​​​MEMORANDUM

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From: Marcus Petitt, Research and Development (ABOUT MARCUS)
To: Clark Hansen, CEO
Subject: Guitar Center, Inc.: Qualified for an AMDP Investment?
Date: October 16, 2012



You asked me to recommend a business worthy of receiving an investment from Anima Mundi Development Partners. I was going to recommend Guitar Center, Inc.; however, after extensive research, I have concluded that Guitar Center is not worthy of receiving such an honor. Here are several reasons why Guitar Center should not be considered to receive funding from Anima Mundi Development Partners at this time:

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1. Guitar Center, Inc. has received mixed reviews on employee and customer treatment
2. Guitar Center, Inc. has failed to meet certain areas of its triple bottom line

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For your convenience, I will briefly explain what constitutes a corporation’s triple bottom line.

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​The Triple Bottom Line: What Exactly Does It Mean?

The three major components of a company’s triple bottom line are:

1. People: the way in which a company chooses to treat and/or engage its customer, supplier, and employee in business
2. Planet: the awareness and commitment of a company to address ecological issues like waste, energy, carbon emissions; and social issues like poverty and education (also known as CSR or Corporate Social Responsibility)
3. Profit: the growth and sustainability of a company’s finances for internal and external operations

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Building a comprehensive strategy for engaging people, addressing the planet, and making a profit will certainly contribute to long-term success in business. Modern-day consumers are placing higher expectations on businesses – both large and small. As we both know, it’s not simply about presenting a great product anymore. In many ways, the focus has shifted. Businesses today must also compete on the basis of customer service, human resources, and corporate social responsibility to stand out.

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​Guitar Center, Inc.: Who Are They Anyway?

Guitar Center, located in Hollywood, California, first debuted in 1959 as The Organ Center – a retailer of both home and church organs. Today, this multi-billion-dollar corporation stands as “…the world’s largest chain of musical instrument stores in the United States, with more than 225 Guitar Center stores located across 43 states as of March 22, 2012” (IBISWorld). Guitar Center sells a variety of instruments and owns nearly 35.4% of the market share according to IBISWorld reports. In 1997, the owners of Guitar Center made an Initial Public Offering to promote the company on the stock exchange. Nearly 10 years later, Bain Capital Partners, a well-known private investing firm, acquired Guitar Center for approximately $1.9 billion – changing its designation once again from public to private. Today, Guitar Center, Inc. operates using several different business models, including: brick-and-mortar stores, online retail markets, and catalog orders (known as ‘Musician’s Friend’).

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If you asked a Senior Executive at Guitar Center, Inc. how the company is doing, you might get a response similar to the following (found on the company’s website): “With clear-cut goals and good old fashioned customer service that caters to the musician’s every need, Guitar Center still proves more than ever to be a strong link between musicians and the tools of the trade” (Guitar Center Website). But as a trusted AMDP representative, I decided to take a deeper look. Are customers and employees really feeling the same way? Here’s what I learned.



​Employees, Suppliers, and Consumers: How Are They Treated?

“…[Guitar Center, Inc.] has long grappled with employee turnover rates of 100+%, leading to high training cost for new employees” (Finch Brands). To address this issue, Guitar Center, Inc. partnered with Finch Brands – a Philadelphia-based brand design company – to conduct a research study. The study resulted in a new program for employees entitled, GAIN Up, designed to motivate salespersons in Guitar Center retail outlets across the country by offering employee discounts, promotions, and priority information.



​Corporate Social Responsibility: What is Their Plan?

Guitar Center, Inc. introduced several new CSR initiatives in 2008 and 2009 to demonstrate its commitment as a socially responsible business. However, its recent CSR programs have not been too consistent. For example, Guitar Center, Inc. coordinated a National Food Drive in 2009 and according to PR Newswire, “[a]ll of Guitar Center’s [then] 214 retail locations…participate[d] in the food drive to benefit 124 local food banks” (PR Newswire). The food drive was quite unsuccessful, considering that among 214 retail stores nationwide, Guitar Center could only garner approximately 53,000 cans for food banks around the United States. Moreover, this CSR initiative was seemingly random and unrelated to Guitar Center’s central mission. On the other hand, however, Guitar Center, Inc. founded a non-profit program in 2008, known as The Guitar Center Music Foundation. The purpose of this organization was to benefit and support music education programs across America – to increase access and the number of available resources to students. While I admire the effort, it appears as though Guitar Center has done little to develop a long-term CSR plan – a reason to question its sustainability moving forward.



​Finances: How Do the Numbers Compare?

Guitar Center Inc.’s inability to generate profit over the last few years has increased due to the recent recession and ever-increasing competition within the industry. Despite low revenue totals in 2009 (approximately -7% from 2008), high debts associated with the 2007 Bain Capital Partners acquisition, and employment cuts in both 2008 and 2009 (approximately -1.3% from 2007 and -1.4% from 2008), Guitar Center, Inc. has been able to stay afloat.

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The recent economic meltdown changed the world and resulted in less disposable income for many families. IBISWorld reports show that Guitar Center customers were thinking twice before purchasing new musical equipment – especially in 2008 and 2009. During this period, Guitar Center clients became less likely to sacrifice their paycheck for the satisfaction of owning a shiny, new instrument. Smaller competitors have also gained traction in the marketplace by offering personalized products and services to their customers.



​Investment Opportunity: What is the Verdict?

Will Guitar Center, Inc. survive the next decade? The future still seems so unsure. Therefore, I would advise Anima Mundi Development Partners to focus its investments elsewhere. Partnership opportunities may be available in the future but there are several internal adjustments that Guitar Center, Inc. should consider before our firm gets involved. Let’s wait to see how Guitar Center weathers is current financial storm and how Guitar Center, Inc. decides to unveil future CSR initiatives within the next few years. Who knows what the future could hold.

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Works Cited

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Finch Brands. (2011). Guitar Center: Rocking the Legions. Retrieved from Finch Brands Website: http://finchbrands.com/wp-content/uploads/2012/03/GuitarCenter.FinchBrands.pdf



Guitar Center. (2012). Over 200 Stores…and Growing! Retrieved from Guitar Center, Inc. Website: http://gc.guitarcenter.com/company/2000s.cfm



PR Newswire. (2009, October 26). Guitar Center Launches Nationwide Food Drive. Retrieved from PR Newswire: http://www.prnewswire.com/news-releases/guitar-center-launches-nationwide-food-drive-65974067.html



Waterman, Justin. (2012). Musical Instrument & Supplies Stores in the US industry report. Retrieved from IBIS World: www.ibisworld.com