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Guitar Center’s New Times Square Flagship

...sits on 44th Street, 100 yards west of 7th Avenue, which attracts 39 million visitors annually, and an estimated 330,000 tourists a day. The heavy foot traffic has made Times Square one of the world’s most expensive retail districts, with rents averaging $2,000-per-square-foot, according to a recent report by the real estate firm Douglas Ellison. The lease on the nearby Toys R Us flagship store is reportedly up for renewal for $50 million a year. Guitar Center, however, was able to negotiate a much more favorable lease because of the basement location, according to Tim Martin, CFO. He noted, “We expect this store to generate the same 20% return on investment we achieve with all our other stores. I was actually advocating for this store, which is unusual for a CFO.” Separately, a New York real estate agent estimated Guitar Center’s annual rent at $3.0 million.

Although the store is underground, it boasts a forty-foot high Guitar Center logo sign. The first thing customers see as they descend the escalators into the store is a huge video screen with continuously running footage of an arena crowd and a sound track of applause. “We wanted to present the excitement of walking on stage,” said Kevin Kazubowski, senior vice president of stores. The store also features new fixtures and display techniques that reflect the company’s latest merchandising approach. Guitars are displayed against a curved wall of rolled steel with striking blue backlights, and speakers and sound gear are showcased in front of active LED video panels. A separate “Vintage Club Room,” with exposed brick walls and a pub-like atmosphere houses high-end electric guitars, while acoustic guitars are displayed in a cedar-paneled, climate controlled room. To better serve the potentially large tourist clientele, the store also features a shipping kiosk in the center of the store, where customers can arrange to have their purchases shipped. Calling the store “our new flagship,” Kazubowski said that GC would apply the same merchandising approach as new stores are opened and older stores are refreshed.

Like other stores opened in the past two years, the Times Square location features nine teaching studios and a GC Garage service bay for fretted instruments. The store is one of three Guitar Center locations with a wind instrument department, the others being Las Vegas and New Orleans. Kazubowski said, “With so many theater musicians in the area, we thought it was appropriate.” There is also a live Serato display positioned in the expansive DJ department.

The Times Square location is also distinguished by a new sales compensation program, according to Dennis Haffeman, executive vice president of human resources. Although not completely salary-based, employee pay will depend far less on commissions, said Haffeman, giving salespeople a more “even and predictable,” paycheck. This pay program is currently being tested at close to 40 GC locations, and is part of a company-wide initiative to become a Fortune Top 100 place to work. “The employees have been very enthusiastic about the program,” added Haffeman.

Martin said he expects that the new store will take some business from Guitar Center’s existing location on 14th Street. Judd Goldrich, whose grandfather opened Manny’s Music, and who managed the Guitar Center 14th Street location for nine years, said he expects the two stores to attract a different customer base. “14th Street is more of a pro location, Times Square will get more of the tourist trade,” he said.

Martin said the Times Square location is the first evidence of a re-invigorated Guitar Center, following the recapitalization plan with Ares Capital that was completed earlier in the year. By exchanging $500 million in debt for equity, the company reduced its interest expense by $70 million, freeing up funds for expansion. Martin said the company had identified 150 locations for new stores and would open between 15 and 20 stores a year going forward.

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