divestitures have undeniably accelerated in recent months, and most of the headlines seem to be coming from Scottsdale AZ. In recent weeks, we’ve learned that Fender Musical Instruments Corp. (FMIC) decided its best course of action was to divest itself of the various components of KMC Music/Kaman. Little more than a month ago, Drum Workshop, Inc., purchased Gretsch Drums, Latin Percussion, Toca Percussion, KAT Percussion and Gibraltar Hardware, along with the Ovation guitar brand, from FMIC. And, just days ago, we learned of JAM Industries acquiring the wholesale distribution business, KMC Music, B&J Music and selected trademarks from FMIC. So, what’s going on at Fender?
Whatever the reason for FMIC’s shedding of assets—some have speculated the company is paying down debt to be maximally attractive for a potential suitor—it seems clear that the company is in a time of transition, and the long-term outlook remains murky. It was only on May 31 that CEO Larry Thomas left the company, ushering in the tenure of current Interim CEO Scott Gilbertson, under whom FMIC made its most controversial choice: the decision to pursue direct-to-consumer sales, which The Retailer covered extensively this past fall.
Since assuming the editor’s chair here at The Retailer, I’m not sure any decision, by any company, in any segment of our market, has reverberated more powerfully than this one. Anecdotally, I heard stories from trusted dealer sources about the anger and feeling of betrayal that arose in the room when, during a two-day business meeting with key North American dealers at the Fender Visitor Center in Corona CA this past August, Gilbertson and executive management team members revealed their intentions to “invest in the consumer experience.” Since then, we’ve received everything from an op-ed about why one dealer dropped Fender to a letter to the editor from a dealer whom Fender chose to discontinue doing business with after a 12-year relationship.
In a low-feedback industry (no pun intended) like ours, I can’t help but stop and take notice when it seems like there’s something afoot…when it seems like the ground is shifting beneath our feet even as we cautiously tread onward. I feel like, as winter turns to spring and we approach summer and fall, big things could happen. Really big things. Things that could be for good…or for ill.
We all need to be on our game. These are consequential times.