Guitar Center Stands to Face the Full Wrath of 'The Amazon Effect'
By Farrell Tamke
Amazon has wreaked havoc on Brick and Mortar stores for some time now.
It has become accepted that a lot of our parent’s favorite stores are severely downsizing, or altogether falling apart. Depending on which side you’re on, the data can be impressive or scary. Amazon has been year over year increasing their revenue, total employee count, and share price, while Best Buy and Sears continually dropped in all three departments.
The term “The Amazon Effect” has been coined to describe the serious impact Amazon has made on retail as a whole. Brick and mortar will always be around to some extent, but Amazon has proven it doesn’t need to be our only outlet for shopping.The retail sector of the music industry has felt The Amazon Effect. Guitar Center, the world’s largest retailer of musical instruments, is no exception to this and is in serious trouble. As of April 30th, the company is in roughly $1.6 billion in debt.
Comparing Amazon, Best, and Sears View Visual Data
According to a number of former and current employees, including Eric Garland, have been quick to criticize the company for its business practices, including how it handles financial issues. “Every time something bad happens in a financial sense, they dispatch their PR and marketing to shout down any conclusions you might make. Take one look at the books, and the story tells itself.” Eric goes on to describe how Guitar Center is simply “pulling more from the drawer then it’s putting in” and using its public relations team to cover up the issues, rather than try to draw up a more solid business model.
Being in the music industry, especially as a retailer, is tough. Margins are incredibly thin, user preferences are constantly changing, and the landscape of the entire music industry has been changed so dramatically by the internet in the last ten years. Guitar Center is not helping itself with all the aforementioned HR and Customer Service issues. But what happens if Guitar Center goes under? Are customers going to be forced to go entirely digital for any kind of products they want to purchase?
Comparing Revenue and the Number of Employees overtime at Amazon, Best Buy, and Sears.
More and more the answer is leaning towards yes. Guitar Center was the Amazon of the music retail industry for many years. Mom and Pop music stores were forced to close their doors when they couldn’t keep up with the prices Guitar Center offered. Now that Guitar Center itself is staring down the barrel of bankruptcy, can anyone really replace them in the physical space? To give everyone a better idea of the issue, compare a Guitar Center to a car dealership.
Now imagine that every day, people come to this car dealership, just to look at the cars. Potential customers will sit in the cars, look at a few, they might even test drive one or two, but they almost never buy the cars. Instead, they walk out with a few small ticket items. This dealer happens to sell some accessories for cars such as steering wheel covers, air fresheners, small parts, etc. Does it sound like that dealership will be open for long? No. Just like Guitar Center can’t survive forever selling accessories for all of its instruments. They rely on selling big ticket items like drum sets and guitars, not drumsticks and guitar picks, to keep their lights on.
Assuming the worst case scenario, that Guitar Center goes out of business entirely or makes major cutbacks on the number of stores, what happens to the industry? As with every other sector of retail, a lot of items will be bought almost entirely online. As always, there’s a need for certain goods to be available immediately (for example household items like toilet paper or laundry detergent, and in the case of music equipment, things like cables and batteries) but more often than not you’ll see people buying in bulk online, and only running to stores for an emergency that can’t wait two days to ship.
The main issue consumers of musical instruments and equipment will see is being able to try products easily. Although many people turn towards online reviewers such as Glenn Fricker of Spectre Sound Studios or Trey Xavier of Gear Gods, it really is hard to gauge if you’ll like a product without having it physically in front of you. Return policies are reasonable with online purchases, but the hassle of waiting for the item to ship, returning it, and waiting for the new item, is a frustrating experience for a customer.
This is where Guitar Center has an edge on e-commerce, there is always a desire to see music equipment in person before buying, and so to an extent, there need to be physical stores. Guitar Center can remain the de facto physical retailer of musical instruments and equipment if it fixes its finances. Closing stores and emphasizing products that are top sellers would be a good place to start, and then moving on to fix the human resources issues that have plagued the company. If these steps are not taken, Guitar Center stands to face the full wrath of The Amazon Effect.
Photo by Greyson Joralemon