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GC Chief Commits
to Music & Arts

Guitar Center is going private and gearing up for its next round of expansion: school music dealerships and international outlets.

Speaking for the first time since the July announcement that Guitar Center will be acquired by Bain Capital Partners for about $2.1 billion, Marty Albertson, GC’s president and CEO, said the company sought to escape the glare of being a publicly traded company in order to concentrate on bolstering its Music & Arts division and look toward international expansion.

“Guitar Center has been growing rapidly under the Guitar Center brand for a lot of years, and about five years ago, six years ago, we began an investment in the band instrument part of our industry through the acquisition of American Music and the further acquisition of Music & Arts,” Albertson told an audience at the NAMM Economic Summit, held in Carlsbad, Calif., in August. “We’re really committed to that side of the business. To dispel rumors spread by various analysts that one of the things that Bain was going to do when they became our partner was that they were going to sell off Music & Arts, much to the contrary; it was the actual desire on our part to further commit to Music & Arts as one of the instigators of why I wanted to take the company private.”

Albertson said the short-term nature of the public markets would not let GC invest in strengthening the Music & Arts chain without adversely affecting the company’s stock price. He said the same is true with a variety strategic moves GC is currently planning.

“The investment community today, I’ve said before, is more like going to Las Vegas than it is actually investing in long-term business models,” he said. “And that investment community is really not akin to taking the risks and the long-term resource allocation required to transform a segment of the industry that really hasn’t changed much in 30, 40 years. Our view is that the segment of the industry that Music & Arts represents needs to go through the significant transformation in process, in its marketing and in its customer relations. And that takes years of investment in infrastructure, in process systems, in people — all of those components. The public markets don’t have the patience for that type of long-term investment strategy.”

Albertson said to expect a slowdown in the expansion of GC outlets in the United States as the company looks to international opportunities.

“We are reaching maturity with the Guitar Center brand,” he said. “We have tested a tertiary model, which is about 5,000 square feet. We have three of those. If that turns out to be successful, we still have a reasonable amount of locations to open, but when you look at cost and the amount of revenue those locations will create, balanced with the revenues that the big-boxes create, we are reaching a maturation point under the Guitar Center brand.

“However, under the Music & Arts brand, we have significant domestic opportunity still available to us. With that said, another reason that I wanted to take the company private was to be able to enter into another risky element of expansion, and that is international.

“Our desire is to try to go international. It’s in the near-term horizon as to when we’ll expand there. But, again, the public markets today wouldn’t support enthusiastically the incubation period that is required to really be good at a business model before you’ve test it with rapid expansion.”

— Frank Alkyer