Guitar Center Rumors Striking Wrong Chord

Reports that Guitar Center Inc. is on the auction block – or could file for bankruptcy – are being dismissed by the Westlake Village retailer as nothing more than the same old song and dance. The Wall Street Journal reported late last month that the retail chain could be bought by Ares Management LLC, the Los Angeles-based investment financial advisor that owns the majority of Guitar Center’s debt. Bain Capital LLC acquired the company in a leveraged buyout for $2.1 billion in 2007. “This is just part of an old story that seems to pop up once or twice a year,” said Christopher Bennett, vice president of communications, adding that his company does not consider bankruptcy “even a remote possibility.” The latest round of speculation got started in November when Eric Garland, a popular business blogger in St. Louis, posted an item headlined “Guitar Center and the end of big box retail,” focusing on the debt rating downgrade Guitar Center received last fall from Standard & Poor’s from a B- to a CCC+. The rating, according to the agency, means the company is vulnerable to favorable economic conditions to meet its financial commitments. The post went viral and prompted Guitar Center Chief Executive Mike Pratt to issue a statement that claimed all of the music retailer’s 244 stores are profitable. He also argued that while S&P downgraded Guitar Center’s rating, Moody’s Investor Service listed the company as “stable” and “unchanged.” Since it is no longer publicly traded, the company is not tracked by Wall Street investment banks. But GlobalData, a London-based market research firm, released its most recent economic analysis on Guitar Center in February. It cites e-retail as the biggest growth area for the retail chain, while making note that the company faces substantial competition from rivals that include Sam Ash Music Corp. in New York, Sweetwater Sound Inc. of Fort Wayne, Ind. and Full Compass Systems Ltd. in Madison, Wis. The report also names Amazon.com Inc. and eBay Inc. as major threats, simply for their power in the e-commerce segment. “Some of the competitors of the company have greater financial, marketing and other resources, which enables them to pursue more vigorous marketing and expansion activities,” the report stated. Ares Management and Bain Capital did not respond for comment. Power Play Ikea’s plan to move into a bigger space in Burbank is moving forward, but not everything has been resolved with the project – including a request by the retailer for a sales tax break. The Burbank City Council voted unanimously last week to approve the move into a 242,000-square-foot facility less than a mile south of its existing store next to the Burbank Town Center. If all goes as planned, construction will start next spring and the retailer will open at 805 S. San Fernando Road in the fall of 2016. But still to be determined is the fate of an electrical substation that prompted a request for a sales tax sharing agreement. Given the size of the store, which is expected to be the largest Ikea in the Unites States, the retailer set aside a piece of land for a substation at the request of the city’s power utility. But after refining its electrical power needs, Ikea found it would be using less than anticipated so it would not need the substation. A city staff report said that Ikea, given its expenses related to the substation preparation approached the city to seek half of the sales tax revenue expected to come from the megastore. Ikea, a subsidiary of Ingka Holdings B.V. in the Netherlands, proposed capping any distribution to $400,000 a year for a total of $1.2 million over seven years. It also proposed giving the city an option to buy the substation land for 10 years paying only Ikea’s acquisition cost. The city could then use it for a community substation for other new development. The proposal was tabled for up to 60 days for more review, allowing Ikea to move forward on its store. Second Scoop Menchie’s made its second appearance on CBS’ “Undercover Boss” earlier this month. The frozen yogurt chain based in Encino made headlines last October when Chief Executive Amit Kleinberger appeared on the show. This time around, Menchie’s allowed an employee to go undercover for the brand to check up on fellow employees. “We decided to go undercover again and see if the changes we implemented made a difference,” Kleinberger said in an email. “We found a shift leader that needed more training and guidance, and we decided to see if after the airing of the episode our shift leaders were delivering more smiles.” Menchie’s held text marketing campaigns during the broadcast for viewers to receive free yogurt, which more than 60,000 people participated in. Staff Reporter Stephanie Forshee can be reached at (818) 316-3121 or [email protected].