Gear4Music founder Andrew Wass followed his passion into selling instruments online — but getting banks to play along is still proving tricky.
Andrew Wass has been in the wars — which might be good news for his online music store. Wass, founder of Gear4Music, was off work last week with a broken collar bone. If the last time he had a medical mishap is anything to go by, he’ll be returning to work this week armed with ideas to improve on its fortunes.
Ten years ago, Wass was running an ailing, £1m turnover IT business which installed computer systems for recording studios. The declining cost of technology was eroding the company’s margins and making it harder to grow sales.
With his angel investors getting twitchy, Wass started weighing up a move into a more traditional business that would have the advantage of combining technology with his first love — the pianist and French horn player wanted to start selling musical instruments.
“I’m good with IT, but my passion has always been instruments,” he says. “These are products that change people’s lives. I wanted to fix the cheaper end of the market supply a decent product to people who didn’t have the money to splash out on an expensive instrument. They weren’t being looked after.
“I started going to trade shows and talking to manufacturers and thought I could do a decent own brand that wouldn’t cost the earth.”
The plan was little more than a back-of-cigarette-packet sketch; hardly enough to convince his investors to support a change of direction. It took a serious back complaint and a resulting spell in hospital for Wass to come up with the simple twist that would transform the business.
With the instrument market fragmented — and dominated by independent high street retailers with scant online presence — he saw that any own brand he created would not be easy to distribute. Wass realised he’d need to control retail and distribution as well as making decent budget instruments if his new business was going to work.
“In some ways, the health problem was great,” he says. “It gave me time to think. I decided online retail was the way forward and we needed to put all our time and effort into it.”
His investors remained unconvinced, but Wass persuaded them to stump up £30,000 to pay for a website and a container-full of musical instruments.
“They weren’t sold on the idea. They’d invested in a computer company and here I was asking them to back something totally different,” he says. “But it quickly became clear it was a good way forward.”
Last year’s sales of £10.2m are expected to grow to about £13m this year, and Wass says the business is consistently profitable. It’s also three months into a European expansion to sell its products in 17 markets. The original IT operation is “almost gone”, he says.
While Wass stuck to his guns and produced an own brand, famous names like Fender and Gibson dominate the company’s sales. Electric guitars are a staple, but it also sells everything from classical instruments to DJ equipment and home recording gear.
“You get shifting patterns but guitars are where the market is at,” he says. “Although we have seen a big move from acoustic drum kits to electronic ones in the last three years, which is good news for the neighbours. And folk music has become a big thing — everyone is buying ukuleles.”
A very large product range means the company uses its own 50,000 sq ft warehouse in York. Wass insists the UK facility will allow the firm to send accordions to France almost as easily as it can send guitars to Leeds, and that there’s no need for a distribution presence on the Continent.
“Courier (NasdaqGS: CRRC - news) systems have got so much better in the last 10 years that you can send stuff all over the place for not a huge amount of money,” he says. “I think we can do it all from here we’d have to get very large to think about changing it.”
With the music market remaining fragmented, and a clear online leader yet to emerge in the UK, Wass is looking at the way
e-commerce cycling firms such as Wiggle have exploited a niche but committed customer base as a template.
“There are about 1,800 music shops in the country but there aren’t any particularly dominant players, as there are in cycling, where there are firms with sales of £100m plus. We’d like to be the first to get there.”
Other than German rival Thomann a relative giant the same applies in Europe (Chicago Options: ^REURUSD - news) , which is why Wass is keen to steal a march on exports. He also wants to set up a small retail chain in the UK next year.
How will he finance all these plans? Wass says he’s in conversations with banks but he’s not brimming with confidence.
The company sold a stake to private equity firm Key Capital Partners for £3.4m in March when requests for bank support failed, and he’s hoping he has not set an expensive precedent.
“That investment puts us in a good place but we’re ambitious and we don’t always want to turn to [selling equity] to grow. We need the support of the banks. When we come to retail, we’ll definitely need [to borrow].
“Our situation highlights one of the issues with banking at the minute. We’re three times the size we were five years ago, we’re consistently profitable yet we’ve still got about the same banking facilities.
“It’s very hard to raise additional funds at the moment. I hate to think what it’s like for someone that’s finding it tough.”