From the Bandwidth Business Desk: In 1995, after he was brought in as a consultant for Ace Music, former Office Depot prez Mark Begelman purchased five Ace stores. For years, Ace had dominated South Florida instrument retailers; when Begelman took over, he retitled the chain MARS Music, and he staffed key positions with Office Depot higher-ups.
Begelman built a coast-to-coast empire in less than five years, exponentially growing, always adding more and bigger stores, all the while spending massive sums on advertising. In 1997, the chain expanded to carry DJ equipment, home recording gear, and all sorts of electronic gadgets -- then proceeded to bleed nearly $50 million in red ink during the next 24 months.
Early last year, MARS closed 11 stores, signaling the beginning of the end. Yet Begelman predicted that MARS would emerge, restructured, with a positive cash flow, by December 2002. On September 27, however, MARS filed for Chapter 11 protection. In early October, all the firm's assets were unloaded in "liquidated to the bare walls" auctions held all over the country, helping out starving musicians who were able to pay rock-bottom prices for new Marshall stacks and Ibanez basses.
So how did Begelman -- a rock 'n' roller at heart --drive the 50-store, 20-state big-box chain into the ground with such efficient expediency? A classic case of overexpansion, observers say.
Mike Crosthwait, now general manager for Guitar Center's Kendall store, helped run Ace, starting with the firm in 1976, but bailed after Begelman came aboard in November of 1995.
"He didn't understand the music business," Crosthwait recalls. "From the get-go, I didn't think he had a clue. I stayed with them for about six months -- that was all I could handle. He thought anyone left over from Ace was an idiot. He underestimated the technical part of the music business, where it takes people to explain the gear to the customer. He overestimated his ability to market 45,000-square-foot boxes, and he never made enough money to support those buildings. He never had a working model before he rolled out 50 stores. I didn't see how it could be profitable at all."
MARS Music employees generally looked like Office Depot retail clerks, not musicians, and the low pay offered them made it difficult for the stores to hang onto quality employees. The store called itself "The Musician's Planet," but many folks, especially professional gig-players, seemed to view it more as Musician's Wal-Mart. As such, MARS probably sold more strings and picks than high-dollar items. The chain's advertising budget seemed to necessitate higher prices across the board, but this was a company that lived to spend: One of MARS' biggest attention-grabbing attempts was buying (for $3.3 million) the rights to rename Coral Sky Amphitheatre just two years ago. Earlier this year, the shed reverted back to Coral Sky; after last month's events, the MARS name is all but dead.
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Left holding a big-ass empty bag are music instrument manufacturers like Fender, Roland, and JBL: about $290 million is owed to creditors at this point. Even longtime corporate employees were kicked to the curb without severance packages. Speculation abounds that Begelman set himself up with a comfortable retirement plan while his investors got the shaft. Crosthwait remembers Begelman as "a hell of a salesman" and a great public speaker but believes MARS was out of touch with what musicians needed.
"From day one, I called them the Incredible Universe [an electronics dealer who constructed 100,000-square-foot big-box warehouse/retailers] of music stores," he says. "They had every piece of merchandise in the world, but I remember not being able to go in there and talk to anybody about how the gear worked. I think if Mark could've put kiosks in and had you hit touch screens and then the guitar would be spit out at the warehouse, I think he would have done that. He left out the interaction between the salesman and the musician."
Crosthwait says there are still more than 5,000 music-instrument retailers across the country, and most of them are small, independently owned businesses. "I think the mom-and-pops will survive even if the big-box stores move in," he says.
Yeah, but what if monstrous, multitentacled Clear Channel adds a music-instrument chain to its vast holdings? Then one could buy a guitar from Clear Channel, play a concert at a Clear Channel-operated venue, and have songs played on a Clear Channel-owned station. Now, if that's not a monopoly...