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Whether they’re just playing scales or riffing like Jimi Hendrix, customers at Guitar Center know the store is there for them—right on key and now with a new way to pay. The company’s recent integration of PayPal at checkout in its nearly 240 stores brings payment solutions and customer service to a whole new level.

Utilizing an integrated payment solution from AJB Software Design, Guitar Center is the latest retailer to adopt PayPal at the point of sale. Others include The Home Depot, Hollister, Jos. A. Bank and Jamba Juice.

The move is another in a series of initiatives designed to bring alternative payment systems to the bricks-and-mortar world. In 2011, PayPal rang up $118 billion in total payment volume, and company officials expect 2012 mobile payment volume to surpass $10 billion.

“AJB has been a valued partner and solution provider to Guitar Center for a number of years and they did a fantastic job delivering the required features that would support the use of PayPal in our stores,” says Frank Hamlin, executive vice president and general manager of e-commerce and marketing at Guitar Center.

“We had been using PayPal for quite some time at our e-commerce facilities. By combining the benefits of online payment with secure and convenient retail checkout and state-of-the-art customer relevance, PayPal will go a long way in serving the needs of Guitar Center’s multi-channel shopper.”

The omni-channel perspective
“One of Guitar Center’s mantras is that we take everything from cash to check to wire transfers and all credit cards,” says Wes Muddle, vice president of finance. “Now we’ve added PayPal. One of the big advantages is that PayPal gives us the omni-channel … perspective. We’re always looking for ways to add incremental business and volume to Guitar Center. This was considered a valuable option.”

The value and efficiency PayPal promised was achieved through Guitar Center’s longtime partnership with AJB, whose Retail Transactions Switch is the framework used for processing PayPal transactions in store.

Muddle says that Guitar Center was initially approached by PayPal in 2011. “We talked with them for quite a long time in order to really understand the benefits,” he says. “We did a lot of reviews among a lot of people here before deciding to be one of their charter retail members.”

PayPal might enable some retailers to reach a new customer base, but for Guitar Center it was a matter of reaching customers they already interacted with frequently in e-commerce. “We were able to provide more incrementality in the store with those individuals,” Hamlin says.

Used equipment and gear, for instance, “is a big part of any serious musician’s arsenal,” he says. “It’s well-known that eBay does a brisk business in it, and folks who buy and sell on eBay create hefty PayPal balances. It’s simply good business for us to enable them to discharge that balance in our stores and on our e-commerce site.” (PayPal is owned by eBay, and reportedly accounts for about one-third of the parent company’s annual revenues.)

Hamlin declined to specify the size of the business with PayPal except to call it “a substantial incremental percentage.” But he emphasized that — aside from minor time and resource development costs — there was no downside. “We saw this as an incremental venture for us,” he says, “so the question was how this compared with other developmental initiatives for POS.”

Muddle agrees. “We have a lot of opportunities and projects. It was a matter of prioritizing them and, fortunately, the PayPal project became a top priority and AJB’s solution enabled us to accelerate the time to market.”

A ‘natural extension’
One of the concerns that PayPal faced when talking to retailers like Guitar Center about a new POS payment vehicle was the prospect of significant costs from a time and development perspective.

“PayPal reached out to us … to build a generic interface that we could take out to longtime customers like Guitar Center,” says Pat Polillo, AJB’s vice president of sales and marketing. “They wanted to speed the implementation process and get PayPal interfaces up and running as quickly as possible.”

The project took about five months, according to Jeff Steinmetz, vice president of retail systems at Guitar Center. “There were relatively few issues and those that did crop up were all addressed during our implementation process. We actually delivered it sooner than we had anticipated.”

One reason the project went so smoothly, Polillo says, is because Guitar Center and AJB “had a long-standing relationship. The chain uses our Retail Transaction Switch product, so credit, debits and checks already flow through our system at Guitar Center. PayPal was a natural extension.”

Results to date are extremely encouraging, Hamlin notes. “The feedback has been very positive, transaction speed is up to what we expected and we’re seeing a steadily improving percentage of transactions using PayPal,” he says. “We expect it will increase over time as awareness grows, then level off to what we experience with e-commerce.”

The addition of PayPal at POS is “enabling customers to transact in a way that works for them. It’s another form of payment in their wallets, and eventually PayPal will give them the opportunity to add coupons, loyalty points and a group buying capability.”