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From bankruptcy to IPO in a year? It's a tune Guitar Center might play

Oct 20, 2021
Originally published on October 20, 2021 3:43 pm

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.

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 NPR'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.

"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."

Debt led Guitar Center toward bankruptcy, and the pandemic became the catalyst.

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.

Along with musical instruments, people picked up sports gear, fabrics, laptops and furniture, skincare products and eventually, lots and lots of new clothes.

Retail spending went from one of the worst years to one of the best.

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."

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.

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SARAH MCCAMMON, HOST:

Mattress Firm, Claire's, Guitar Center - they're stores you may have seen in a strip mall, maybe with shuttered doors in the pandemic. All have survived bankruptcy, but this is their year for a dramatic reversal as these companies search for new life on the stock market, looking to go public. NPR's Alina Selyukh zooms in on Guitar Center, whose turnaround is particularly rapid from bankruptcy to a potential IPO in less than a year.

ALINA SELYUKH, BYLINE: Guitar Center actually started out selling organs for people's homes in California in the '50s, but then...

(SOUNDBITE OF SONG, "SHE LOVES YOU")

THE BEATLES: One, two.

(Singing) She loves you, yeah, yeah, yeah. She loves you...

SELYUKH: Beatlemania and the British Invasion hit the U.S. The founder listened to the driving guitar riffs of The Beatles, The Kinks, The Rolling Stones...

(SOUNDBITE OF THE ROLLING STONES SONG, "(I CAN'T GET NO) SATISFACTION")

SELYUKH: ...And went all in on rock 'n' roll. First came guitars and amplifiers, then drums and keyboards and tons of gear. And now Guitar Center is the largest seller of musical instruments in the country, says Brian Majeski, who runs The Music Trades, a music industry data and market research firm.

BRIAN MAJESKI: Guitar Center's basically blanketed the nation.

SELYUKH: In the mid-2000s, Guitar Center got infected with a common retail malaise - massive debt. It got bought by a private equity firm, Bain, which borrowed a ton of money for the deal, in theory, to be offset by the store's booming future growth.

MAJESKI: They did not expect a very sharp downturn in recession and the growth of online that limited Guitar Center's growth potential.

SELYUKH: Guitar Center's debt reached $1.3 billion, and that is what landed the chain in bankruptcy protection last year. The pandemic served as a catalyst. That's because the retailer's heart and soul has always been at stores...

(SOUNDBITE OF MUSIC)

SELYUKH: ...With their jam sessions, classes, rentals, instruments to try before you buy. Suddenly, pretty much all of them had to close. The company's 10 straight quarters of sales growth - court records say they got virtually wiped out. The debt crushed the bottom line. But then something else unexpected happened. People started buying guitars like crazy at record levels.

(SOUNDBITE OF MUSIC)

SELYUKH: They began picking up all those musical instruments they suddenly had time to learn. Actually, they did all kinds of shopping, says Eric Fisch, who heads retail lending for HSBC.

ERIC FISCH: What happened very quickly was we all went from that sort of crazed state to a more long-term view of the lockdown. And what else was there to do but start shopping?

SELYUKH: Suddenly, retail spending went from one of the worst years to now one of the best. This made more retailers contenders for IPOs, typically the domain of fast-growing private companies deciding to sell shares on the stock market.

FISCH: If you think about the IPO markets - right? - generally it's a lot of tech companies that can show, you know, 40%, 50% growth year over year. And all of a sudden, these retail consumer companies are able to demonstrate that.

SELYUKH: That's been true for many online retailers. But this year's IPO craze also includes a rush of old-school brick-and-mortar stores. Petco and Joann Fabrics recently went public. Up next are Mattress Firm and team jewelry chain Claire's. Guitar Center is reportedly planning on it, though it's barely out of the bankruptcy weeds. It's a dramatic symbol of new life that our shopping habits are breathing back into some of these stores. But experts warn this kind of hot market and fresh attention might be unsustainable unless the retailers keep striking new chords with their shoppers.

(SOUNDBITE OF GUITAR PLAYING)

SELYUKH: Alina Selyukh, NPR News.

(SOUNDBITE OF JEFF BECK'S "BECK'S BOLERO") Transcript provided by NPR, Copyright NPR.