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Musician's Friend stays afloat online

In the recent age of dot.com nose-dives and the unfriendly bear market they helped spawn, success stories are few and far between in a horror-stricken dot.com world.

Retailers across the country have watched intently, first with apprehension and recently with vindication, at the rise and fall of Internet marketers who said they would redefine retail.

One notable exception, however, is Musician's Friend, a musical instrument retailer born out of an Eagle Point garage. Musician's Friend could write the textbook on what it takes to succeed online.

Company managers don't take credit for the birth of the hugely successful Internet division.

"It wasn't a management decision," said Rob Eastman, Musician's Friend chief executive officer. "It was some of our guys who said, 'Hey, this is something we'd like to work on'."

That was five years ago.

Now, the Internet staff hangs out in a dark second-floor corner of the company's Medford distribution center - long hair, no hair, tattoos, irreverent grins and very little concept of creative constraint.

What started just a few years ago with "a part-time guy, a cheap computer and an Ashland ISP" now constitutes 40 percent of the company's multi-million dollar business, Eastman said.

"They started showing us what was available," Eastman said. "I was pretty ignorant of the Internet at that time."

Musician's Friend moved its Internet call center to Bellingham, Wash., where the telecommunications infrastructure could handle the online business, which was growing exponentially. Two distribution centers were added in Knoxville, Tenn., and Kansas City, Mo.

Online sales for the last quarter of 2000 were $16.5 million, a 123 percent increase over $7.4 million for the fourth quarter of 1999. Now, Internet sales account for approximately 40 percent of Musician's Friend's overall sales.

The success behind Musician's Friend was knowing the mechanics of the business before touting it to a fiercely demanding marketplace, Eastman said.

Musician's Friend began marketing its wares in 1983 through direct-mail catalogs and out of retail stores. The company merged in May 1999 with Agoura Hills, Calif.-based Guitar Center.

Following that move, Musician's Friend handed storefronts to Guitar Center and concentrated on the catalog and Internet marketing.

A point of pride for Musician's Friend: software running the burgeoning online presence was written entirely in-house and continues to be developed by company programmers, many self-taught.

Initially, the Web site was designed and launched by Chris James and Eric Meadows as a way to communicate with customers and peddle catalogs.

"The Internet was really just another marketing channel," said Meadows, now the company's Internet director. "The dot.coms that you see going out of business right now never had a good profit model in the first place. If you spend $3,000 to acquire a customer who's going to spend $150 ... you're going to go broke."

Dot.com failures can be attributed mostly to those who had little, if any, business experience, Eastman agreed.

"But they had no idea what to do when the (product) returns started coming in," he said. "They didn't realize 10 to 20 percent of that stuff comes back."

Now, Eastman said, businesses exclusively marketing via Internet are examining direct marketing methods closely. "Now, they're attending catalog conferences to learn what has been done since Sears and Roebuck started doing it 100 years ago," he said.

"The Internet was an easier place to launch into six months to a year ago," Eastman added. "You used to be able to get (launched) just because you said (the company) was a dot.com. Right now, I'd hate to be anyone trying to enter the market. Wall Street just doesn't want to see it."