Guitar Center goes multi-channel with Musician's Friend acquisition

DSN Retailing Today, May 22, 2000

LOS ANGELES -- Guitar Center turned up the volume in 1999. When it acquired the Oregon-based Musician's Friend last year, Guitar Center combined the largest bricks-and-mortar musical instrument chain with one of the largest catalog and Internet retailers of musical instruments.

At Guitar Center's annual meeting on May 2, Marty Albertson, Guitar Center's president and co-ceo, said that 1999 was a pivotal year for the company. "We fulfilled several of our goals this year," Albertson said.

Guitar Center's acquisition of Musician's s Friend instantly turned the company into a multi-channel retailer with a viable clicks-and-mortar retail strategy.

Based in the Los Angeles suburb or Agoura Hills, Calif., Guitar Center is the nation's leading retailer of musical instruments and related equipment. Guitar Center operated 75 stores in 36 major markets nationwide as at the end of April, in addition to its Musician's Friend catalog and Internet e-commerce site.

The acquisition of Musician's Friend boosted Guitar Center's share of the highly fragmented musical instrument sales market from 8% in 1998 to 9.5% in 1999. Guitar Center's four main competitors--MARS Music, Brook/Mays/C&S/H&H, Hermes Music and Sam Ash Music Corp.--along with Guitar enter collectively accounted for just 14.5% of total musical instrument and equipment sales in 1998.

The U.S. retail market for music products was estimated at about $6.5 billion in 1998 according to a study by Music USA.

The merger with Musician's Friend has gone smoothly, Albertson told DSN Retailing Today. "We've had a good experience folding it into our operation," Albertson said. "It filled a need at the right time for us."

The company plans to add 14 to 16 new stores in 2000 and will establish Guitarcenter.com as a separate and distinct site from Musiciansfriend.com, Albertson added.

Guitar Center also recently purchased the privately held Music Emporium retail store and catalog operation based in Rockville, Md. Guitar Center will keep Music Emporium's large retail store operation to strengthen its presence in the Washington, D.C. market, but it has shut down the company's catalog business.

Albertson added that Guitar Center obtained a 200,000-name mailing list from Music Emporium's catalog business, which it intends to use to strengthen its mail-order operation.

All of Guitar Center's fiscal vital signs were positive in 1999. Net sales for 1999 rose 28% to 620.1 million for the year ended Dec. 31, up from $485.7 million for 1998. Net income was $18.95 million, 82 cents per diluted share, for 1999 compared with $13.25 million, 72 cents per diluted share, for 1998.