Guitar Center may go from bankruptcy to an IPO in less than a year. Mattress Firm, Claire's, Guitar Center are bankruptcy survivors going from a year of shuttered stores to planning a new life as publicly traded companies.
Mattress Firm, Claire's, Guitar Center — they're all recent bankruptcy survivors whose stores you might have passed in a mall, perhaps with their doors shuttered early in the pandemic.
But this year brought an unexpected, dramatic reversal, as these chains join a surprisingly long list of retailers who aim to find new life on the stock market, looking to go public.
In Just One Pandemic Year, Guitar Center Went From Bankruptcy To Ipo
No turnaround has been more rapid than Guitar Center, which reportedly filed confidential paperwork for an initial public offering, or IPO, less than a year after emerging from bankruptcy. The company's representatives did not respond to 's inquiries.
Guitar Center started out selling home organs in California in the 1950s. But when the British Invasion hit the U.S., the founder heard the driving guitar riffs of the Beatles, the Kinks, the Rolling Stones and went all in on rock and roll. First came guitars and amplifiers, then drums, keyboards and gear. By the 1990s, Guitar Center blanketed the country as the largest seller of musical instruments.
In the mid-2000s, the chain got infected with a common retail malaise: massive debt. In 2007, it got bought by the private equity firm Bain Capital, which borrowed heavily for the deal and saddled Guitar Center with the debt that by 2020 reached $1.3 billion.
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They were anticipating continued growth, says Brian Majeski, who runs the music industry data and market research firm Music Trades. They did not expect a very sharp downturn and recession, and the growth of online (stores) that limited Guitar Center's top-line growth potential.
Guitar Center operates almost 300 showrooms plus another 229 sister stores, drawing shoppers for try-before-you-buy jam sessions, classes and rentals. In court records, the company says before pandemic shutdowns shuttered almost all locations, the chain had seen ten consecutive quarters of sales growth — but COVID-19 wiped out much of (that) progress. The retailer filed for bankruptcy in November.
Meanwhile, something completely unexpected happened. People started buying guitars, like crazy, and now Majeski forecasts 2022 to be the biggest year of guitar sales in history. He estimates Guitar Center's sales this year will reach a record $2.5 billion.
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Along with musical instruments, people picked up sports gear, fabrics, laptops and furniture, skincare products and eventually, lots and lots of new clothes.
That shopping spree made more retailers contenders for IPOs, which are typically the domain of fast-growing private companies that sell shares on the stock market.
If you think about the IPO markets, generally, it's a lot of tech companies that can show 40%, 50% growth year over year, says Eric Fisch, who heads retail lending for HSBC. And all of a sudden, these retail consumer companies are able to demonstrate that.
Guitar Center Indeed Filing For Bankruptcy
That's been true for many online retailers, but this year's IPO boom also includes a rush of old-school brick-and-mortar stores. Petco and Joann Fabrics recently went public. Up next are Mattress Firm and teen jewelry chain Claire's, both of which exited bankruptcy in 2018.
It's a dramatic symbol of how our shopping habits are breathing life back into some of these stores. But experts warn this kind of hot market and fresh attention are likely to be unsustainable, unless the retailers continue to strike new chords with their shoppers.As guitar sales plummet, some of the biggest guitar brands and retailers are facing bankruptcy. The latest is Guitar Center, which narrowly averted default and just got downgraded by S&P.
Rock n’ roll may never die. But that’s little consolation to businesses based on the once-unstoppable genre and its storied instrument, the guitar.
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Earlier this year, creditors and analysts pointed to a deteriorating financial crisis at Gibson Guitar, with a bankruptcy anticipated as early as this summer. Now, you can add Guitar Center to the watch list. Just this week, leading rating agency S&P downgraded Guitar Center to a ‘CCC—’, indicating serious risk of bankruptcy.
Guitar Center, Inc. is the largest instrument retailer in the United States with nearly 280 locations. The retailer actually got started as ‘Organ Center’ back in 1959, but eventually shifted to ‘Guitar Center’ in the 70s. That was an obviously smarter choice, with the guitar dominating the instrument landscape for nearly 40 years afterward.
But Guitar Center narrowly averted that classification with an emergency loan renegotiation involving debt surpassing $615 million. Accordingly, early this morning (April 17th), Moody’s noted that it did not consider Guitar Center to be in default. Instead, the rating agency upgraded the retailer slightly to indicate solvency.
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“All of today’s rating actions are in response to the closing of an exchange offer that was announced by Guitar Center this past March, ” wrote Keith Foley, a Senior Vice President at Moody’s.
Any shock to the system, including an economic downturn, could plunge the retailer into a crisis. That ‘shock’ could also include a sharper nosedive in guitar sales, already an instrument under duress. According to the Washington Post, annual guitar sales slipped from 1.5 million to 1 million leading up to 2017, suggesting that annual sales are currently below the million-mark.
That is punishing the largest manufacturer of guitars in America, Gibson Guitar. In February, bankruptcy fears surrounded Gibson, which faces more than $500 million in debt obligations this summer. “This year is critical and they are running out of time — rapidly, ” Kevin Cassidy, a senior credit officer at Moody’s Investors Service told the Nashville Post. “And if this ends in bankruptcy, [Gibson CEO/owner Henry Juszkiewicz] will give up the entire company.”
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Of course, the fates of both Guitar Center — the largest guitar retailer in America — and Gibson — one of the largest guitar manufacturers — are intricately linked. In both cases, these businesses have been unable to adapt to a precipitous slide in guitar sales. Younger buyers, who once drove the guitar surge, have now shifted towards EDM, rap, and less guitar-driven indie music — even though interest in music itself has never been higher.
But replacing the guitar with something else isn’t so simple. Instead of guitars, young producers and artists are often making beats on laptops, with piano keyboards sometimes an accessory. But even selling ‘everything’ — drums, keyboards, trumpets, mics, etc. — only solves part of the problem.
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