(Would I lie to you?)
Over the past year I have posted a couple of times on the drama surrounding the financial difficulties of Gibson Guitar and Guitar Center, and the alleged cratering of the market for guitars that was going to result in The Walking Dead or a Music World Ruled by Holograms! (Nobody else is making the “hologram” connection, but that’s just the kind of hard-hitting journalism you should rightfully expect from THE GUITAR CAVE. Think I’m kidding? Watch this video and be frightened, outraged, and amazed!)
But we’re not here to talk about holograms, we’re here to follow-up on a post I wrote back in July on a story I’ve been tracking since last year; The Death of the Electric Guitar! As you may recall, I was skeptical and viewed a lot of the info and opinions contained in articles such as this one with a fair amount of derision and dark humor and, as it turns out, it looks like I was right to do that. Current information online suggests that Gibson, a company that is now millions of dollars in debt, was formerly doing a-ok selling guitars. Annually they move about 170,000 in 80 countries and control 40% of the over-$2000 market. But then Gibson CEO Henry Juszkiewicz got bored or tried to channel his inner Steve Jobs and took his company on a buying spree:
In 2012, bought a stake in consumer audio company Onkyo.
In 2013, bought stereo maker TEAC in 2013 for $53 million.
In 2014, paid $135 million to acquire Royal Phillips’s home-entertainment systems.
None of this “stuff” really has anything to do with “guitars” and all of this “not guitar stuff” resulted in the company owing about $500 million in cool ones and no, I’m not talking about Mohitos. The debt was not accrued because Eric Clapton is old, rock is dead or any of the other reasons listed in any of those articles like the one I linked to above! Guitar sales haven’t fallen to zero levels, they just haven’t risen to the level necessary to counter the losses on this dream of being the King of ‘Lectronics. It’s very doubtful that any serious, responsible and independent study would’ve projected that the guitar market would’ve swelled to the levels necessary to cover the debts if these gambles didn’t pay off, but who worries about stuff like that anymore? Anyone who has spent even the minimum of time in Corporate America knows that no one likes a naysayer and if the CEO decides a guitar company should enter the very crowded and competitive market of electronics, who are you to say otherwise? A few months ago Juszkiewicz was interviewed and related that Gibson guitar sales had actually risen over 10% since January 2017! In my previous post on the subject I quoted Fender CEO Andy Mooney who claimed that, “Fender sales had risen and ukulele sales were ‘exploding,'” so the two largest guitar companies have actually seen a sales improvement over the past two years. Doesn’t sound like “death” to me. I think “death” is when NO SALES happen and junk, but I don’t have an MBA. Before exiting the interview, Juszkiewicz offered the following CEO-type predictions:
“…I’m not sure I exactly answered your question, but I will be here for a while, as CEO, and then I will be here for a while, for a couple of years, as an active advisor and mentor and we have a lot of young managers that are just dynamite inside the company, that are progressing and will progress into higher levels, so it’s all good.”
Bzzzt! Wrong again! I think this guy’s crystal ball capabilities have suffered critical failure. He was just bounced from the CEO chair as a condition of the bankruptcy exit plan that was approved this month! In September Gibson introduced its 2019 model line with a focus on gettin’ back to basics and this past week announced their new CEO and yes! It’s gonna be great! There’s a new Sheriff in town and he doesn’t shave, so you know he’s serious!
James “JC” Curleigh (the JC is supposed to make you think of the guy who rises things from the dead!) is billed on YouTube as someone WHO KNOWS HOW TO BUILD BRANDS! He was formerly CEO at Levi Strauss so I would expect a new line of guitars that features pockets and zippers as he merges the guitar + personal accessory markets! Potential profits = INSANE-A-MUNGOUS! It would be great if someone teaches Kylie Jenner to play guitar! Great for finance guys and investors I mean…because who cares about anyone else? Seriously though, I think we can all rest easier tonight knowing that Gibson is going to be around for a while. Even though I no longer own one of their guitars, I am happy that a deal has been worked out and hope that the right kind of positive improvements can be made to help the company prosper in the 2020s. Also, if you were one of those people who rushed into the stores to pick up a Les Paul because you thought they were going the way of the dodo…thanks for taking one for the team or something!
Then, there is Guitar Center. A March, 2018 article here lays the blame for the company’s $1 billion debts “partly on changing musical tastes”. This statement is followed by George Gruhn’s old-guy babbling about the lack of guitar heroes, the kids who listen to rap, and how we’re all Juggalos now, homescallion! As a very prescient comment to this article notes, this is all about customer-blaming and that is what I’ve been saying in all of my posts and the reason for my sarcastic tone. The finance guys and their buds in the media never take the blame for anything and no matter how egregious the business gamble, mistake, or miscalculation, the fault gets shoved on unpredictable intangibles or hapless customers/consumers who can just never do enough for Corporate America. Let’s just look at this article for further confirmation:
“…Los Angeles financial firm Ares Management took control of Guitar Center in 2014 in a $500-million debt-for-equity swap. There has been some talk of Ares taking Guitar Center public again…“Guitar Center is a good business, and the Bain Capital guys paid a premium on it, expecting continued market growth,” said Brian Majeski, editor of Music Trades magazine. “The industry growth didn’t materialize.”…Bain Capital declined to comment. Ares did not respond to a request for comment.
Of course there was no comment from the guys who overpaid, gambled and lost…what are they going to say? “Er…we overpaid, gambled and lost?” The next sentence is also a humdinger: “A main drag has been the massive changes in retail as sales have migrated online. For example, Guitar Center has long generated income selling used instruments. But it now faces competition in that market from the likes of EBay and Reverb, an online musician marketplace, experts say.” Ebay has been around for 20+ years and Guitar Center also has a lot of competition from Craigslist in the used instrument market. Do those “industry experts” not know this or do they not think the public realizes this…even as the public uses these services? Sometimes it’s hard to wrap one’s head around the disconnect. Soon after these articles appeared, another emerged on Forbes where previous allegations of trouble were dismissed as “fake news” by Michael Amkreutz, EVP of merchandising and e-commerce. According to him, things be looking pretty cherry, yo!:
Music Trades magazine, the industry’s bible, reported the total guitar market unit volume grew 7% from 2016-2017 and in retail value 8.8%. With a total retail market of $1.3 billion, acoustic guitars make up about 56% ($740 million) and electric guitars the remaining 44% ($590 million), which grew just a shade faster in retail volume last year (up 9.1% as compared to 8.6% for acoustics).
So customers are stepping up and Gibson and Guitar Center, who just a few months ago were supposedly in a death spiral because they had been abandoned by a fickle, distracted public, have actually seen increased sales! Hallelujah! So were those articles, like this one from the Washington Post, wrong or were they part of the strategy? I. Don’t. Know. Perhaps it was the old “snowstorm” psychology at work. Doom and gloom gets people to buy! buy! buy! Similar behavior has occurred after mass shootings; because people fear legislation that will restrict their purchasing choices, they flock to the stores before the legislation happens. Who knows what kind of numbers a bunch of articles on “the death of the guitar” could drive into the stores? Tune in tomorrow for the Christmas forecast! I’m sure it will be just as confusing.