Ciarán Busby takes a look at the factors causing two prolific American companies to haemorrhage money.
Gibson; a staple brand of rock and roll, American culture, and music in general. A name which is instilled in the minds of most guitarists to be the pinnacle of craftsmanship and has for the past seventy years stood as a behemoth of electric guitar manufacturing. With its favourable brand positioning and countless celebrity endorsements, how is it possible that Gibson annual revenue has dropped almost 20% in the past three years, with the threat of bankruptcy imminent?
Firstly, the primary attributing factor to consider in Gibson’s potential bankruptcy is the impending maturation of senior secured notes (a loan backed by collateral) to the value of $375 million, and $145 million in bank loans. Due to be refinanced in July, Gibson is currently considering solutions to refinance these loans with new bonds and extend their credit line. In an official release from company owner Henry Juskiewicz, he explains how Gibson “has met all current obligations to the bondholders, is in the process of arranging a new credit facility to replace the bonds, and fully expects the bonds to be refinanced in the ordinary course of business.” That may sound all well and good until you discover that the companies new Chief Financial Operator (CFO) Bill Lawrence has left, and will be replaced by the former brief standing CFO that he had succeeded less than a year earlier.
“Gibson annual revenue has dropped almost 20% in the past three years.”
Apart from their bad business decisions and financial woes, what other underlying problems do Gibson face? Predominately, as is the challenge facing the rest of electric guitar makers, rock is dead.
I write those words with utter disdain as both a major rock fanatic and guitarist myself. It cannot be ignored that there has been a pivotal sea change in the listening habits of the populace. Rock is seen as old hat, a relic of the decades past that the over thirties listen to. Look no further than the 2017 Billboard Top 100 end of year singles chart, where you are hard-pressed to find a song where the electric guitar is featured as a lead instrument. Instead, synths and DJ decks are preferred, with guitars moving to the role of accompaniment rather than a melodic instrument.
As a consequence, young music lovers are not exposed to legendary guitarists and hence don’t aspire to play like them. This is where Gibson placed a great deal of hope in their marketing efforts for the past 60 years. From Guns n’ Roses’ Slash, to Green Day’s Billy Joel Armstrong, there just aren’t any bands big enough or impressive enough to grasp the attention of potential younger players.
“Rock is dead.”
More to the point, Gibson guitars are often judged for being too pricey while their quality has dipped in recent years. Recent models are bombarded by critics online for being of progressively deteriorating quality in build and sound. Potentially this could be from loyal customers of Gibson’s competitors, but the situation is only intensified by their closest competitors’ own issues. Fender, yet another mainstay in the music industry for years, had to cancel their initial public offering in 2012, collapsing beneath the weight of their own debt.
There is one caveat to guitar sales being down. Acoustic guitar and ukulele sales have steadily increased and since 2010 has surpassed the sales of electric models. Duly noted as the reason is the influx of singer-songwriters to the mainstream such as Ed Sheeran, further strengthening the concept that icons inspire interest.
Gibson had to sell off its Memphis manufacturing facility last October to help keep the company afloat for a more extended period of time. With the news of concurrent financial woes, it might be not be long until the company must outsource their operations to cut costs. A major American grown and based manufacturer moving activities to reduce costs would be detrimental to their brand, which is founded on “American-Made” ideals.
Massive multi-national corporations are not the only affected parties in this breakdown of demand. Guitar retailers have faced increasing losses, with chains and independents alike suffering in the red. Guitar Centre is a blistering $1.6 billion in debt and refuses to comment on their position, while closer to home, the iconic Waltons Music Store, had to close their flagship store on George’s Street. Citing recent rent prices rising in Dublin, it may not be a far stretch to assume that their primary revenue stream of guitar sales dimmed.
While all fretted instrument sales are not down, the electric guitar may be nearing the end of its product lifecycle and will need a resurgence of desire or a massive innovation to save the future of rock. Gibson or Fender may not be the companies to solve this predicament, but through careful management of their businesses, staying afloat is a possibility.