What AutoZone is to the garage, Guitar Center is to the garage band. The #1 US retailer of guitars, amps, keyboards, percussion, and pro-audio equipment operates about 225 stores in more than 40 states. Major brands include Fender, Gibson, and Martin, as well as Ampeg, Crate, and Vox. Stores also offer used and vintage instruments, computer hardware and software, and musician services (such as CD duplication and digital distribution). In addition to Guitar Center, the firm runs about 100 Music & Arts Center stores that sell and rent band and orchestral instruments. Its Musician's Friend and Music 123 units sell merchandise online and by catalog. Guitar Center is owned by the private equity firm Bain Capital.
Guitar Center was taken private by an affiliate of Bain Capital Partners in fall 2007 for about $2.1 billion. Bain's previous investments include retailers such as Toys "R" Us, Michaels Stores, and Burlington Coat Factory. The private equity firm has a strong record of sprucing up retail chains for sale at a profit. (However, the deep recession in the US intervened and Bain, citing a "deteriorating economy," wrote down the value of its investment in Guitar Center to about $280 million in late 2008.) As a result of being taken private, Guitar Center carries a heavy debt load: about $1.56 billion at the end of 2011.
Guitar Center operates through three business segments: Guitar Center stores(more than 70% of 2011 sales); the direct response e-commerce and catalog business, which includes the brands Musician's Friends, Music123, and Woodwind & Brasswind (about 18% of sales); and Music & Arts, with 100-plus stores in 20 states (about 10% of sales). Music & Arts is a leading retailer of musical instruments, sheet music, and related products to students and beginners. It also employs education representatives who rent instruments to schools.
While all Guitar Center and Music & Arts retail stores are located in the US, the retailer does ship to more than 90 countries worldwide.
The company's net sales grew by more than 3% in 2011 vs. 2010, led by an increase of nearly 6% at its Guitar Center stores to top $1.5 billion. Sales at its smaller Music & Arts chain posted a more modest 1.6% increase, while the direct response business saw sales fall 4%. The Guitar Center segment's sales benefitted from the addition of 10 news stores and nearly a 4%increase in comparable store sales. The company blamed the decline in sales at its direct response business on the roll out of a new web platform at Musician's Friend and disruptions caused by the relocation of the direct business from Oregon to the firm's corporate headquarters in Southern California. Profitability at Guitar Center and Music & Arts increased, while the direct response business's profit dipped half a percent, due primarily to higher freight costs.
Historically fast-growing Guitar Center took a two-year hiatus (2008 to 2010) from opening new stores to focus on developing store management and the sales force. It resumed opening stores in 2011 (adding 10 locations) and now plans to open 10 to 20 new stores per year in 2012 and beyond. However, there are fewer unsaturated major markets for Guitar Center's largest and most profitable stores. As a result, many of the new stores will be smaller-format stores, which typically deliver lower operating margins, putting constraints on future profitability. To drive traffic to its stores, Guitar Center has added services, such as instrument repair and, to a lesser extent, lessons and rehearsal space. The chain is also working to better integrate and coordinate its in-store and online sales strategies.