Guitar Center Files For Bankruptcy

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America’s Largest Music Retailer Of Musical Instruments Files For Bankruptcy.

Recently, America’s largest retailer of musical instruments has filed for bankruptcy. The company was already struggling to compete with its online rivals before the pandemic but the temporary closure earlier in the year hit the business hard. 

It entered chapter 11 restructuring proceedings in the U.S. Bankruptcy court of the Easter District of Virginia. It will continue to pay its vendors and employees in full, according to a statement by the company. 

The company has struck an agreement with its creditors in support of a plan that reduce their $1.3 billion debt by $800 million. In addition to this they have secured funding from investors to support the bankruptcy, including a fund managed by the current owner, the private equity firm Ares Management Corporation. There will also be funds managed by the hedge fund Brigade Capital Management and the Carlyle Group, also a private equity firm. 

Guitar Center has said it expects to emerge from bankruptcy by the end of the year. 

Speaking on the news Guitar Center‘s chief executive, Ron Japinga said: “This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth.”

The bankruptcy is another example of the split in American retailers, under the current pandemic some businesses have strived and others not so much. It has been reported that people turned to activities such as learning an instrument during the lockdowns, in fact Fender reported a record breaking year for profit. 

However, most sales were through e-commerce and that is something that Guitar Centre has been able to adapt to. As mentioned, even before the pandemic Guitar Centre was struggling to keep up with their online rivals such as Sweetwater. The company was also heavily indebted as a result of a private-equity led buyout in recent years. Although the company said in a court filing that it had 10 consecutive quarters of sales growth through to the end of February. It claimed that the pandemic “Wiped out much” of that progress. 

Guitar Centre had to close many of its stores across America during the height of restrictions due to the pandemic, with 75 percent of its stores closed at one point. The business claimed that online sales increased during the pandemic but by just how much is unclear. 

The retailer started out in 1959, when founder Wayne Mitchell bought Home Organ Store but with the rise of acts like The Beatles he decided to sell guitars, thus renaming to the Guitar Centre. The business expanded and in 1997 the company went public. The company was acquired by Bain Capital, the private equity firm in 2007 for $1.9 billion. The buyout left Guitar Centre heavily indebted just as online retailers started to emerge. To help reduce debt load some of their debt was converted to equity, making Ares Management the majority shareholder in 2014. Although the $1.3 billion debt would hover over them due to the Bain takeover

Now, Guitar Centre join a slew of other struggling retailers, such as J. Crew, Neiman Marcus and J.C Penny. All who suffered with the impact of the pandemic and lockdown restrictions. 


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