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The Pink Zebra of Wall Street
April 4, 2014 6:29 PM   Subscribe

Guitar Center, America's largest music equipment retailer, is facing some tough financial times. This in itself is not necessarily news. What's intriguing is that Guitar Center, which was previously owned by Bain Capitol -- yes, that Bain Capital -- was recently acquired by its major creditor, private equity firm Ares Management. At least one analyst is speculating that Ares Management may see more upside in peddling Guitar Center's junk bond rated debts to other suckers than in revitalizing it to sell more guitars and amps, a strategy that harkens back to the recent sub prime mortgage market implosion.

From the last link:
Complexity: the financial structure of this operation seems absurdly complex given their business of selling guitar amps. To truly understand the structure of the Guitar Center business, I have had to consult professionals with a much deeper expertise – CEOs, CFOs, people with masters degrees in finance. Almost every one has looked at various details of the company and said, “That’s a pink zebra right there,” or, “Wow, I’ve maybe heard of that kind of thing one other time.” To understand some of their SEC filings, I had to drag up papers from the finance department of the Wharton School of Business. When you look up the corporate structure from which Bain Capital invested in Guitar Center, you find it (as of 2009) located as 3.34% of a billion-dollar investment corporation based offshore in the Cayman Islands, wedged into a financial partnership structure with a dozen other corporations.

In my experience, complexity of this sort is meant to keep casual analysts, regulators and journalists guessing – not unlike what we saw with the mortgage market eight years ago. And just so I had a good active comparator, I pulled the annual report for ExxonMobil, a company with a $290 billion market cap. Compared to [Guitar Center], its filings are a relative oasis of simplicity and clarity, with the whole business laid out and finances making basic sense without enormous leaps of logic. Then again, it’s easier when you’re profitable.
(Via)
posted by mosk (64 comments total) 13 users marked this as a favorite

 
This guy sounds like a charlatan, the sort that spends his time thinking about how to brand himself.

I'm a little irked by the promise of complexity: he claims GC has a complicated structure but doesn't explain why or what. I like that stuff, so I feel a little cheated. On a quick scan.....it just looks like common stock. Not so complicated.
posted by jpe at 6:47 PM on April 4 [3 favorites]


Guitar Center is terrible in pretty much all the same ways that all big-box stores are terrible. No more, no less.

What's going to do them in, I think, is that they're operating in a retail segment where expertise is particularly valuable to many of their customers in a way that it typically isn't when you go to Target to buy socks and toilet paper.
posted by rollbiz at 6:51 PM on April 4 [7 favorites]


Re: Cayman Islands: that's so pensions can avoid tax (UBIT!). Sorta vanilla as far as investment funds go. His claim that only a handful of mad scientists can understand it is preposterous.
posted by jpe at 6:55 PM on April 4


> they're operating in a retail segment where expertise is particularly valuable to many of their customers in a way that it typically isn't when you go to Target

I dunno. I've seen more music shops close when a Guitar Center rolls into town than I've seen Guitar Centers unable to compete with quality music shops.

Keeping in mind, I guess, that quality music shops are pretty rare to begin with.
posted by ardgedee at 6:56 PM on April 4


My employee number was 1873. They had like 30 some stores then.
posted by timsteil at 7:01 PM on April 4


My employee number was 1873.

Are the sales folks commision-based, Tim? They seem pretty motivated to get you set "up with that axe, today!"
posted by valkane at 7:04 PM on April 4 [1 favorite]


You go to Guitar Center for one reason: hoping they have erroneously priced used gear way under value.

That's not snark. That's literally the only reason anyone I know goes.
posted by Benjy at 7:04 PM on April 4 [15 favorites]


This financial Voodoo is so simple even a Child could get it; I expect a (Slight Return) for the investors, followed by an Eruption of activity. It's a Classical move, quite a Gas -- although it would seem the business is built like Frankenstein. They probably have some other good business coming down the Pipeline, though.
posted by RobotVoodooPower at 7:05 PM on April 4 [15 favorites]


Actually, you might also go if you are in a strange town on business and you miss playing.
posted by allthinky at 7:05 PM on April 4 [2 favorites]


If you were looking to buy a new guitar, where would you go? Buying online doesn't feel right for a product you want to see, touch and hear before buying.
posted by peeedro at 7:12 PM on April 4


Me and my buddies Mick, Sixx, and Tom go there on our lunch break to nab a couple sweet $4k 'Pauls from time to time.

I mean, yeah most manufacturers can make an instrument that's playable for a hunnert fifty but very few people can make them for three or four thousand.

I dunno nothin bout loosely incorporating holding companies offshore, but I do know this: Never go into instrument retail. It's brutal stuff.
posted by petebest at 7:16 PM on April 4 [2 favorites]


You go to Guitar Center for one reason: hoping they have erroneously priced used gear way under value.

That's not snark. That's literally the only reason anyone I know goes.


I went to one because the Maschine MK2 I ordered through a "fulfilled by Amazon" store was actually a MK1 in a MK2 box and I had to return it.

(I'd actually attempted to go there to demo one before that, but there were no visible employees able to help me deal with the messed-up Mac their demo model was connected to.)
posted by Foosnark at 7:21 PM on April 4


peeedro: "If you were looking to buy a new guitar, where would you go? Buying online doesn't feel right for a product you want to see, touch and hear before buying."

No doubt. Especially with an instrument. It's a lot like clothes. You can buy online, but the same size in different brands just don't always fit the same... The feel of the same brands of guitars might just be different or the tone or something might be "off" and so ordering online is a pain in the butt if you have to return it for whatever reason (true for anything, but with something as important as sound where it's not just whether it works or not, it seems especially important to be able to have that ability to test before buying).

Electronic instruments I don't fret about as much, though, since they're pretty standardized/factory made in ways that non-electronic gear isn't.
posted by symbioid at 7:23 PM on April 4 [1 favorite]


So. I went to a Radio Shack today. I didn't want to, it just sorta happened. Vintage headphones needed a doodad, whatevs.

Oh holy fuck. They got Adurinos (plural, plus lots of shields) and Raspberry Pi, in stock... what else?

Can I be old a moment? Can I remember when Blue smiled, snarled and eviscerated the microphone market? At my local Rat Shack I can buy two varieties of Blue mic, and a wireless, aluminum Mac keyboard which beats Apple's all to hell.

When the shit did this happen?

Anything else? USB guitar hookups and keyboards, of course.

OK, here is the deal. You will be paying a twenty dollar premium on buying that goddamn Yeti mic naow... or wait a week for Amazon to slow boat it to you, or second-day-it to you if you pay the Prime tax.

How in god's name did Radio Shack become a serious player? I wanna shake that exec's hand. I dont even got to give them my phone number now...
posted by Slap*Happy at 7:27 PM on April 4 [12 favorites]


That's not snark. That's literally the only reason anyone I know goes.

Eh. I went in there to get my guitar because it was my first time and I didn't really know any better, and it seems like guys that are just goofing around and not playing in front of people might do the same. Guys I know that play in bands that gig regularly generally get stuff directly from manufacturers or something. I'd bet a large part of their market is parents getting stuff for their kids.

If you were looking to buy a new guitar, where would you go? Buying online doesn't feel right for a product you want to see, touch and hear before buying.

Yeah, that's the thing. I know a small guitar store and a small music store, but they don't sell any of the big name electric guitars. Of course, even if you go to GC to get an electric, the amp you play the guitar on in store isn't necessarily going to be your amp from home (you may be able to find one like it, though), so even playing it there isn't going to give the greatest idea of its sound. You can test for playability though. When I used to get GC catalogs in the mail, the one thing that always seemed really odd to me was how many "special edition" and "artist signature" guitars they had - more for folks that just collect guitars than play them or something? If you play in a band, are you really going to show up to a show with a CC DeVille signature guitar?
posted by LionIndex at 7:28 PM on April 4 [1 favorite]


(Also vintage headphone doodad was in stock.)
posted by Slap*Happy at 7:28 PM on April 4


I dunno. I've seen more music shops close when a Guitar Center rolls into town than I've seen Guitar Centers unable to compete with quality music shops.

Well sure, this is always what happens with the Big Box rolls into town, especially when said Big Box is fond of buying competing businesses. Over the arc of time, though, it's pretty clear to me that it's not working out so well for GC, and I think my original comment covers the main reason why...
posted by rollbiz at 7:34 PM on April 4


(Not sure if I should comment on Guitar Center, or just kick out some tasty Zep riffs while I toss my hair. Y'all're seeing me right? OH YEAH.)
posted by DirtyOldTown at 7:39 PM on April 4 [5 favorites]


If you were looking to buy a new guitar, where would you go?

In Houston, TX,check out Rockin Robin on North Shepherd; it's where I got my electric bass and amp
posted by Renoroc at 7:45 PM on April 4 [3 favorites]


There's no reason to go there ever, unless you're a beginner who wants a Costco guitar rig that's marketed to make you chick-magnet rawker, and they're willing to sell you one at every price point. I feel awful thinking about the crap I've bought there when I was much younger, and it was only like cords and straps and cheap mics. I miss the days of driving 2 hours to a place because you heard they had a sweet old Explorer for $600 bucks. That's all been replaced by Craigs List now. In Seattle, we have embarrassment of riches, both with used and new shops, I honestly don't know how Guitar Center here stays in business, except for the existence of lazy customers. It's a terrible business model, lazy customers can get a way better deal on line, and be just as informed buying blind as they are strumming a Mexican strat with a Guitar Center Bro standing over their shoulder.

Sorry I just hate that place, it's everything that's wrong with pop music and it's not surprising that they're also everything that's wrong in finance.
posted by Slarty Bartfast at 7:58 PM on April 4


DirtyOldTown: "Not sure if I should comment on Guitar Center, or just kick out some tasty Zep riffs while I toss my hair. "

NO Stairway to Heaven.

posted by Chrysostom at 7:58 PM on April 4 [5 favorites]


Actually, you might also go if you are in a strange town on business and you miss playing.


Well it wasn't exactly a small town (Hong Kong) but I may or may not have spent an otherwise lonely Sunday afternoon jamming out at a Tom Lee Music in Causeway Bay. So yeah, I can get behind that idea.
posted by Doleful Creature at 8:01 PM on April 4 [3 favorites]


Re: Cayman Islands: that's so pensions can avoid tax (UBIT!). Sorta vanilla as far as investment funds go. His claim that only a handful of mad scientists can understand it is preposterous.--jpe

Well maybe among financial people it is simple, but I certainly don't know about investments that involve the Cayman Islands. I'm guessing your typical non-expert investor is in the same situation. 'UBIT' doesn't clarify anything, even after I read the Wikipedia entry for it. I'm surprised to read about such things when talking about a guitar store.

Maybe I'm just naive. ls this just another way that your typical American taxpayer and investor gets ripped off?
posted by eye of newt at 8:25 PM on April 4


I'd bet a large part of their market is parents getting stuff for their kids.

Perhaps, but it's my observation that a large and increasing proportion of rock-oriented gear -- guitars, amps, drums, electronic keyboards, PAs -- is being sold these days to members of church bands. Go on any forum, be it Harmony Central or brand-hosted ones (Roland, Fender, Gibson, G&L, Bose, Carvin, you name it) and it seems like half the posters are in church bands.

My guess is that's who's buying at Guitar Center.

I have no idea what people are playing on Les Pauls, Vox AC-30s, P-Basses, 7-piece DW kits, and the like in churches, but that's how the people are talking.
 
posted by Herodios at 8:33 PM on April 4 [9 favorites]


I'm guessing your typical non-expert investor is in the same situation.

Sure, but for those in tax, investments, etc., it's not the crazy, zany thing the author makes it out to be. You don't have to track down "CEOs, CFOs, people with masters degrees in finance."
posted by jpe at 8:50 PM on April 4 [1 favorite]


I never found Guitar Center all that terrible. Certainly better an lots of mom and pop shops that often sold crap for high prices. Better than at least half the boutique shops that were even more prone to be staffed by assholes, prima donnas, and whack jobs. It's one of the best places to go not only to test lots of name brand gear side by side, but to get decent prices, too. I never thought of it as a great place for used gear, seemed to be a sideline at the GC stores I've been to.

Still, it's a business aimed at getting stuff out the door, so I make allowances for that. Few other brick and mortar places really meet the demand so consistently. Or maybe not, if the really that far gone. In any event, the demise of the (biggest) big box music store isn't something I'd find a good thing, overall, unless something similar were to fill its shoes.
posted by 2N2222 at 8:54 PM on April 4


Buy this junk bond or this Les Paul gets it!
posted by Nanukthedog at 9:09 PM on April 4


I bought a Martin D-12-20 at the Guitar Center on Sunset Strip in 1971. I have no idea whether there were other Guitar Centers then, but there sure as hell weren't many. I will buy strings at my local one, if it is convenient, but nothing else. I have no investment in their continuing.
posted by Danf at 9:11 PM on April 4


You go to Guitar Center for one reason: hoping they have erroneously priced used gear way under value.

For reals, just picked up a barely-used Epiphone Les Paul Standard (retail $450) for $200 there. I imagine if you can do that with something even pricier, that's a pretty good spread.
posted by JauntyFedora at 9:12 PM on April 4


I hear they're having a sale this weekend. Anyone else hear that?
posted by stargell at 9:18 PM on April 4 [7 favorites]


The big-box effect is twofold. Yes, it puts some mom-&-pop stores out of business. But it also forces those smaller stores to elevate their game. For every local music store with "expert" employees, there are another three that deserve to lose business to Guitar Center because the selection is better, the prices are better (not just lower; actually better), and yes, the employees are more knowledgeable.

If your local music store is awesome...? Congrats. They aren't all. And I don't believe mom-&-pop stores deserve to survive solely by virtue of Mom and Pop. No, of course Guitar Center isn't going to push the ceiling of the business. You'll graduate beyond it if you're serious about music. But having Guitar Center as a big-box presence does elevate and enforce the minimum standard, and that's valuable.

Returning to the FPP, it seems to me a simple failure and one that's indeed reminiscent of the mortgage crisis: so-called "businesspeople" meddling in businesses they don't understand, because they smelled a buck to be made. That's nothing new. Anybody who's spent a year or more as a working musician has seen this happen to a label or a venue.
posted by cribcage at 9:36 PM on April 4 [4 favorites]


I'm not a guitarist but it sounds like the equivalent of what Cycle Gear is to motorcycle stuff: it's where you go if you don't know any better. A grimly cheapskate franchise with nothing going for it but its national presence. Staffed by whoever they can get for a pittance and stocked with a selection limited to the brands they could negotiate the most cheaply on a national scale.
posted by George_Spiggott at 10:17 PM on April 4


In Houston, TX,check out Rockin Robin on North Shepherd; it's where I got my electric bass and amp

My first thought on reading the question was "home to Houston to look at Rockin' Robin" or "ask the musicians my husband knows from work who should have a similar source here in Austin".

a large and increasing proportion of rock-oriented gear -- guitars, amps, drums, electronic keyboards, PAs -- is being sold these days to members of church bands

My ex, whom I lived with in the late 80s and through the mid 90s, was in a church band the summer before he went off to college in 1981. He had the "portable" keyboard (two giant trunks) and used to tell hilarious stories about each church potluck food on the road with this band. So apparently the church rock band is not an entirely new thing.
posted by immlass at 10:28 PM on April 4


We had a little chat about this over in MeFi Music Talk back in December when flapjax at midnite posted a link to Eric Garland's first post about GC's financial troubles.
posted by soundguy99 at 10:32 PM on April 4


So Guitar Center is in the hole? Usually it's the other way around.
posted by George_Spiggott at 10:49 PM on April 4 [12 favorites]


I went to Guitar Center a few weeks ago to pick up some strings. Nothing more. I wasn't interested in browsing around. I didn't need anything else. Just strings. So I walk in and head towards the counter with the strings, but there's no one there. I look around and there's just one dude hanging out by the exit that seems to work there. After I manage to get his attention, I get told "cashier'll be back in a minute". So I wait and no one comes. I go back to door guy but he can't help me cause he's gotta watch the door. So I wait again. And finally someone comes out from the back and after first heading the other direction I catch his attention and he comes to the counter. "I just need some strings" pointing behind him.

"OK, do you need anything else?" "No, just that."

"We've got a special right now on..." "No thanks. Just the strings."

"Do you wanna sign up for our string program? You pay a small fee for discounts on strings each month" "No, just need these."

Guy spends a minute or two ringing up the pack of strings I wanted.

"Can I get your phone number?" "No, I'd rather not. I just need the strings."

Guy spends another couple minutes trying to figure out what to do if I don't give him a phone number.

"OK, it'll be $X." And I pay him, get the strings and start to head out. I'm opening the door when door guy stops me and says "Hold on, I need to check your receipt."

Same door guy I talked to before. Same door guy that was 20 feet away during the whole transaction.

"OK, looks good. See ya again." And he goes back into whatever he was doing on his phone.

It's like the Radio Shack of music stores. They're in business because you need one thing sometimes, but no one likes going there.
posted by fishmasta at 10:59 PM on April 4 [19 favorites]


The big-box effect is twofold. Yes, it puts some mom-&-pop stores out of business. But it also forces those smaller stores to elevate their game. For every local music store with "expert" employees, there are another three that deserve to lose business to Guitar Center because the selection is better, the prices are better (not just lower; actually better), and yes, the employees are more knowledgeable.

I was in the music instrument business some years ago, working for two of the largest and best known manufacturer/distributor companies. Guitar Center was always the big enchilada because GC knew that it had location leverage.

Dealing with Guitar Center always felt a little like dealing with the mob. From the way that GC executive prim themselves on the floor at the NAMM (National Assn. of Music Manufacturers) show, to the often car-dealer-like store managers who only know how to count "how many pieces do we have to move".

Independent music retail was severely wounded by GC, and the Internet has almost killed it off. Add to that the greedy (and often poorly managed, just-plain-dumb-and-clueless) music manufacturers (even the big ones) not being able to innovate in sustainable ways, or off-shoring production to the degree that they essentially end up training their offshore manufacturers to compete against them. Seriously, most music instrument manufacturers - the ones in GC stores - are clueless. The Japanese companies have a strong not-invented-here ethic that keeps them small time. American companies are so poorly managed that it's not even funny. Most of the latter were started by very serious instrument builders who didn't know how to scale a company. It's a goofy sector.

GC's competitive pricing works like this: the GC buyer tells the manufacturer that said manufacturer is going to deliver a guitar, synthesizer, drum set at X% off normal wholesale net, so that GC's "sale" markup is about what the smaller independent's normal wholesale net is. SO, If you are a small independent dealer your only chance for survival is to establish a strong music rental business, or a strong private lesson business, because you are not going to service by competing on price with GC, or the Internet.

Also, GC will want first dibs on manufacturer closeouts. As a result, the little guy will get maybe 1-2 units, while the local GC store has 50-100. And so it goes.

GC had so many administrative inefficiencies that I'm not surprised that Bain bought them. That was a death knell because whenever private equity buys a company out, you know that the odds are that the company is not going to get stronger, or grow. Private equity's game is looking for companies with large margins that are poorly managed; squeezing out inefficiencies; making the books look good; living off the good will the brand has built; and finally, trying to sell the pig's ear as a silk purse. Sometimes it works, but usually it doesn't because you can't trim the guts out of company and at the same time make the company take on debt.

GC was always about moving boxes; management was not passionate about music. Maybe the local GC workers were/are, but the company culture is about moving boxes. Employees were always treated as expendable. Sure, there are/were exceptions, but moving boxes was the goal.

Frankly, I don't see a future for GC. I think there IS a future for medium-sized music stores with wily management to sustain themselves. These are the stores that have strong used instrument sales; teaching; instrument rental programs; contests, etc. Some of these stores have been around for quite a while, and they encourage longer-term employment. Their employers don't get rich, but they can make a decent middle class income if they are steady and work hard. Many of those guys supplement by playing out, or teaching.

Sweetwater, zzounds, Sam Ash, Musician's Friend, etc. are another factor in the GC death knell.

btw, anyone who buys GC paper from Ares Management is a sucker.
posted by Vibrissae at 11:39 PM on April 4 [21 favorites]


I bought a piece of DJ software at GC that retails for $399 for $10. No one had much of an explanation for why this was the case, but it's not the first time I've bought something from them for some small fraction of the Amazon price.

Thing is, the music stores and pro audio stores from when I was younger were awful. GC isn't amazing but I can demo and buy proper gear on the spot. The old shops carried crap brands no one ever heard of for obscene prices.
posted by 1adam12 at 12:22 AM on April 5 [1 favorite]


By the way, GC bought Musician's Friend 14 years ago. It's surprising how many people don't know that.
posted by xil at 12:26 AM on April 5 [5 favorites]


I have no real love for Guitar Center, but the demise of other full-line music stores in my town has left few options for some types of gear.

Besides GC, we still have three or four respectable guitar/amp boutiques, a couple of violin shops, one drum shop (the other, bigger and better one went out of business), one saxophone shop, and various mom-and-pops that are oriented toward school band programs or, if not, only carry a limited number of products - some guitars, some amps, maybe one brand each of drums, pro-level keyboard, audio and recording stuff.

For keyboardists (my main instrument) and audio and recording gear, there really aren't any good local alternatives to GC if you want to see/touch/try a wider selection of gear before you buy, or for filling immediate needs for accessories like stands, pedals, power adapters, cables, seats, etc.

It's frustrating, especially since we used to have a couple of pro-audio places as well as a pretty good locally-owned, full-line store with a large inventory of many different manufacturer's products, a reasonably knowledgeable staff, very good service after the sale, and mostly-competitive pricing.

The latter store was bought by a firm that operated a small group of music stores in another state. They changed everything, all the old employees quit or were fired, and the place closed within a couple of years of the purchase. While this pretty much coincided with the rise of Internet commerce, it was really just good old-fashioned greed and bad management that did them in.

Random related thought on the importance of price: For expensive and/or important pieces of gear, I'd always been willing to spend a little more to buy locally rather than mail order, under the premise that local service and support after the sale was worth the difference. Now, it seems there's just no one willing to offer that in exchange for my money, which kind of bums me out.
posted by Nat "King" Cole Porter Wagoner at 12:45 AM on April 5 [1 favorite]


You go to Guitar Center for one reason: hoping they have erroneously priced used gear way under value.

or hard to find used gear for a reasonable price

i can't hate on them, they're just about the only game in town now, although other cities have other music stores

you can make a fair argument that they might not be the best place to buy guitars, basses and drums, but a lot of the music shops in the region hardly deal with keyboards, unless they're pianos and organs

i've noticed in the past 6 months that there's a lot less used gear listed then there used to be - i think people have decided to sell their stuff online instead
posted by pyramid termite at 2:21 AM on April 5


This guy has absolutely no idea what he is talking about. Guitar Center did an out of court restructuring and not a particularly unusual one if his details are even close to correct.
posted by JPD at 4:11 AM on April 5 [1 favorite]


I don't think the point here is that guitar centre is more complicated than any other PE restructuring, but that all of them are so completely alien to the way most people think the economy ought to be allowed to operate.
posted by Pre-Taped Call In Show at 4:55 AM on April 5 [1 favorite]


I have no idea what people are playing on Les Pauls, Vox AC-30s, P-Basses, 7-piece DW kits, and the like in churches, but that's how the people are talking.

Have you been to any relatively large church in the past couple of decades? The services are absolute productions. At my wife's church, the band takes up about 1/4 of the available stage. They have the drum kit miked and in an isolation booth, fer chrissakes. It looks like a late-night network talk show house band up there. And this is for a fairly mainstream church with a largely middle-aged congregation. Lord knows what kind of gear those youth-oriented "community" churches have.
posted by Thorzdad at 5:56 AM on April 5 [3 favorites]


As for what they're playing...Listen to your local K-Love affiliate, and you'll get an idea.
posted by Thorzdad at 6:10 AM on April 5


I don't think the point here is that guitar centre is more complicated than any other PE restructuring, but that all of them are so completely alien to the way most people think the economy ought to be allowed to operate.

? What do you think happened here that is different from how "The economy ought to be allowed to operate"

The story here is that some schmuck paid too much for a business. Its not particularly relevant that it was a PE firm rather than someones cousin.

You ever take one of the credit card low interest balance transfer offers? That in a nutshell is what Ares did. Actually Ares did something more conservative than that.

You have any friends who mailed in their keys to their mortgage bank? That in a nutshell is what Bain did to Ares.

The Caymans thing - is as JPE points out because for non-taxable entities like university endowments and foundations its easier to invest via an offshore entity. If they invest on-shore they end up having to pay taxes that they are actually exempt from.
posted by JPD at 6:23 AM on April 5 [2 favorites]


Well maybe among financial people it is simple, but I certainly don't know about investments that involve the Cayman Islands. I'm guessing your typical non-expert investor is in the same situation. 'UBIT' doesn't clarify anything, even after I read the Wikipedia entry for it. I'm surprised to read about such things when talking about a guitar store.

Sure - easy to explain. A large proportion of the investors in a brand name private equity fund are going to be entities like pension plans and endowments - entities that do not pay tax on their investment income.

UBIT exists so that I don't (to crib wikis example) open up a pizza place, donate the shares in that pizza place to "The JPD Charitable Foundation" and then not pay any taxes on the income my pizza place generates while my foundation pays me to be a board member. The IRS is also smart enough that they look through other sorts of ownership structures to make sure I'm not pulling the same kind of scam. This is great.

The problem for an endowment is that lets say I decide to invest in Private Equity. If the fund I'm invested in is domiciled onshore every business that I buy is unrelated to what I do - so I have to pay UBTI - despite the fact that really all I'm doing is exactly what the IRS says I am exempt from paying taxes on. Essentially in order for the law to not have loopholes it has to be written in a way that violates the spirit of the law, so the agreed upon compromise is that I can invest via an offshore investment fund.
posted by JPD at 6:44 AM on April 5 [2 favorites]


I think part of Garland's point is that this sort of financial restructuring is not something most people would associate with such a small and obscure industry as music instrument retail.
posted by soundguy99 at 6:45 AM on April 5 [1 favorite]


it's where you go if you don't know any better.

Or if you don't want to/can't wait for shipping, and you're looking for something specific, and there are no other music stores locally that carry it (because there are damned few other local music stores at all).

Even so, I was surprised to learn that the local Guitar Center had exactly zero fretless basses. I wound up buying a cheap one online, based on reviews, without ever having touched a fretless bass before. (It's actually pretty decent.)
posted by Foosnark at 7:07 AM on April 5


Guitar Center is terrible in pretty much all the same ways that all big-box stores are terrible. No more, no less.

Referred to as Guitarget around here. Austin just lost one of its best music stores, though fortunately, there's still a few good strong local ones. The problem with Guitar Center I've found is mostly the under-trained & visibly bored staff. They will gladly sell you the totally wrong thing (or argue with you that it's not the wrong thing if it means going ten steps out of their way to find the right thing) to get you out of their miserable lives. This last line of recourse is used only when they've not been successful at pointedly ignoring you as you stand at the counter for 10 minutes.

Music is an art, and it's a soul-crushing experience to have to go in that place in order to buy art supplies. I hope their demise is swift enough that they don't drive too many more local shops out of business first.
posted by Devils Rancher at 7:14 AM on April 5 [1 favorite]


I think part of Garland's point is that this sort of financial restructuring is not something most people would associate with such a small and obscure industry as music instrument retail.

They probably don't associate depreciation schedules with it, either. That's because most people don't know or care about the business side of things. I don't think about FUTA withholding or whether their bank loan is qualified debt for at-risk tax rules when I go to the corner deli, but someone in the back of a store has to.
posted by jpe at 7:31 AM on April 5 [2 favorites]


Independent music retail was severely wounded by GC, and the Internet has almost killed it off.

The latter was going to happen anyway. Remember how everybody used to hate on Barnes & Noble and Borders? Nobody points that finger anymore. In retrospect, all the small bookstores weren't "killed off" by those two big-box giants; they were euthanized maybe ten years before they'd have died anyway.

GC's competitive pricing works like this...

That's not just how Guitar Center works, though. That's how big box works.

Music is an art, and it's a soul-crushing experience to have to go in that place in order to buy art supplies. I hope their demise is swift enough that they don't drive too many more local shops out of business first.

This romanticization is what I object to. Have you really spent a lot of time checking out local music stores? So many of them suck. They are not oases of friendly experts eager to match you with the perfect gear to stoke your inner spark. All the complaints in this thread about GC employees? Laziness, ignorance, inflexibility, general incompetence. I've seen all these same things in mom-&-pop stores. A lot.

We could have the same conversation about photography, by the way. Calumet just shuttered. Ritz closed before them. The plebes buy from Best Buy and Walmart, and photographers shop at Amazon, B&H, and Adorama. There are still a very few local camera stores around, but I've mostly given up on them. I have a gift certificate to one, and I emailed them on Monday to ask if they had a few things in stock. Today is Saturday and I haven't gotten an answer. (The last time, it only took them four days to answer an email.)
posted by cribcage at 8:45 AM on April 5 [5 favorites]


The husband goes there for strings, occasional cables, and mic stands, mostly because he never realizes he's out/some are missing till two hours before a gig. He also has gotten a few guitars from a friend who works there, who is a talented rebuilder. The friend waits until GC throws out "unfixable" guitars, rescues them, fixes them, and gives them to friends or sometimes disadvantaged kids trying to learn. He also grabs any good used stuff that comes in and lets his musician friends know when they've passed the "is this stolen" check, they never make it to the floor but get sold to his buddies. Husband got a sweet steel-resonator guitar that way.

Which isn't fair to your average walk-in customer, but then they pay their staff pretty shit wages, so the motivation to toe the company line is low.
posted by emjaybee at 10:05 AM on April 5 [1 favorite]


Perfect example. Does anybody think that same stuff doesn't happen at neighborhood stores? It does. Blaming GC's wages is irrelevant.
posted by cribcage at 10:18 AM on April 5


The big-box effect is twofold. Yes, it puts some mom-&-pop stores out of business. But it also forces those smaller stores to elevate their game.

This romanticization is what I object to. Have you really spent a lot of time checking out local music stores? So many of them suck.

This was big debate in bike shops 15 years ago when mail order was crushing local shops. There was a lot of "support your local shop" which I really sympathized with, except I didn’t like my local shops.

It’s really a different argument depending on the quality you were used to. I grew up in a place with great bike, book, and music shops. Some of them are still around, most aren’t. What’s missing is the competition and variety. At that time, in my medium sized town, there were 4 or 5 good book, bike, and music shops to choose from.

If you grew up with poor local shops then big boxes were a great thing. I remember being surprised not too long ago at my dad telling me how excited and grateful they were when Walmart moved in to their rural area. They felt they weren’t at the mercy of local stores, or have to mail order everything anymore. He is still sympathetic to Walmart.
posted by bongo_x at 10:20 AM on April 5


Is there an actual business term "Pink Zebra?" Or is that just used as a hyperbolic example of buzzword tossing to sound smart?
posted by cyberscythe at 10:37 AM on April 5


Yeah, a lot of Mom & Pop music stores are pretty sucky and will set kids up who don't know any better with a Peavey Four Pound Electric Single Pickup Bass with the plastic-reinforced neck and a Peavey No-Tone .5 Watt Bass Amp to go with it for $250. GC can stomp those places out of existence, as far as I care.
posted by Cookiebastard at 3:07 PM on April 5


Haha, Guitar Center was my first job out of high school (I worked in keyboards.) I discovered 2 things:

1) Guitar Center fucking blows
2) Commissioned sales fucking BLOWS (I could not bring myself to lie to another musician about what piece of gear was right for them, and the right piece of gear was almost NEVER the one with a big profit margin, so I ended up never hitting the threshold for commission payouts, and I quit after 3 months of making minimum wage)

That said, I just went there today because where the hell else (other than the internet) am I going to buy rackmount rails, TRS-to-XLR cables, a replacement iLok, guitar wall hooks, a DI box, and a rainbow-colored guitar strap at the same time?

I totally wanted to punch the sales guy in the dick, though. My phone number in their system is now 818-277-6887 (818-ASS-NUTS)
posted by jake at 4:40 AM on April 6 [2 favorites]


Have you really spent a lot of time checking out local music stores? So many of them suck.

Oh, maybe one or two. I'm 51 and have been playing professionally or semi-professionally since I was 17. Guitar center, & before them Mars music, was a measurably horrid experience compared to all the local shops is Austin, yes. I got great service at Music Makers, Strait Music went out on a limb and gave me a 6-month revolving account when I was a nomadic 20-year-old, Austin Vintage Guitars RULES, as does their repair department -- they did an absolutely beautiful job of re-capping my D-180 -- The Bass Emporium guys knew me by name, until they went under, and I still see the owner around town & he always stops to effusively shake my hand. I miss them in particular because I have fussy, and different string requirements for 5 different basses, and they special ordered all those for me. South Austin Music employs several friends and they pretty much swarm me when I come through the door, I won't name the shop that had the bootleg Fender decals when I replaced the neck on my '66 Jazz (with a Fender neck, but Fender won't brand it for fear you're putting it on a non-Fender body)-- I could go on, but I'm a little pissed at being condescended to, so I'll quit now before I get rude.
posted by Devils Rancher at 8:25 AM on April 6


Things could get interesting, though, if GC does wind up going down the tubes. "Big box" and internet music instrument retail grew virtually simultaneously, and having TWO rapidly expanding methods for getting products to the customers had (IMO) a real effect on how the manufacturers approached their side of the business. But of the big box retailers, Mars is gone, Sam Ash has (by my quick count) 45 stores in sixteen states, leaving Guitar Center the 800-pound gorilla, with something like 200 stores in 44 states.

So if one of the major U.S. wholesale purchasers of music instruments & related stuff goes away, how will that affect manufacturers? What kind of changes will they have to make?
posted by soundguy99 at 8:55 AM on April 6


Die, Guitar Center, die!
posted by agregoli at 6:33 AM on April 7


I hear they're having a sale this weekend. Anyone else hear that?

Oh, I hope they have that Zakk Wylde signature LP in stock!
posted by malocchio at 11:50 AM on April 7


My biggest concern is that Guitar Center going down could take Fender with it.
posted by drezdn at 7:17 AM on April 8


Hmmmm.

I wasn't thinking so much that GC going down would tank the majors, like Fender, although of course I have no real idea what kind of shape Fender's finances are in. More that it would affect the number and variety of models they offer, including their budget lines. Like, with no GC, does that mean they drop the Squier line down to a couple of basic Strats & Teles, while keeping U.S./Mexican -made instruments at pretty much the same level? Or vice versa, where they keep the Squier line as is (or even expand), while the instruments made on this continent become rarer & more expensive?

I could see some smaller manufacturers being in real trouble. And what about the "revived" brands/models, like Danelectro and Framus? Are they only profitable because of the ability to easily reach the large U.S. market?

I'm just speculating, of course, but it's interesting to think about.
posted by soundguy99 at 10:58 AM on April 9


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