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Tuesday, May 27, 2014

Guitar Center and Music Group Break Up

Guitar Center decided to terminate their 20-year relationship with music gear manufacturer Music Group.

Guitar Center














Instead of just "citing irreconcilable differences" or quietly ending their supplier-retailer relationship without comment, both companies have provided some interesting stories in the wake of their business break up. Obviously, the more interesting bits for us guitar players would be those related to GC(Guitar Center)'s publicized financial woes, but let's also look at the "who broke up with who" stories on the side!No doubt that this messy break-up rocked the entire music industry, especially since the two companies provided some juicy details about the split.

I first got wind of the news from Bugera's Facebook Page (Music Group Brand) where they said and I quote:

"After 20 years, Guitar Center recently decided to terminate our relationship. Frankly, it became increasingly difficult to do business with GC as they sought to increase their profits, which would have forced us to increase our prices to you. We didn’t agree."

That by itself is revealing e a statement, so I dug further and found that Guitar Center was the first to move, terminating their relationship with Behringer (part of Music Group) on May 16. An online press write up says that the break up was due to Behringer's "continuous attempt to force unfavorable changes into agreements" and their "revision to unreasonable business terms late last year".

For the details, let me quote the GC Spokesperson:

"Decisions like this are never made easily. There are rare occasions where the integrity of the relationships and agreements we make with vendors are challenged, despite the potential impact to the bottom line or overall sales. We can’t speak for anyone else in the industry, but we’d had enough of watching Behringer try to do business this way. It’s not the way we like to work with people and it’s not productive. They made some questionable choices that put us into a position to develop a contingency plan. As we re-evaluated that plan several weeks ago, we found that it would allow us to build better relationships with other vendor partners in the category. When Plan B starts to make this much business sense, it became clear we didn’t need to tolerate this anymore. We’re focused on where we can succeed in partnership with our new vendors and we’re excited about the future."

Music Group's CEO and Behringer founder, Uli Behringer himself responded to the story of Guitar Center. He signed a press release and said that they were surprised by the public statement issued, which put the Music Group company in bad light. Here is the rest of Behringer's statement regarding the break up:

"Over the last year, due to GC’s highly publicized financial situation, we were forced to evaluate their credit worthiness. As a result of their credit rating, it was determined that they were a high risk and we were forced to put them on business hold. We certainly respect GC’s decision to discontinue business with us and we thank them for our excellent 20 year relationship."

So now that they have parted ways, what does the future hold for Music Group and Guitar Center? From an outsider's point of view, Music Group seems to be doing well in terms of business, and on their press release, they boasted that "The Company experienced a historical record revenue last year and also celebrated an all-time record revenue in April in the United States."

Guitar Center however is another story, Wall Street Journal reported back in March that the giant retailer is to be acquired by one of its creditors, Ares Management. While the LA Times reported in April that a debt-for-equity swap already happened giving Ares Management more control over the retailer in-exchange for reducing their debt.

So what does Guitar Center have to do with us guitar players when we can buy our guitars elsewhere? We should remember that many small business gear manufacturers are dependent on this giant retailer, so if anything happens they will be affected.

Instead of naming these small manufacturers, maybe we should name the biggest guitar manufacturer that is "closely tied" with GC, Fender! As it stands now, Fender itself are having financial worries, recently closing down one of its US based facilities and selling the Guild guitar brand. Analysts are keen to say that Guitar Center's worries will unfortunately have adverse effects to the already ailing popular guitar maker.

In light of these developments we will have to wait and see if the current GC management could turn the business around, it's not over till it's over.


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