LOS ANGELES (AP) – The year was 1964. The Beatles had conquered America, and the first Guitar Center store opened in Hollywood, selling instruments and amplifiers to a generation eager to play rock ‘n’ roll.

Four decades later, Guitar Center Inc. is the nation’s biggest purveyor of music equipment in a $7 billion industry in which most of its competitors are still mom-and-pop stores or small regional chains. The company has thrived by bringing a big-box approach to the business, using its size and buying power to offer more variety and lower prices than its rivals – a strategy that has allowed other retailers, like Wal-Mart Stores Inc., to dominate their industry segments.

Nationwide, the Westlake Village-based company operates 124 Guitar Center stores and 19 American Music Group outlets. Its customers range from professional musicians to baby boomer hobbyists with plenty of disposable income and an urge to relive their rock ‘n’ roll days.

“It’s like a shrine,” Steve Hammond, a 49-year-old guitar collector from San Francisco, said as he surveyed a back room at the 30,000-square-foot store in Hollywood.

Designed like an Old West saloon, it contains scores of vintage guitars. A cream-colored, 1958 Fender Stratocaster, was selling for $39,950. A Fender Squier was going for $99.

Elsewhere in the store, old and young patrons browsed rows of amplifiers, keyboards and drums. Guitars in myriad colors and shapes lined the walls. Among them were a pink bass shaped like a daisy and black guitars that seemed fit for death metal music.

A muffled jumble of noise filled the store as customers in glassed-in chambers tried out instruments. Some spend hours in the rooms without buying anything, but that’s not a problem.

Outside, Rian Barton, of Pasadena, beamed after saving $200 on his new Gibson Les Paul electric guitar. “This is the best place for guitars I’ve ever seen,” the 14-year-old said.

Since going public in 1997, Guitar Center has succeeded with investors; its stock is hovering near its 52-week high of $37.10.

Net income for the fourth quarter was $19.7 million, a 47.1 percent increase from a year earlier. Fed by five straight quarters of sales growth, net income for the year jumped 45.9 percent to $36.9 million on revenue of $1.3 billion.

“They beat the competition on selection, they beat the competition on service, and they beat them on price, the three legs of the stool that really drive store choice,” said Richard Nelson, an analyst with Stephens Inc. in Chicago.

Like other big-box retailers, Guitar Center has forced smaller competitors to quickly change how they do business.

Retailer Rob DeKarr has been battling Guitar Center since October 2002, when the chain opened a 22,000-square-foot store in Pasadena, down the block from DeKarr Music.

“It was hellacious,” DeKarr said. “What your customer base does is go down there and check it out. Heck, I went down there and checked it out. They’ve got one of everything.”

DeKarr has lured back some customers by nearly doubling the size of his store to 9,000 square feet. And like other independent operators, he’s stressing personalized service, repairs and classes in his effort to compete.

“Their sales people don’t have the same amount of training, they don’t have the same amount of product knowledge,” DeKarr said of Guitar Center.

At times, DeKarr and other small retailers have had no choice but to lower prices to match Guitar Center. Sometimes, however, Guitar Center’s price on an instrument will appear lower because the sale doesn’t include a case.

“They take the case out of the mix, then they reduce the price,” DeKarr said. “In order to survive, you have to be aware of those kinds of things.”

Guitar Center is rapidly expanding, opening new stores in Manhattan and Nashville in late 2003, In all, the chain added 14 stores last year. At least four more will open from Florida to Wisconsin in the first quarter of this year.

“Guys are walking into the stores in their 50s … buying Martin guitars and wanting to get into garage bands,” said Larry Thomas, co-chief executive of Guitar Center.

The American Music Group, which sells instruments and equipment to school bands, has not fared as well, posting a $1 million operating loss in the fourth quarter.

“The AMG business model is taking longer to develop than the company had anticipated,” analyst Nelson wrote in a recent report.

A plan to build more AMG stores was put on hold as the 19 outlets posted net sales of $38.2 million in 2003, an increase of 17.5 percent from the same period of 2002.

“We just want to make sure we have it down before we start rolling it out,” Thomas said.

The success of such stores often hinges on appealing to band instructors and parents. Competitors say it’s an area where Guitar Center’s big-store model won’t work.

“You just don’t open up down the street and say ‘Here I am, come and get it.”‘ said Johnny Thompson, owner of Thompson Music in Monterey Park. “We have long-term relationships with teachers, and we give them every bit as good a price as they get everywhere.”

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On the Net:

Guitar Center: www.guitarcenter.com/

AP-ES-03-16-04 1306EST