Guitar Center CEO Pratt explains what it takes to succeed in the online era
...to sit down with The Music Trades to discuss the state of retailing and the direction of the world’s largest music products retailer.
Just shy of his one-year anniversary as CEO, Pratt came to Guitar Center from Best Buy Canada, where he served as president and chief operating officer. He describes himself as an “accidental retailer.” He went to work on the sales floor of Future Shop, a consumer electronics retailer, in 1990 after graduating from the University of Western Ontario, not because he had a burning interest in retail, but because it was the best job offer that presented itself. However, motivating store personnel and creating a positive customer experience were challenges that quickly captured his imagination, and he soon became a highly focused specialty retailer.
His talent and energy attracted the attention of upper management and he rapidly ascended the corporate hierarchy. Best Buy acquired Future Shop in 2001, and in 2010 Pratt was put in charge of the combined operation.
A people-oriented manager, Pratt operates by the maxim “smart people can figure it out,” i.e., success is largely determined by putting capable people in key positions. A major reason he left Best Buy was the quality of the Guitar Center staff, which he calls “an extraordinarily passionate and talented group.”
The other component necessary for success is a clear vision. In the next few months, Pratt will be outlining the specifics of his vision for Guitar Center. The details are still under wraps, but he hints that it will involve investments in brick-and-mortar stores, a revamped approach to online selling, and new personnel initiatives.
MT: In the past, success in retail seemed to depend on a combination of good store location, effective sales training, and appealing merchandising, backed by some creative promotion. Now, when you read about retailing, there is constant talk of servers, fulfillment rates, code, etc. What do you see as the essential skills necessary to be successful in retail today?
MP: That’s the million dollar question, isn’t it? I think I could probably answer that several different ways, but if I had to boil it down to a single idea to drive our retail success this year, it’s our people. Our ability to provide the best customer service in the business is going to start with our people at the foundation. If we don’t get that part of the formula right, nothing else matters.
MT: The business press is regularly writing obituaries for brick-and-mortar retailers, contrasting the disappointing results from companies like Best Buy with the tremendous sales growth at online operators like Amazon.com. What’s your take on the future prospects of traditional brick-and-mortar stores, and more specifically, how do you keep Guitar Center relevant at a time when more consumers are going online to shop?
MP: I feel like I’ve been fielding that question for years, and I think it’s a much more complex issue than whether or not brick-and-mortar stores are going to be able to grow as digital commerce becomes increasingly popular.
There are a lot of things the web provides consumers that might appear to take away from a big-box experience, but in equal measure you can see that there are a lot of things that the web still can’t offer consumers. At the end of the day, the best retailer isn’t going to win with just a pure play. Yes, we need to have a strong e-commerce offering across all our brands, but we have to create an incredible in-store value proposition too. The future of retail is about the unique combination of these two ideas. It’s about creating seamless channels for consumers to shop wherever and whenever they want.
MT: Specialty retailers stress the importance of “customer experience.” Could you describe the ideal experience at your stores, and what you’re doing to ensure that the real-life execution measures up to the ideal?
MP: If you want to create a successful experience for your customers, you’ve got to really listen to them first. Customer experience has always been something I think we do quite well because of the kinds of people we have working in our stores. The vast majority of them are passionate musicians themselves, so there’s a common language and understanding they create with our customers the minute they walk in the door.
We’re working extremely hard to help our customers along their musical journey, wherever that goes. It could be as simple as buying their first instrument or taking it to the next level with lessons and production and recording training. There’s also an enormous appetite amongst musicians to share the music they create—within their own social and community networks, or potentially even larger audiences—and we’re rolling out a number of programs this year that are going to really enhance that for our customers.
MT: On a related topic, how do you motivate your 10,000 employees and keep them focused on delivering this experience day in and day out? (For an industry composed of small operations, effectively leading such a large group is almost incomprehensible.)
MP: Trying to motivate 10,000 people is an incredibly difficult task. What I can do is set a tone for my leaders and the entire organization. I make myself accessible to them, listen to what they have to say, and then respond appropriately.
I’ve learned a lot about this organization through very intense store tours across the country last year. They’re telling me a lot about what we’re doing right, and where we need to improve things as an organization, and it’s been invaluable for me. In March, I’ll have been with the organization for just under a year and I’ll be ready to share with them my vision of what Guitar Center can become. When you have this many associates spread across the country, it’s incredibly important that the company vision is shared clearly and that everyone is aligned on how we’re going to get there.
MT: You’ve cited making Guitar Center a “best place to work” as a goal. Your thoughts on how to achieve that ambitious goal, and how it benefits the company.
MP: This is a journey that pays dividends on many fronts. Music is a common thread that binds us together in a very positive way. Taking that same passion for music and coupling it with how we work together in the right environment allows our teams to do what they do best every day. We will continue to be responsive to changing the rewards that move us closer to being the best place to work. Simple formula: great place to work equals engaged associates, which translates into loyal customers and a win for all of our stakeholders.
MT: A lot of big box retailers are either downsizing their store locations, like Best Buy, or bringing new store openings to a virtual halt, like Home Depot. Why do you continue to open new stores?
MP: It makes good business sense for us. One hundred percent of our stores are profitable—every single one of them. New store openings will continue to be a critical part of our overall growth, but I think it shows how far we’ve come as we successfully open stores in smaller markets than we ever thought possible just a few years ago.
MT: Do you look to retailers outside the music industry for ideas and inspiration? If so, what are some of the ones you watch, and what do they have to teach?
MP: Naturally we look at all our competitors and we pay attention to what’s happening across our industry. I probably spend an equal amount of time watching what some of the more innovative or disruptive companies outside our space are doing as well. I’m interested to look at more than just a marketing campaign, such as what are the trends forming across different industries and which companies seem to be adapting well to them.
Beyond who I’ve been watching within the industry, I think there’s some great insights to be learned with respect to customer experience from Nordstrom, branding from the Ultimate Fighting Championship, and media content from Red Bull...just to name a few that come to mind.
MT: On the subject of direct-response retailing, previously the company seemed to try to integrate Musician’s Friend into the Guitar Center organization. With the recent appointment of Gene Joly to head MF, it appears that you are going in the opposite direction. Could you explain your strategy for Musician’s Friend, how it differs from Guitar Center, and why you want the business to maintain a degree of autonomy?
MP: We’re planning a larger roll-out of our strategic vision in March, so I can’t say too much about that yet. What I can tell you is that both Gene Joly and Kenny O’Brien (CEO, Music & Arts) are two extremely competent leaders with the intellectual horsepower to drive both their respective organizations forward on their own merits.
I have a tremendous amount of respect for what each of them brings to the table and ultimately I’m very focused on supporting them to ensure we’re aligned and creating synergies in as many ways as possible.
MT: Ever since the financial crash in 2008 we’ve read stories about how consumer behavior has changed. At Best Buy Canada, and at Guitar Center, you’ve had firsthand access to a lot of consumer data over that time frame. Does the data support this idea that consumer behavior has changed, and if so, could you offer some anecdotes or examples that explain how it has changed.MT: The music products industry currently seems to be facing two headwinds. First are the exhaustively documented economic issues with high youth unemployment and continuing consumer caution topping the list. Second is the migration of hardware products to software that is increasingly sold outside traditional retail channels.
MP: I’m not convinced that consumer behavior has changed that dramatically since 2008. Even before the crash we saw an uptick in mobile commerce and online purchasing that represented a shift in how consumers were shopping. Five years later, I think consumer confidence has mostly returned, but now value has become more important than it probably was previously.
While consumer behavior may not have changed that much, their expectations seem to have shifted dramatically. I think consumers are looking at more than just price; they want to see value in how we’re standing behind our products or what additional services we can offer them to enhance their purchases or in-store experience.
When I worked in consumer electronics, it was no different. Over the last five years the consumer has been telling us that they want a seamless multi-channel experience. That’s not a change—it’s a clear expectation. Moving forward, we’re going to be incredibly focused on ensuring we meet that expectation for them.
MP: There’s no question that some of these macroeconomic headwinds make it all the more important for us to create new musicians and grow the total market, as opposed to just surviving on share shift. As the largest m.i. retailer in the world, we consider it a part of our responsibility to grow that pie. The new brand marketing campaign we’ve launched this year was developed with that in mind. It connects with consumers on the emotional level and speaks to what musicians experience when they play—what we’re calling “the greatest feeling on earth.”
In addition to that, we’re building out our GC Studios program to complement this strategic objective. We’ve also added in-store workshops, free guitar lessons, and localized events to entice new musicians. With respect to the migration of software outside of traditional channels, part of addressing this effectively is really about adapting to customer buying habits evolving the way we deliver software to our customers through the multi-channel approach I spoke about earlier.
MT: Over the past 30 years, what we call the music industry has evolved dramatically, from a business where the largest segment involved providing pianos for little girls to take lessons on, to one dominated by fretted instruments and a slew of recording and sound products. This evolution is ongoing, and by virtue of GC’s scale, you have the best perspective of where the industry is going. Any thoughts you would be willing to share on this?
MP: I absolutely agree that the industry has evolved dramatically. This year marks Guitar Center’s 50th anniversary, and as I look back at the different historical milestones along the way, that becomes extremely apparent to me.
There have been many broad shifts over time from lower tech product categories to higher tech product categories. The shifts from acoustic to e-drums and from passive to powered speakers are just two examples. But we’ve also seen moves back to “lower tech” within categories too. Acoustic guitars also continue to grow dramatically for us, and the increases for folk and bluegrass-fretted instruments have been even more explosive.
MT: As the industry’s product mix shifts with the increased popularity of electronic dance music, how are you adapting your stores and personnel to address this shift? And is the “Guitar Center” name a limitation?
MP: You can definitely see that the popularity of newer musical genres complement the growth we’re seeing across our high-tech categories. It’s a trend we’re acutely aware of, and there’s no question that our customers are looking to us to expand in this category. I think that the Guitar Center brand has earned a lot of equity with our customers, so we don’t see this as a limitation.
We’re never going to abandon our core, but our brand strength allows us to support changes like this without any significant downside. We’ve also positioned tech crossover categories like headphones and recording in more prominent positions across all of our stores, and customers are responding favorably to this.
We’ve even created destination fixtures for iOS-based product and accessories, and that’s another bold step into a category that I think is just beginning to warm up. At the end of the day, consumers are becoming increasingly interested in this kind of gear, and Guitar Center offers more in tech-related categories than most m.i. dealers, so I think we’re in a great position to service them in this capacity.