GUITAR CENTER UPBEAT CREATIVITY PAYS OFF IN MARKET.

Byline: Evan Pondel Staff Writer

A sliver of light has shown through the financial gloom brought about by the recent recession with San Fernando Valley companies reflecting a first-quarter push toward an economy on the mend.

But Wall Street remains weary about whether the momentum will last as major market indexes lack convincing evidence of a full recovery. In the first quarter, the Dow Jones Industrial Average rose 3.8 percent, the S&P 500 was flat and the Nasdaq lost 5.4 percent.

``Consumer confidence was affected early in the quarter by the Enron scandal,'' said Russell Fox, a certified financial planner with American Express in Oxnard. ``But an improvement in earnings certainly helped bring some of that confidence back to the market.''

Improved confidence resonated across sectors, with Agoura Hills-based retailer Guitar Center among the main benefactors.

The nation's largest specialty musical equipment retailer reported a 10 percent gain in fourth-quarter 2001 sales, with the company's stock also in tune, rising 28.8 in the first quarter ended March 28.

But it's not the sales and shareholder approval that propel Guitar Center's success, it's the creativity that has shaped the company into a profit-driven instrument. From a single store that started out selling organs in the early 1960s to a full-service music center for professionals and wannabes, the company has proved that musical artistry has a place in the business world.

``We certainly have a buy rating on their stock ... They are obviously a market leader in their space,'' said Justin Cable, an analyst with B. Riley & Company in Los Angeles.

Indeed, Guitar Center has been able to sell a six-stringed instrument with the finesse of a marketing maestro. Inking deals with high-profile musical artists, Guitar Center has been able to lure its customers by selling the dream of rock 'n' roll stardom.

A few days ago, rap renegade DMX opened a new studio in Los Angeles, rife with mixing consoles from Guitar Center. And in January, rock group Limp Bizkit visited 23 Guitar Centers across the country to audition potential new guitarists for the band.

``The longer the passion to become a top recording star stays alive, the better our business,'' said Marty Albertson, co-chief executive officer of Guitar Center.

Albertson, 48, isn't a musician, though he enjoys playing the guitar occasionally. His expertise as a studio technician has enabled him to finely tune the company's business model. Now, Albertson leads the company as if he's managing a multiplatinum rock group, using his eye for efficiency and devotion to music.

Guitar Center has three divisions that have all been integral to the company's profitability. The flagship division, Guitar Center, has about 101 stores, catering to working professionals and the hobbyist. The stores generate around 80 percent of the company's total revenues. Though the stores offer myriad musical devices, the No. 1-selling guitar teeters between the Fender Stratocaster and Gibson's Les Paul series.

``These guitars are popular because they offer a timeless design, with flexibility and tone quality,'' Albertson said.

Another division of Guitar Center, Musician's Friend, sells music gear online. It's essentially the catalog arm of Guitar Center's business and has been a lucrative support system for the company, Cable said.

To bridge the gap between rock celebrity and high school trumpeter, Guitar Center has added American Music stores to its business repertoire. Offering a multitude of brass instruments, American Music serves schools across the country.

``American Music is a way for Guitar Center to get into band instruments without having to sell them at the stores,'' Cable said. ``You don't want to have mom and her little son mixing with people that have tattoos and are wailing on guitars.''

As Guitar Center looks ahead, the company is going to continue to seek diversification in its products. Albertson said that in the past, when a musician turned 25, or hit 30, he or she would have to decide whether pursuing a musical career was a reality. However, with the advent of the Internet, people have the ability to prolong their recording lives.

``The Internet is basically extending the life of the wannabe, which ultimately extends our business potential,'' he said.

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Photo:

(1 -- color) Oboy Felix tries out an acoustic guitar at the Guitar Center in Sherman Oaks. The firm had a 10 percent gain in fourth-quarter 2001 sales.

(2 -- color) Guitar department manager Gabe Doute test-drives a 1958 vintage Les Paul model at the Guitar Center in Sherman Oaks.

(3) Sales associate Jay Brown arranges bass guitars at the Guitar Center, whose stock soared more than 28 percent in the first quarter.

Michael Owen Baker/Staff Photographer

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