Possible Hint of What's Going on at GC.

[David Himes]

Here's something I found online that might interest some of you.

 

I want to say that this is startling news, but it’s actually business as usual given Guitar Center’s financial woes, it’s revolving door of executives, it’s troubles with employees that have led to unionisations, and more, over the last few years. The company is currently under investigation at the federal level by the Securities and Exchange Commission, one of our country’s top financial fraud regulators, and has also been accused of unfair labor practices by the Retail, Wholesale and Department Store Union. Not to mention they’ve not had the best relationship with the media, as several high-level employees, including, if you can believe it, their former CEO, have been caught blabbing about the company in the comments section of negative news articles.

 

That one particularly loose-lipped CEO, Mike Pratt, resigned late last year under unclear circumstances, after less than 20 months with the company. He was replaced in November by Darrell Webb, a veteran whose resume includes executive and board positions at companies like The Sports Authority, Jo-Ann Fabric & Craft Stores, Fred Meyer, and more.

 

On the heels of NAMM, the new CEO Webb, sent an email late last week to all employees at the corporate level of the company, announcing a substantial wave of layoffs at the corporate and field-supervision level, which we obtained, and which has now been corroborated by Michael Amkreutz, Guitar Center’s Executive Vice President for Marketing, Merchandising and E-Commerce. A portion of the email is below:

 

After a comprehensive evaluation of our staffing levels, including a detailed benchmarking of staffing levels by function and department compared to similar size specialty retailers, Guitar Center’s leadership team made the difficult decision to reduce corporate and field supervision staff. The reduction included less than one percent of the overall workforce and consisted of reductions at the corporate offices in Westlake Village and field management positions. This action was designed to create a more effective and efficient organization and was based on functional area. Despite this reduction, we continue to actively recruit for a variety of positions in Westlake Village that are matched with the needs of our ongoing growth plans.

 

Guitar Center thanks these individuals for their dedicated service and we all wish them the best in their future endeavors.

 

There are no plans to reduce staff at our 260+ stores. Our customer base is strong and for them business will continue as usual. Our store opening and remodeling program continues, as does our ongoing dedication to the opportunities we offer musicians — unparalleled inventory and selection, clinics, lessons, repairs, our nationwide searches and competitions and unmatched service every day. In spite of how difficult these decisions were to make, and the challenges that these reductions present to some of our dedicated associates, this restructuring was made to put us in a more positive position to serve our customers and vendors.

 

What this basically means is, Guitar Center can’t afford payroll on a good deal of it’s senior staff! Our understanding is that somewhere in the area of 40 employees will be laid off, and since Guitar Center employs just over 7,000 people, Webb is right to say that the reduction will affect less than 1% of the company.

 

Here’s why this matters though: the majority of those 7,000 consist of “boots-on-the-ground” retail jobs – branch managers, salespeople, store clerks, etc. Those people are not being affected by this downsizing. The jobs that are being eliminated here are in the company’s head offices, not stores, so the percent reduction relative to that branch of the company is much higher.

 

So what Webb and Guitar Center’s executive team is doing is twofold: they’re cutting payroll to make up for revenue holes and debt problems, and they’re revealing that the company has been operating inefficiently and at an unsustainable level, at the highest rungs.

 

Further, it looks as though Webb and his team will continue to evaluate the company from top to bottom, to look for more places where they can plug holes in their capsizing ship. So who knows what’s next. They’ve certainly got plenty of ambitious plans over the next few years, including a plot to open dozens of new stores and to expand original programming on their television network, but the company’s profits don’t align with the financial reality of those plans. Keep in mind that their new CEO has only been at the company for two months before announcing this wave of firings, so these problems must have been staring senior management in the face for quite some time. It’s also telling that Webb’s resume doesn’t exactly scream “Tube Amplifiers” and “RIP DIMEBAG.” My guess is {censored}ing chaos is what’s next.

 

We’ll keep you updated as we learn more, but for now, this is an unsurprising shocker.

[Opus Antics]

It's pretty common for a new CEO to come in and shake things up. And fire some people. Eventually some of those laid off may be replaced by the CEO's hand picked people. That also happens.

[Temple of Light]

Better to get hip & right the ship, than to wallow in the shallows heading for the gallows.

In other words, the gurus at the top realize the stakes they are playing for and have been doing the dirty work now to

realign their marketing and customer service strategy to increase sales and revenue no matter the short term consequences. I hope they pull it off, if they really want to bring in bank, and offload some of their debt, they should be closing stores incrementally,rather than trying to open even more, as relative to their apparent profitability per store.

Less overhead means more ability to attract revenue, and easier manageability per store, regardless of staffing or inventory levels. The devil be in the details, so they had better retain some seriously skilled middle managers to really get their {censored} together & the negative balance squared up. But what do

I know, I'm just another {censored}ing observer...

[wesg]

A chain of stores can only close so many stores before it stops being able to sell stuff.