Help!I'maRock!
Mediocringly Derivative
Why pay your vendors when you can renegotiate terms with them?
More Guitar Center news
- Thread starter Mark Wein
- Start date
Yes, but those renegotiated terms wouldn't leave you in default with them. That sounds like renegotiating and still reneging on the deal.
Maybe it's just me, but I do have to handle the revenue and expenses for a $1.3M per year facility that still clears $775K after ALL expenses are paid out, including all vendors, payroll, repairs, maintenance, advertising, etc., etc., etc.
Only time we ever told a vendor to go pound salt was this past October when a vendor claimed he never invoiced us for work he did in April of 2011, and that was an invoice for $1200 for 6 "flagpoles" that were really just 6 uneven length fence poles that he stuck in the dirt. Yeah, each one is a different length, on top of which each one is sunk to a different depth, and they're just steel tubing.
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Help!I'maRock!
Mediocringly Derivative
Different owners. The game starts over. Maybe if more companies pulled their product, like Behringer did, there would be a change.
And Mesa/Boogie.
Makes me wonder what's going to happen with TC since Behringer owns them now.
Can I say that all my TC stuff is Pre-B? LOL
Help!I'maRock!
Mediocringly Derivative
Yes you can!
Danhedonia
Noted duckfat enthusiast
"Basically, everything claimed in that article and a few others is nonsense according to this person."
Mmmm hmmm. This person is a) admitting to being a new patient in the terminal ward if they say otherwise; and b) doing what all good corporate employees do: mouth the party line. We had a CEO who gave a "never better!" conference call to investors when he came within 72 hours of not making a covenant payment in the nine figures. He was bailed out by a very, very cynical person who had been the in the news for financial malfeasance on a grand (nightly news) scale.
Which is not to say it's true or not - but GC's debt schedule was utterly insane and unsustainable.
Look, it doesn't MATTER if the stores are profitable or not if you are paying HUGE amounts of interest. You can make $250,000/year and still live way, way above your means. This is what those articles are about: perfectly decent businesses being ruined by leveraged-debt pirates.
"Why pay your vendors when you can renegotiate terms with them?" Because it lowers your debt rating (raising your interest rates) and makes it harder for you to negotiate with other vendors.
Mmmm hmmm. This person is a) admitting to being a new patient in the terminal ward if they say otherwise; and b) doing what all good corporate employees do: mouth the party line. We had a CEO who gave a "never better!" conference call to investors when he came within 72 hours of not making a covenant payment in the nine figures. He was bailed out by a very, very cynical person who had been the in the news for financial malfeasance on a grand (nightly news) scale.
Which is not to say it's true or not - but GC's debt schedule was utterly insane and unsustainable.
Look, it doesn't MATTER if the stores are profitable or not if you are paying HUGE amounts of interest. You can make $250,000/year and still live way, way above your means. This is what those articles are about: perfectly decent businesses being ruined by leveraged-debt pirates.
"Why pay your vendors when you can renegotiate terms with them?" Because it lowers your debt rating (raising your interest rates) and makes it harder for you to negotiate with other vendors.
Dersu Uzala
Habanero Chomper
Or it could be c) this person knows what they got into an d would not accept a job offer on a sinking ship.
We touched quite a few things, pretty much everything mentioned in those few articles. The debt, vendor relationships, ebitda. Anyhow, it is the old management who ran the company in the ground and this new guy is supposed to be an ace in salvaging businesses but he ain't no musician for sure which is the main knack on him. He's a cold blooded financial surgeon so to speak.
Of course, time will tell, could very well be a) or b). I trust this person immensely and this person obviously holds the boss in highest regards.
We touched quite a few things, pretty much everything mentioned in those few articles. The debt, vendor relationships, ebitda. Anyhow, it is the old management who ran the company in the ground and this new guy is supposed to be an ace in salvaging businesses but he ain't no musician for sure which is the main knack on him. He's a cold blooded financial surgeon so to speak.
Of course, time will tell, could very well be a) or b). I trust this person immensely and this person obviously holds the boss in highest regards.
angry tele
L'effet c'est moi
that place is a madhouse!
angry tele
L'effet c'est moi
bah ha robbies ripoff is still around? I bought my first guitar there a memphis flying V for $67
LOL Yeah. Old man Charlie threw a guitar at me once. I never really go in there, though, but there's always somebody in there.
Danhedonia
Noted duckfat enthusiast
I don't mean to be unkind, but no CEO is introduced as anything less than the second coming. And the managers brought in with them are, de facto, cheerleaders. With some shame I confess I have participated in this.
OTOH, we can have a look at Webb's history. He took Joann Fabrics private, then he stepped in for the guy who took Sports Authority private. Given the years he did this (2010-2012, roughly) that's nasty business. "Taking companies private" is the modern-day equivalent of looting the till.
Taking companies private means you are borrowing against the company's value (inventory, cash, future earnings, all of it) in order to own it. As it is far easier to do this with shareholders' cooperation, frequently the strategy targets companies having a hard time; shareholders are all too eager to sell. Doesn't this sound like the cavalry coming to the rescue? It should, except the folks who 'take it private' (and populate the board and name the executive team) are almost never liable for the possible failure of the company. They make their money on the transaction. If the company can't "turn around" (and here the #'s are staggering), they 'enter bankruptcy,' 'renegotiate their debt,' and walk away with a bunch of money.
If you do not think that's an accurate characterization, I urge you to spend 15-20 minutes on the internet to research this.
Here's how it works:
Let's say I buy your car dealership, for 34% more than we agree it's worth (which happens to be the premium Webb paid to presumably-pleased Joann shareholders). I do this with my buddies at Joe's Investment Bank, who loan me the money. But the security for the loan is not my house, or my money - it's the dealership itself. Wait, you might ask, how in the hell am I going to come up with the extra money I now owe Joe's Investment Bank? We've only been making X and now we are supposed to come up with X+34%.
Well, as the firebrand turnaround expert, I get out on that dealership floor and give a speech, which often goes something like this:
"Things have stagnated here. We promise you a bold, bright new future! And to meet that future, we need to recognize our best employees, and frankly move on from some relationships that aren't working any more. As CEO, we have the Second Coming; he will be talking with you in a few minutes. And later, your new EVP of Sales Larry will share details. But for now, aren't we all happy?!?!? Cue music, food, balloons.
Later, Larry shows a sales plan that requires salespeople to sell 50% more cars than they currently are. Those who do so will get a non-commensurate raise (typically about 30%). He also somberly alludes to 'adjusting headcount to get things right,' which has the immediate effect of silencing anyone who would have been dumb enough to complain. "Those of you who are exceptional," (and don't all of our egos tell us he's talking to me?) "will do even better. And if you are not able to keep pace, we will work with you to sharpen your skills."
While he says this, our Second Coming CEO is merrily lunching with the guys at Joe's Investment Bank. After all, they made their sale already, and are walking off with transaction fees. Well, you think, perhaps that's fair. After all, SC-CEO seems like he knows what he's doing, and isn't he really on the hook to make that loan payment and turn things around? Turns out, not really. First, he's getting paid like, well, like the Second Coming. Now. Today. (see: stories on executive compensation). And as the Second Coming, just a fat paycheck isn't enough. There will be convertible stock options, balloon payouts, personal loans, "perqs," and a bunch of other things that mean Mr. Second Coming is already rich before a single car is sold. Who is really on the hook for those loan payments? Employees, of course, who must come up with the extra money, or face layoffs and restructuring.
Wait a minute, this sounds 'off.' You can work with an investment bank to bribe, er, sorry, overpay shareholders to sell you their tanking company, then borrow a bunch of money against the company to buy it and own it, and pay yourself handsomely just for arranging that shenanigans?
Yes, you can. And since you're no longer publicly traded, there's a lot fewer laws to adhere to. Note that investment banks, who aren't dumb and know exactly whats' going on, always require that they are first in line as creditors and seldom loan more than the cash-out value of a business.
But ... but .... this is ridiculous! That would mean that these executives have no incentive to make these companies perform! (Yup. See: 'redistribution of wealth').
Let's finish our story. Come December, sales are 'gaining traction, but not where we need to be.' (up 2%). Ensuring that folks aren't on the rolls for the next accounting year, many are wished a great holiday with their families as they receive their severance package. The following spring, the company misses it's first payment to the investment bank. Larry steps down to "consider the next chapter." The Second Coming gathers the troops to tell them "we're considering our options. We're gonna make it!"
Two weeks later, a brief email is sent around: we have a BRAND NEW PARTNER! Gentleman Jim's Investment Bank has agree to buy the loan from Joe's Investment Bank at pennies on the dollar, in exchange for ownership rights and future payments. However, where the fine folks at Joe's rather cynically and wisely were willing to loan only the cash value of the inventory (in case things really hit the fan, they could get their money back), Gentlemen Jim demands all of the company in order to keep the doors open.
A few months later, citing a 'need to restructure,' Second Coming steps down, "proud of what we've accomplished" and "grateful to have been involved in turning things around." Gentlemen Jim's appoints a new CEO, who "has experience in turning companies around."
Sales are still kind of flat. Someday, Gentlemen Jim sells the dealership to someone else, or else shutters it completely, selling off the cars. If there's a loss, it's written off on taxes.
Let's look at the final score.
Joe's Investment Bank: Maybe lost a little money, but will write it off. Nothing a good corporate accountant can't minimalize.
Joe's IB employees involved: RICH! Got their transaction fees! Atta boy!
Original owners of Dealership: not only keep their money, but get a 34% bonus! Woo hoo!
New Owners: Not doing very well. Only, since the "new owner" is an LLC registered in the Cayman Islands, it's not really any individual, per se.
Second Coming CEO: Well done. Got a pile of cash when Joe's agreed to buy his options, and a nice salary and big ole severance package.
Larry: Smaller pile than SC-CEO, but big enough that the idea of still having a mortgage (on the first OR second home) is laughable.
Employees: you tell me.
Will Guitar Center go bankrupt? Who knows - there's tons of ways to break down a company without bankruptcy. I could see them entering it, though.
Will employees rue not leaving? Indeed. Unless you're one of Larry or SC-CEO's guys, times will suck. The "long time GC guys who got laid off" will, trust me, be thanking their lucky stars within a year.
What about customers? Who knows. I think GC will eventually just keep receding, unless they completely close down like Tower Records did.
Vendors? Will lose money.
The idea that a company will "either close or stay open and be successful" ignores the enormous range of reality in between. What really frightens me is that most Americans just don't want to know the above; it's like the hot dog factory. "As long as it tastes good, I don't want to know." Then they get laid off, and wonder why it was a surprise. Well, because you were too busy watching Kardashians to see the writing on the wall.
It used to be that bankers wagered on success; to an extent this was functional and certainly made our economy mighty. I have immediate family and friends who are investment bankers and decent enough people and business-people. But there is a HUGE industry now that is completely unattached from any incentive to perform; it rewards people simply for buying and selling.
I've witnessed the above version of events four times from within. Embarrassed to say that I was a mini-Larry once, a fly on the wall/serf twice, and a disgusted refugee the last time. I love business and growing organizations, but when you see people walk off with hundreds of millions of dollars for saddling a company with debt and running it into the ground ... that's just wrong.
OTOH, we can have a look at Webb's history. He took Joann Fabrics private, then he stepped in for the guy who took Sports Authority private. Given the years he did this (2010-2012, roughly) that's nasty business. "Taking companies private" is the modern-day equivalent of looting the till.
Taking companies private means you are borrowing against the company's value (inventory, cash, future earnings, all of it) in order to own it. As it is far easier to do this with shareholders' cooperation, frequently the strategy targets companies having a hard time; shareholders are all too eager to sell. Doesn't this sound like the cavalry coming to the rescue? It should, except the folks who 'take it private' (and populate the board and name the executive team) are almost never liable for the possible failure of the company. They make their money on the transaction. If the company can't "turn around" (and here the #'s are staggering), they 'enter bankruptcy,' 'renegotiate their debt,' and walk away with a bunch of money.
If you do not think that's an accurate characterization, I urge you to spend 15-20 minutes on the internet to research this.
Here's how it works:
Let's say I buy your car dealership, for 34% more than we agree it's worth (which happens to be the premium Webb paid to presumably-pleased Joann shareholders). I do this with my buddies at Joe's Investment Bank, who loan me the money. But the security for the loan is not my house, or my money - it's the dealership itself. Wait, you might ask, how in the hell am I going to come up with the extra money I now owe Joe's Investment Bank? We've only been making X and now we are supposed to come up with X+34%.
Well, as the firebrand turnaround expert, I get out on that dealership floor and give a speech, which often goes something like this:
"Things have stagnated here. We promise you a bold, bright new future! And to meet that future, we need to recognize our best employees, and frankly move on from some relationships that aren't working any more. As CEO, we have the Second Coming; he will be talking with you in a few minutes. And later, your new EVP of Sales Larry will share details. But for now, aren't we all happy?!?!? Cue music, food, balloons.
Later, Larry shows a sales plan that requires salespeople to sell 50% more cars than they currently are. Those who do so will get a non-commensurate raise (typically about 30%). He also somberly alludes to 'adjusting headcount to get things right,' which has the immediate effect of silencing anyone who would have been dumb enough to complain. "Those of you who are exceptional," (and don't all of our egos tell us he's talking to me?) "will do even better. And if you are not able to keep pace, we will work with you to sharpen your skills."
While he says this, our Second Coming CEO is merrily lunching with the guys at Joe's Investment Bank. After all, they made their sale already, and are walking off with transaction fees. Well, you think, perhaps that's fair. After all, SC-CEO seems like he knows what he's doing, and isn't he really on the hook to make that loan payment and turn things around? Turns out, not really. First, he's getting paid like, well, like the Second Coming. Now. Today. (see: stories on executive compensation). And as the Second Coming, just a fat paycheck isn't enough. There will be convertible stock options, balloon payouts, personal loans, "perqs," and a bunch of other things that mean Mr. Second Coming is already rich before a single car is sold. Who is really on the hook for those loan payments? Employees, of course, who must come up with the extra money, or face layoffs and restructuring.
Wait a minute, this sounds 'off.' You can work with an investment bank to bribe, er, sorry, overpay shareholders to sell you their tanking company, then borrow a bunch of money against the company to buy it and own it, and pay yourself handsomely just for arranging that shenanigans?
Yes, you can. And since you're no longer publicly traded, there's a lot fewer laws to adhere to. Note that investment banks, who aren't dumb and know exactly whats' going on, always require that they are first in line as creditors and seldom loan more than the cash-out value of a business.
But ... but .... this is ridiculous! That would mean that these executives have no incentive to make these companies perform! (Yup. See: 'redistribution of wealth').
Let's finish our story. Come December, sales are 'gaining traction, but not where we need to be.' (up 2%). Ensuring that folks aren't on the rolls for the next accounting year, many are wished a great holiday with their families as they receive their severance package. The following spring, the company misses it's first payment to the investment bank. Larry steps down to "consider the next chapter." The Second Coming gathers the troops to tell them "we're considering our options. We're gonna make it!"
Two weeks later, a brief email is sent around: we have a BRAND NEW PARTNER! Gentleman Jim's Investment Bank has agree to buy the loan from Joe's Investment Bank at pennies on the dollar, in exchange for ownership rights and future payments. However, where the fine folks at Joe's rather cynically and wisely were willing to loan only the cash value of the inventory (in case things really hit the fan, they could get their money back), Gentlemen Jim demands all of the company in order to keep the doors open.
A few months later, citing a 'need to restructure,' Second Coming steps down, "proud of what we've accomplished" and "grateful to have been involved in turning things around." Gentlemen Jim's appoints a new CEO, who "has experience in turning companies around."
Sales are still kind of flat. Someday, Gentlemen Jim sells the dealership to someone else, or else shutters it completely, selling off the cars. If there's a loss, it's written off on taxes.
Let's look at the final score.
Joe's Investment Bank: Maybe lost a little money, but will write it off. Nothing a good corporate accountant can't minimalize.
Joe's IB employees involved: RICH! Got their transaction fees! Atta boy!
Original owners of Dealership: not only keep their money, but get a 34% bonus! Woo hoo!
New Owners: Not doing very well. Only, since the "new owner" is an LLC registered in the Cayman Islands, it's not really any individual, per se.
Second Coming CEO: Well done. Got a pile of cash when Joe's agreed to buy his options, and a nice salary and big ole severance package.
Larry: Smaller pile than SC-CEO, but big enough that the idea of still having a mortgage (on the first OR second home) is laughable.
Employees: you tell me.
Will Guitar Center go bankrupt? Who knows - there's tons of ways to break down a company without bankruptcy. I could see them entering it, though.
Will employees rue not leaving? Indeed. Unless you're one of Larry or SC-CEO's guys, times will suck. The "long time GC guys who got laid off" will, trust me, be thanking their lucky stars within a year.
What about customers? Who knows. I think GC will eventually just keep receding, unless they completely close down like Tower Records did.
Vendors? Will lose money.
The idea that a company will "either close or stay open and be successful" ignores the enormous range of reality in between. What really frightens me is that most Americans just don't want to know the above; it's like the hot dog factory. "As long as it tastes good, I don't want to know." Then they get laid off, and wonder why it was a surprise. Well, because you were too busy watching Kardashians to see the writing on the wall.
It used to be that bankers wagered on success; to an extent this was functional and certainly made our economy mighty. I have immediate family and friends who are investment bankers and decent enough people and business-people. But there is a HUGE industry now that is completely unattached from any incentive to perform; it rewards people simply for buying and selling.
I've witnessed the above version of events four times from within. Embarrassed to say that I was a mini-Larry once, a fly on the wall/serf twice, and a disgusted refugee the last time. I love business and growing organizations, but when you see people walk off with hundreds of millions of dollars for saddling a company with debt and running it into the ground ... that's just wrong.
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jp_nyc
Kick Henry Jackassowski
Because if you piss off vendors enough they can just drop you. Like Mesa and Behringer did when they got sick of GC’s shit.
OGG
Master of the Meh
There are two GC stores in the greater San Diego area. One of them is just a couple of miles from my house, and the other, much larger store is in La Mesa about 35 miles south east.
The La Mesa store is the premier location in the area, and was just recently renovated (again). From what I hear, it is well stocked and appears to be pretty much business as usual.
A lot of that is due to it being in an exceptionally busy mall/shopping center that is much closer to the bulk of the county's population.
My local store looks more like a ghost town each time I go in. The stock levels keep shrinking, the quality gear is almost nonexistent, and the employees are like zombies.
The synth room is half empty, what is in there is mostly used stuff, and the few new items they have are entry level stuff and MIDI controllers. If you're looking for the hottest new Roland, Korg, Yamaha etc, you're shit out of luck. Of course, even the few "new" items in there have been raided and stripped of most of their sliders and knobs.
The guitar selection is awful. There are lots of Squiers and Lagunas and other cheap crap, a few Epiphones etc. Very few Fender or Gibson guitars at all.
They don't even have the requisite counter cop that checks receipts at the door anymore. It's like they have no fucks left to give.
I can't imagine it remaining open much longer. They have nothing left to sell, and don't appear to be interested in replenishing the inventory.
Even the high shelves in the accessories and pro audio sections are nearly empty. Where once you would see a stack of HD500Xs or Boss GT processors, you now see maybe one of each. Same story in the computer/MIDI/recording section. They used to have stacks of the various hottest processors and interfaces, but no more. The cupboards are nearly bare.
The La Mesa store is the premier location in the area, and was just recently renovated (again). From what I hear, it is well stocked and appears to be pretty much business as usual.
A lot of that is due to it being in an exceptionally busy mall/shopping center that is much closer to the bulk of the county's population.
My local store looks more like a ghost town each time I go in. The stock levels keep shrinking, the quality gear is almost nonexistent, and the employees are like zombies.
The synth room is half empty, what is in there is mostly used stuff, and the few new items they have are entry level stuff and MIDI controllers. If you're looking for the hottest new Roland, Korg, Yamaha etc, you're shit out of luck. Of course, even the few "new" items in there have been raided and stripped of most of their sliders and knobs.
The guitar selection is awful. There are lots of Squiers and Lagunas and other cheap crap, a few Epiphones etc. Very few Fender or Gibson guitars at all.
They don't even have the requisite counter cop that checks receipts at the door anymore. It's like they have no fucks left to give.
I can't imagine it remaining open much longer. They have nothing left to sell, and don't appear to be interested in replenishing the inventory.
Even the high shelves in the accessories and pro audio sections are nearly empty. Where once you would see a stack of HD500Xs or Boss GT processors, you now see maybe one of each. Same story in the computer/MIDI/recording section. They used to have stacks of the various hottest processors and interfaces, but no more. The cupboards are nearly bare.
jp_nyc
Kick Henry Jackassowski
Fender and Gibson both slashed the number of lower cost guitars they were producing. Rumor has it that most of them were create to fill wall space at Guitar Center prior to the big changes last year.
Danhedonia
Noted duckfat enthusiast
And you know, Guitar Center could utterly reinvent itself (chain of high-end, 'locally focused' shops?) and emerge and continue. Or they could do what Newbury Comics (venerable CD/record store chain in New England) did when the market for recorded music finally disappeared: become a 'destination,' focusing on comic books, tchotchkes, used CDs, lava lamps, etc. Hey, at least I can still find a new CD by obscure bands now and again when back in Boston. Maybe GC will sell more sheet music, cater to HS bands, and line the walls with cheap Squiers (already happening at mine).
The reality is that the internet has kicked the butt of any retail business that didn't have a strategy to attract customers to the store locations. Someone's "hell on earth" post above really says it all; that's not attracting me any time soon.
The problem really is that once you get into corporate financial shenanigans like LBO's, what occurs at locations becomes less and less relevant. You could be turning a healthy profit at stores (and my memory of my 2010 look at the balance sheet was EBITDA of +/-$200M against a topline of $2.2B -- not bad at all for retail) and if you owe hundreds of millions in debt payments, it just won't work.
It's like loan sharking. Guy was making ends meet on a $75k salary until he started having to come up with a $1,000 weekly interest payment. Only, many PE LBO's are sleazier and less honest than loan sharking.
What really concerns me are the future of the employees (I always feel for employees, even if they are knuckle dragging idiots who couldn't tie their shoes and don't know a humbucker from a harmonica), and .... well, where the hell am I gonna go to fondle guitars for a couple hours? My mom and pop is outstanding, and for that I'm lucky, but I will miss going into a place and just being able to work my way down the wall.
The reality is that the internet has kicked the butt of any retail business that didn't have a strategy to attract customers to the store locations. Someone's "hell on earth" post above really says it all; that's not attracting me any time soon.
The problem really is that once you get into corporate financial shenanigans like LBO's, what occurs at locations becomes less and less relevant. You could be turning a healthy profit at stores (and my memory of my 2010 look at the balance sheet was EBITDA of +/-$200M against a topline of $2.2B -- not bad at all for retail) and if you owe hundreds of millions in debt payments, it just won't work.
It's like loan sharking. Guy was making ends meet on a $75k salary until he started having to come up with a $1,000 weekly interest payment. Only, many PE LBO's are sleazier and less honest than loan sharking.
What really concerns me are the future of the employees (I always feel for employees, even if they are knuckle dragging idiots who couldn't tie their shoes and don't know a humbucker from a harmonica), and .... well, where the hell am I gonna go to fondle guitars for a couple hours? My mom and pop is outstanding, and for that I'm lucky, but I will miss going into a place and just being able to work my way down the wall.
jp_nyc
Kick Henry Jackassowski
I went by Guitar Center today. It’s amazing how little they had in stock. Walls that should have been three rows of guitar were only two. The only tube amp from Orange was the Micro Terror. I wanted to check out some Digitech and Earthquaker pedals and they had one from Earthquaker and nothing from Digitech. Remember what GC used to look like after the post-xmas blowout sales? It was like that.
fused
Improvisationalist
I just want to know when Gibby L5s are on sale for $500.... I'll buy 4....
Til then, don't care...just tell me when the carnage is over.
The local shops are already starting to restock... Noticed that this weekend..
With the loss of GC, the world will be a better place.
Is it over yet? I'll wait.......
Til then, don't care...just tell me when the carnage is over.
The local shops are already starting to restock... Noticed that this weekend..
With the loss of GC, the world will be a better place.
Is it over yet? I'll wait.......
Chad
Slender Hobbit
The only reason I even care about GC is that they basically closed up all of the good mom and pop shops around here. So if they fold, I will have to get everything online. I mean, I mostly get everything on line now, but sometimes, I need a new set of strings and don't want to wait 3 days.
mikesr1963
Gonna walk my dog, you?
MARS Music anyone.