Guitar Center, the nation’s leading musical-instrument retailer, is in trouble. Changing musical tastes are partly to blame.
Ratings agency S&P Global downgraded Westlake Village-based Guitar Center Holdings Inc. for the second time last week as the troubled instrument retailer seeks to refinance and restructure more than $1 billion of debt.
“Most of what’s really selling today is rap and hip hop,” said George Gruhn, owner of the Gruhn Guitars shop in Nashville. “That’s outpacing other forms of music and they don’t use a lot of recognizable musical instruments.”
The company’s challenges speak to shifting demographics, something Gruhn is well acquainted with.
Guitars don’t figure as heavily into chart-topping music as they once did, says.
He ought to know. Over the years, his customers have included everyone from Paul McCartney, George Harrison and Eric Clapton to Neil Young, Vince Gill and Billy Gibbons.
Those artists have left indelible imprints on the music landscape, all the way from Clapton’s burning solo on “Crossroads” to Harrison’s signature guitar part on “Daytripper.”
But these days? Well, things aren’t as guitar-oriented.
“Baby boomers are the best customers I’ve ever had. They’ve driven a lot of the guitar trends, but they are aging and many of them are downsizing their guitar collections,” he added. “This doesn’t mean that guitar sales are dying, but instrument sales in general are under stress.”
No more guitar heroes
The instrument is also facing an identity crisis. Guitar heroes – who have inspired many a player and fueled strong instrument sales – are few and far between these days, according to Gruhn.
“I would be hard-pressed to name any new ones,” he said. “You’ve got Joe Bonamassa who is a great player. But he isn’t selling as many guitars as the other big time heroes. And Eric Clapton is arthritic. He’s having difficulty playing and is retiring from touring.”
Rickenbacker guitars were on display at this year’s NAMM (National Association of Music Merchants) show in Anaheim.Louie Concotilli, owner of Mugzey Music in Canyon Country, spoke to the shifting demographics.
“Rock is almost dead,” he said. “It’s almost nonexistent. And with guitar there’s no almost one to look up to anymore – no one to get you to want to learn. I have three or four guitar students who are about 12 to 14 years old, and I told one of them she should find someone in her class to play guitar with. She said, ‘No one else plays the guitar, and people think I’m weird because I do.’ ”
To lazy to learn?
The bigger problem, according to Concotelli, is that most aspiring players don’t want to put in the time to become proficient on the instrument.
“If they do want to learn they’ll just go to YouTube, but they’re not getting the proper instruction,” he said. “With kids these days, it’s all about instant gratification. No one wants to take six months or a year to learn. They don’t want to do the work.”
A report released last year by the Washington Post revealed electric guitar sales have plummeted over the past decade from about 1.5 million sold annually to just over 1 million. The two biggest companies, Gibson and Fender, are in debt, and a third, PRS Guitars, had to cut staff and expand production of cheaper guitars, the report said.
Gruhn acknowledged that the demand for both acoustic and electric instruments has fallen.
“I think the guitar market was built up into a bubble at a pace that was unsustainable,” he said. “It’s leveled off to something that reflects more normalcy. Factories that were designed to produce 100,000 instruments a year may now find that their demand has dropped to 75,000, and that’s a problem because now you have higher overhead.”
Still, Guitar Center has forged on. The company currently operates more than 280 stores throughout the U.S. with Southern California locations in such communities as Westlake Village, Stevenson Ranch, Sherman Oaks, Northridge, Pasadena, Glendora, Rancho Cucamonga, San Bernardino and Orange.
The financial strains
Last week, S&P lowered the company’s rating to CC from CCC- and issued a negative outlook.
Guitar Center has issued $635 million in senior secured notes that will be due in 2021. Those notes and some additional cash will be used to refinance the company’s existing $615 million in secured notes which carry a lower interest rate and were set to mature next month, according to S&P.
By extending the timeline on its debt, Guitar Center will achieve increased liquidity and boost its financial stability for the next three years.
Still, analysts with S&P view the exchange as distressed because it falls short of the original bonds’ promise and creditors view it as a form of default. Guitar Center declined to comment beyond the news of its debt restructuring.
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School of Rock
One of the brighter spots in the industry these days can be found in School of Rock, a Canton, Massachusetts-based chain of 207 music schools which span 10 countries worldwide. Elliott Baldini, the company’s senior vice president of marketing, said the schools are designed to draw students in by giving them more of what they actually want to learn.
“Music is at its core a social activity,” he said. “People get inspired to play because they listen to their favorite artists or see them at a live venue. But that experience isn’t translated when you take music lessons. It’s usually a very solitary, one-on-one experience experience with one teacher and the students aren’t necessarily learning the play the songs they want to learn.”
School of Rock offers something different, according to Baldini.
“We teach students of all ages the same music theory they’d learn anywhere else, but you learn to use that theory with a band. Students have group rehearsals where they can practice with a band every week. And we also have our version of a recital, which is really a rock show at a live venue. We put on more than 3,000 shows a year across the world.”
School of Rock has Southern California schools in Santa Clarita, Woodland Hills, Burbank, Pasadena, Redondo Beach, Tustin and Rancho Santa Margarita, among other locations.