15 Years Is An Eternity

| October 15, 2012 | 0 Comments

By Dan Vedda

Anyone with more than 20 years in this business remembers a time when GC was in California, Ash was in New York and Amazon was in the jungle. Truth be told, we still had plenty to worry about. There were still catalogs, shady competitors using bait-and-switch tactics, sales reps shaking down dealers, incessant price grinders with no store or brand loyalty…the Good Old Days were no worse than today, but not much better, either.

If you take a long view of our industry, you’ll see that we’ve always had an uphill climb for one reason or another. But climb we did, through the invention of radio, talking pictures, WWII, the accordion bust, school budget woes, the death of the home organ market and so much more. There were good times: if you bought into guitars right after The Beatles appeared on Ed Sullivan in the ’60s or if you sold synths and other tech stuff in the ’80s, for example. There are still plenty of opportunities now, if you’re willing to adapt your business model to trends—and adapt again when the trend has run its course.

But I save old articles, a habit from the days before digitization. I came across a listing of the top retailers from 1997 that shows how much we’ve had to adapt in 15 years. Comparing that roster to a similar listing from 2012 is somewhat unsettling.
First, the similarities: The top two retailers are Guitar Center and Sam Ash. To make the list, you only had to do a paltry $3M in business in either year.

That’s it for the similarities.

Back in 1997, GC was careening through its acquisition/expansion phase with a vengeance, and Ash was expanding, as well. Those of us who had one in our market saw what happened to combo sales. If you had GC and Ash open near you, the shakeout was harrowing.

In 1997, some major players were still on the map—businesses that later either failed spectacularly, were acquired by the big guys or both. MARS was there…and while they’re only a meteoric memory, their flameout weakened the dealers and manufacturers that encountered them. Who else? Manny’s…Musician’s Friend…Thoroughbred…Woodwind & Brasswind…Daddy’s Junky Music…Brook Mays…West L.A….and the litany goes on: major concerns that left the retail landscape or became the chattel of one of the biggies. In the Cleveland market, Lentine’s was a $14M concern at the time. Gone.

The real problem, though, is that, even ignoring the acquisitions, the failed businesses alone left millions up for grabs, and little of it fell into the hands of the smaller survivors. There are reasons for this: Small stores were already battered when the opportunity hit, and stretching further was impossible for many. A second reason is that big begets big. If you like to shop at a big store, you’ll look for another one to fill your needs, because that’s what you value: size, selection, vibe, etc. But the biggest beneficiaries of the fallout—and, in 1997, I don’t think you can really cite them as a cause—were the Internet merchants. To have that vacuum just as online sales were taking off certainly helped to fuel the rocket. Fast forward to 2012, and many of the top 15 companies are Internet-based, from the good folks at Sweetwater to names that didn’t exist even a decade ago. GC, in the meantime, has gone from $200M+ to more than $2 billion—a factor of 10. Ash quadrupled, leveling off at about 20 percent of GC’s volume. Past those two, the drop is dramatic.

But the most recent rating doesn’t tell the most dramatic part of the story, because it leaves out one major player that I think should at least occupy the number-two spot. It’s never been transparent, and it thrives on having information that others do not have. Does anyone believe that Amazon isn’t near the top of the list?

They are crafty, the Amazons. They let us use their storefront. They watched every transaction for our products; found the best, most profitable, fastest-moving items; and, soon, “ships from and sold by Amazon” was a byline everywhere. They make it easy for manufacturers to use Amazon as their distribution center. They know what we want before we want it. And they’re selling mountains of music products.
Perhaps some of that is “found” business. We’ve talked about the number of people who don’t think of music stores when they look for music products. I’m sure some amount of sales would otherwise be missing from balance sheets.

But, to me, the unsettling part is that we don’t know anything. We don’t know how much they sell or what percentage of revenue that represents to the manufacturer. We just know there are sales we don’t get. Lots of them.

Looking back, it would have been easy to predict that most of the small stores would be gone, crowded out by the big chains, mail order or the Internet. In reality, although many have gone, there are still plenty of less-than-$5M stores around, and the low end of the listing is, if not unchanged, at least similarly constructed. But the number of big failures—many of them at the hands of lenders calling notes—decimated the largest operations in our industry. Manufacturers could only look on in horror as each bankruptcy slashed at their accounting department, strengthened by additional loss of revenue as a big dealer folded. They’ve been bailing furiously, which is why so many smaller dealers are moaning about credit strictures and personal guarantees. I don’t blame them for selling to Amazon and others: With all the failures, they needed money…NOW. In your business today, would you rather call a thousand customers hoping to generate $1M in sales, or take a check for $1M…NOW? Survival often dictates the latter.

What’s next? I won’t project 15 years forward, but, short term, I expect interesting things on school band, Internet sales tax and other fronts. We’ll watch together the next few months. Wear a helmet.

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Category: Columns, Veddatorial