The Sales Force that Rocks
WHAT'S DRIVING THE SUCCESS OF GUITAR CENTER, AMERICA'S BIGGEST MUSICAL INSTRUMENT CHAIN? MORE THAN 4,000 EX-ROCKERS-TURNED-SALES-DUDES TRAINED TO HUSTLE—OR JUST FADE AWAY.
(Business 2.0) – VIC marks, palms pressed together, arms extended, paces back and forth, pumping up his team like a football coach before a big game. "We are the biggest and the baddest," he says, his black suit hanging casually. "But is that enough? Is that enough to win the battle?" Marks's audience, 18 in all, is rapt. Eventually one man jumps to his feet and cheers. "We're about integrity," Marks says. "We're about doing the right thing for our customers. That is how we win." Another chimes in: "We're about selling dreams."
This is the "power huddle," a session that Marks conducts each morning before the doors open at this giant Guitar Center in Jacksonville, Fla., where he is store manager. The Jacksonville outlet, launched in April, is the 145th store of this chain, which almost unnoticed—at least by anyone out of earshot—has become one of the fastest-growing retailers in the country. Its sales of electric guitars and other musical instruments and gear surged 19 percent to $1.5 billion last year, and it's opening new stores at a clip of more than two a month. Profit has more than doubled since 2002 and is expected to hit $78 million this year. At a time of treacherous markets, Guitar Center stock has tripled over the past three years, lately trading in the high 50s.
Marks and his Jacksonville men—in this case, they are all men—are typical of the people behind the company's success. Few have attended college. Half have never held a sales job. The only requirements are that they play music, love gear, and are willing to work for minimum wage, plus commission. A few will turn out to be good salespeople. A couple will be great. Most won't last a year.
Yet for Marks and his crew, the possibilities seem limitless. They have only to look to the top for inspiration. Guys like CEO Marty Albertson. He shelved his record-producing aspirations in 1979 to work the sales floor in Guitar Center's San Francisco store. Last year Albertson made $1.9 million in salary and bonuses. Or Maxx Galster. In 1988, Galster dissolved his heavy metal band, Thrustt, retired his spandex, and became a salesman at Guitar Center in Minneapolis. Today he's executive vice president for stores. Or Larry Thomas. In the 1970s he dreamed of becoming the next Eric Clapton, but faced with choosing between his marriage and his guitar, he hit the sales floor in San Francisco and never looked back. He recently retired as co-CEO, last year selling stock worth $21 million.
They're not Harvard MBAs, for sure. They're self-taught sales whizzes who cobbled together a powerful chain in an industry that most in the business thought defied such scale. It's that passion to be big, to win, to be, well, rock stars, that has driven Guitar Center's success. As Thomas, whose office includes a cedar room with some of the rarest guitars around, puts it, "We're just a bunch of busted guitar players with really big dreams."
Fortunately for Guitar Center, more people than ever are tapping into their inner Jimmy Page. Technology and offshore manufacturing are making good instruments affordable, and the Web is bursting with instructional videos, demystifications of epic guitar solos, and other material that only inspires more fervent dedication to the instrument. Pickers of all styles bought a record 3.3 million guitars last year, a 41 percent jump from the year before—not including sales from Wal-Mart and other retail giants. And it's not just guitars: Sales of digital home recording gear are exploding, and Guitar Center sells that too. Put simply, Gen Xers and baby boomers are chasing their musical dreams. Their kids are following close behind them. And for many, the instrument for realizing those dreams is the guitar.
The surging popularity of the guitar and related gear presents Guitar Center with loads of opportunity. The company's oftstated mission is to "consolidate a fragmented industry." What that means is to crush the competition. And there's plenty to be done: Despite its heft, Guitar Center controls an estimated 20 percent of the $7.35 billion instrument business. New York-based Sam Ash is a distant second, with 44 stores and sales of $350 million, barely 5 percent of the market. In a few areas, such as San Francisco and Dallas, Guitar Center claims market share of as much as 60 percent—and that's the power Guitar Center wants to command nationwide. Says Albertson, a smooth 52-year-old who has become skilled at understated business-speak, "The consolidating process is not complete."
In every guitar center, all the best-known models—Gibson Les Pauls, Fender Stratocasters—hang from ceiling to floor on what's known as "the GC wall." Amplifiers create aisles. Different departments feature drums, keyboards, recording gear. At times the place is total cacophony: multiple drummers pounding, stylistic descendants of Eddie Van Halen furiously shredding, AC/DC blaring through the in-house sound system. "We prefer to err on the side of volume," Albertson says. But it's not just noise. To management, it's all about creating "the vibe," an atmosphere conducive to fast sales.
The other essential ingredients of the business are less obvious to visitors. Guitar Center execs describe them as their core values and principles—slogans like "Integrity," "Everyone leaves delighted," "Whatever it takes," and "We're glad you're here." Basic as they sound, to aspiring rockers hungry for a day job, they serve as an effective crash course in sales. The staff is trained to learn them, recite them, and live them—that is, if they want to join the cult of Guitar Center. "We hope they get religion," says Galster, the exec in charge of keeping the all-important vibe intact.
At motivational offsites for Guitar Center's 160 store managers, held three times a year at a rock club near the company's Southern California headquarters, the corporate staff puts on skits to practice sales techniques, booze flows freely, and managers endure good-natured but brutal spot tests of their skills and of their stores. Past meetings have included a little number called "phone-shopping." A woman in a tight skirt (recruited from Guitar Center's ranks) stands onstage and spins a container filled with Ping-Pong balls, each marked with a store's number. The lucky manager is summoned to the stage, and an exec dials the store—first to see if the sales staff picks up within three rings (the prescribed maximum), then to quiz the salesperson on the phone about the company's principles, say, or techniques for closing a deal. The conversation is broadcast over the PA system; the crowd listens as the manager squirms. "If it's your store, you're just praying," says Galster, who at 45, in black suit and white dress shirt, has come a long way since his Thrustt days. "It's brutal—a complete public flogging—but very effective. You really see the truth come out."
Guitar Center has never been a soft place. Its roots stretch to 1959, when a car salesman named Wayne Mitchell bought a Hollywood store that sold appliances and organs. Mitchell, who died in 1983, dreamed of owning a car dealership, and he might have succeeded had his timing not been so fortunate. In 1964, Mitchell's organ supplier told him that to keep receiving organs he had to carry a line of amps called Vox. That year the Beatles came to America. John, Paul, and George each played through Vox amps, and Mitchell suddenly found himself with hot products. The Organ Center became the Vox Center and was later renamed Guitar Center.
The company enjoyed its first growth spurt in the mid-'70s. Mitchell hired a driven 27-year-old named Ray Scherr, who got his break while working the sales floor in San Francisco, Guitar Center's second market. Scherr says he earned a promotion to store manager after his boss didn't return to work. "He fled," recalls Scherr, now 56. "I was promoted. And Wayne said I could become a partner if I turned the joint around."
Scherr ran the store on the cheap and had zero patience for lazy salespeople. When a 57-pound backbreaker of an amplifier sat in the store longer than he liked, Scherr left it on a salesman's desk, telling him not to move it until he sold it. That failed, so Scherr made the salesman lug it home each night after closing. Says Scherr with a chuckle, "He sold it pretty quick."
Scherr, who took control of the company after Mitchell's death, sold his stake in the business in 1996, reportedly pocketing almost $130 million. His exit freed management to take the company public. Guitar Center raised about $115 million in the offering, a prelude to the hyper-growth that has occurred since.
Yet much of what Scherr and Mitchell put in place persists today. For one thing, they modeled the store after a car dealership. Just as dealerships depend on their highly profitable service departments, Guitar Center relies on accessories—fat-margin items like straps and strings that people don't haggle over—to allow other departments to underprice the competition.
Scherr also gave Guitar Center its flair for splashy, event-driven marketing. He organized guitar contests, pushed blowout sales in radio ads, and opened new stores at 7 p.m. on Thursdays, luring crowds with giveaways. When Marks, 27, opened his store in April, hundreds of customers had been waiting outside for more than three hours.
Some mornings marks psyches up his staff by showing them Glengarry Glen Ross, the 1992 David Mamet film about a group of worn-out salesmen hustling to move empty lots. Marks always plays the same scene: Alec Baldwin, looking like a high-paid Wall Street exec, dressing down his lowly crew. Baldwin mocks their clothes, their watches, their cars. At one point, he turns to sad sack Jack Lemmon and gets in a vicious dig: "Put that coffee down! Coffee is for closers only."
The scene always gets laughs, but it's meant to inspire. The not-so-subtle message: Close the deal, or else. Sell lots of guitars and you'll end up like Alec Baldwin—or, more to the point, Marty Albertson, who drives a Porsche and flies in the $10.5 million jet the company bought in March. Fail and you'll end up like Jack Lemmon, just days away from living on the streets.
That's hardly an exaggeration. The people on the sales floor at Guitar Center—some 4,000 across the country—generally get paid minimum wage. It's their bonuses that determine how much they'll eventually earn and whether they survive. For years Guitar Center paid bonuses based on gross profit, a system borrowed from the car business. As the stores began selling more high-tech gear—items with razor-thin margins—it added a slice of gross sales. In reality, though, what the salespeople earn is based entirely on commission. That's because they get bonuses only after they've earned enough in commissions to surpass their base pay—a process called "fading." Until a salesperson has faded, he's deadweight to the company. If he fails to fade for three paychecks, he could very well be out of work. "That's when I take people aside and say, 'Maybe Guitar Center isn't for you,'" Marks says.
It's a Darwinian system that works spectacularly well. Each morning at every store, the teams are assigned sales goals. At new stores the goals are based on projections. At older stores they're based on results from the comparable time a year earlier, a key Wall Street barometer of a retailer's health. Sales at stores open at least 14 months rose 10 percent last year.
Driving much of that growth is the unwritten Guitar Center mantra: "Take the deal." In the company's early years, the stores were run like used-car lots. Salespeople would negotiate a price, slip off to the back office for a conversation with a manager, and return to demand another $32. These days, gear is labeled with tags advertising a "guaranteed lowest price." But customers who know better—called "grinders" in-house—can always push the price lower. "It's a secret Guitar Center doesn't want people to know," says one sales-man. "No two people ever have to pay the same price, and within reason, you can name your price." Unless it's costing the store money, he says, "I've got to take the deal."
The good salespeople go all out to learn the trade. They get customers' phone numbers and follow up with a call a few days after a sale. They amass an electronic card file with thousands of contacts—the equivalent of the Glengarry leads. They make house calls to set up gear. "Call somebody on their birthday," Marks suggests to his men. "I've done it."
The hustle doesn't stop at closing time. After salespeople lock the doors, they grab vacuums and toilet brushes and go to work. Cleaning helps build store pride, Marks explains. But it wears on some, and if they haven't faded recently, toilet patrol only compounds the misery. "That's the only time of the day when I'm questioning what the hell I'm doing," says another salesman.
It's no surprise, then, that Guitar Center sports one of the highest annual employee turnover rates in retail—95 percent, compared with the industry average of 60 percent. Guitar Center is trying to combat the problem by expanding its human resources department and teaching sales managers better interviewing techniques. "We need to know not only that you are a musician and that you will work six days a week, but whether you have the DNA to make a successful salesperson," Galster says. The measures are helping: Just two years ago, Guitar Center's turnover stood at 160 percent.
The high turnover creates a unique challenge. Unlike, say, selling a TV, selling guitars and other musical gear can require a deep range of understanding—about wood, electronics, sound qualities, musical styles. And as gear gets more complex, the sales force needs constant training. Guitar Center does lots of training, and vendors regularly send reps to stores to teach salespeople. But with so many stores and an ever-changing crew, it's a never-ending task. "Training the people at Guitar Center is like painting the Golden Gate Bridge," says Paul Youngblood, director of U.S. sales for Roland, a $600 million company that makes keyboards and other gear. "You paint, you're done, and then you have to start right over again."
Other problems arise from the constant sell-sell pressure. Last February, Rickenbacker guitar fans alerted the company that Guitar Center's Boston store was selling a fake Rickenbacker as genuine. The only part that was real, says Rickenbacker CEO John Hall, was the nameplate—but that was enough to fool the salesperson who took the guitar as a trade-in.
Hall says he called a contact at Guitar Center's headquarters, and the store pulled the guitar off the floor—but not until a week later. A few days after that, the guitar resurfaced on eBay, advertised by the Boston Guitar Center's eBay dealer as a Rickenbacker knockoff with a genuine nameplate. "The shape of the guitar. The nameplates. All of these are registered trademarks," says Hall, whose father supplied guitars and basses to all the Beatles. (Even Ringo owns one.)
This time Hall took his complaint to eBay, which canceled the auction. Yet the matter still wasn't dead. The guitar was also listed on an auction site called InstrumentExchange.com, with which Guitar Center is closely allied. Hall then complained to the site and had the auction killed. This all happened just weeks after Hall had ended Rickenbacker's 38-year relationship with Guitar Center stores over an unrelated issue.
Company execs have been trying to lure Hall back, but the chain's sales force isn't making that easy. In late May, Hall discovered two more stores selling Rickenbacker knockoffs. "Their salespeople are out of control," says Hall, who has voiced his complaints to Keith Brawley, one of Guitar Center's top buyers. In an e-mail to Hall, Brawley wrote, "Again I find myself in the embarrassing position of apologizing for the sales activity of one of our stores." Guitar Center, when asked for a response, provided only a written statement, calling the situation an "isolated incident."
Such problems are unlikely to slow Guitar Center's momentum, however. Its sales volume makes it a sales channel that most vendors not only want but need. And Albertson's team is constantly scanning census data in search of new markets. The company recently bought Music & Arts Center, moving Guitar Center firmly into the student market with the addition of a 62-store chain that rents band instruments and provides lessons. Then there's Musician's Friend, the company's online business and the biggest of its kind in the music industry. Last year it grew 20 percent with sales of $311 million. And Albertson is targeting foreign markets too. Within three to five years, he says, Guitar Center should be up and running in the United Kingdom. He's also eyeing Germany and Japan. "We're looking at anywhere with a lot of people and a huge music culture," Albertson says.
In other words, anywhere the company can hire people with big dreams to sell to people with big dreams. If all goes well, Marks's Jacksonville store should become profitable in four months, typical for Guitar Center. Each day he reminds his men to think big. "It was my dream to be where I am right now," says Marks, who dropped out of college before landing a job selling drums at a Guitar Center outside Atlanta. "Ask yourself, What is your goal? What is your dream?"
For the hordes of customers who lined up at 5:30 a.m. outside the Jacksonville store for the blowout Memorial Day sale, the dream was simply to score a deal. Within minutes of the 8 o'clock opening, the decibel level inside was at ear-piercing volume. And, for a moment, Marks and his men were rock stars.