Best Buy + Guitars = No Threat to Guitar Center, Yet

Best Buy hasn’t become the last man standing in the notoriously fickle electronics retailing business for nothing.

Few other retailing concepts generate as steady a rate of failure as electronics retailing—falafel stands in Fargo, North Dakota, I suppose—and the formerly large publicly traded electronics retailing flameouts I can name without pausing to think about it includes Crazy Eddie, Newmark & Lewis, The Good Guys! and CompUSA.

(Circuit City looked like it was coming close to joining that parade, but it’s still standing up, although not quite as tall as Best Buy.)

Best Buy has managed through electronics product cycles better than anybody: the corporate culture is terrific at focusing on new product categories and dominating them, re-formatting the stores when necessary to accommodate what customers want—home theater being the latest example.

Which is why I was intrigued to hear Guitar Center management mention a Best Buy experiment in musical instruments on their earnings call recently.

Other than the fact that the Best Buy store was in Riverside California, Guitar Center claimed to know little about how it was going or what it might mean—except that it would no doubt expand the category by encouraging many more consumers to pursue their inner Joey Ramone, as it were.

(“Expand the category” is what every retailer in existence has said whenever a bigger, better-run player has moved into their category. I wasn’t there at the time, but I imagine that when smallpox-infested whites began settling the Eastern Seaboard, the more optimistic Native Americans were telling their friends the pasty-skinned intruders would “expand the category.”)

Having been to Riverside, I can report that while Best Buy’s musical instrument effort is decent enough, it is no Guitar Center—yet.

The most impressive part of the whole thing, in my opinion, was the fact that Best Buy carved it out of the rear corner of the store in such an unobtrusive way that it’s hard to remember what had been in that corner before. It’s big and airy, but it fits the store. You wouldn’t know it hadn’t always been there.

The second impressive aspect is that, yes, there are real guitars—Gibsons, mainly—hanging up across the back wall, in Sam Ash/Guitar Center-fashion. While not nearly as comprehensive, it does tell you they’re selling something besides a plastic grab-and-go disposable gift-pack for somebody’s birthday.

There’s also a glassed-in room with acoustic guitars set up so users can try them out. And along the other, non-guitar wall (we’re in the corner of the store, remember) is a row of computers set-up to show how to create your own home studio. I was told this gets a lot of traffic.

That’s the good stuff—from my point of view, as a hack-drumming semi-regular customer of local Guitar Center and Sam Ash stores.

The rest of the lay-out was weak, I thought, with a very limited set of song books and accessories, and a haphazard collection of electronic pianos and synthesizers scattered around the floor, along with stacks of the grab-and-go guitar/amp starter sets.

Furthermore, the second glassed-in playing room was stuffed with electronics and a measly single set of drums—not very inviting. (It was explained to me that when the drums had been out in the open they attracted a little too much attention from boys.)

On the whole, the new musical instrument section in the Riverside store makes a good first impression, although I doubt it will siphon off the hard core Sam Ash/Guitar Center customers. Eventually, however, I suspect Best Buy will get it right.

Up to now, the musical instrument business has operated in a relatively quiet backwater of Big Box consumer retailing.

Whether Best Buy “expands the market” for the current market leaders, or does what the whites did to the Native Americans, remains to be seen.

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.