Something’s Gotta Give…Maybe?

In the 16-plus years I’ve been on staff at MMR there have been periodic rumors of Guitar Center’s imminent demise.

Some of the reports and predictions have seemed more credible than others and certain developments – the 2007 Bain Capital buyout, debt rating downgrades a few years later, Ares’ ascension, 2015 layoffs – seemed to bear out bad (or good, depending on your take) news for the company.

Throughout it all, though, GC has continued to open more storefronts – often at a pretty impressive clip – and they remain very much open for business and unquestionably the largest MI retail operation in the country.

Given the organization’s endurance throughout all the many “warning signs” and cries of doom and gloom – as well as, it should be noted, their reps’ frequent candor and willingness to speak with this magazine and offer often compelling explanations and counterpoints to the predictions of looming disaster – it’s become almost second nature to respond to the latest reports of “Guitar Center is Facing Bankruptcy!!!” with an eye-roll and shrug. But it’s becoming difficult to shrug off recent developments as just “more of the same.”

As reported here (and pretty much everywhere), late last year, S&P reduced GC’s corporate credit rating further into junk status (CCC-) as did Moody’s (Caa1), believing that the retailer won’t be able to improve its credit due to weak cash flow and high leverage. With in excess of $600M in notes maturing in April of 2019 and more than $1 billion, total, in outstanding loans, it’s hard not to believe that there is, indeed, cause for concern.

Concurrent to all of this is, of course, the situation over at Gibson – a company struggling with more than $500M in debt coming due this summer, the after-effects of an unsuccessful re-shaping from MI supplier to “lifestyle brand,” and ongoing and increasing lack of confidence in corporate leadership. Gibson is another organization that many have been predicting would hit rock-bottom for years, but – like Guitar Center – has persevered.

While some within our industry and outside of it refuted last summer’s Washington Post article describing “The Slow, Secret Death of the Six-String Electric [Guitar],” believing the true situation to be just market-correction or a phase, if either GC or Gibson do wind up tanking (or downsizing, or being sold, or drastically restructured), it would have to be ascribed – at least in part – to that very “death.”

Both businesses were built on guitar sales and, as younger players – who historically have driven guitar culture and sales – continue to move towards hip-hop, EDM, and other less guitar-driven music, those sales have been down drastically in the last decade-plus.

Or, as one retailer who participated in MMR’s survey this month on electric guitars (hollow bodies), puts it: “Less and less people [have been] interested for over 10 years now.” GC isn’t closing any stores, so far. In fact, it recently announced a revamped Bloomington, Minnesota store and a brand-new Delray Beach, Florida location.

But increasingly, for Guitar Center (and Gibson) it seems like – sooner than later – something’s gotta give.