Gibson's financial woes

Neil

Whitecat said:

chris45 said:

From a purely business view if I was in charge I would outsource all manufacturing of Gibson to the Far East, and just maybe have a VERY small US based operation for eye wateringly expensive custom models.
So for most punters a Gibson would be a sub 500 mass market guitar trading on the logo and brand heritage, selling to youngsters.

Some people think this is the direction Fender could be headed in within a few years (replace Mexico with Far East for most of it). The Custom Shop will remain in the US but that'll be the only way to get a genuine MIA guitar from them. 

I dunno, Fender have invested a lot in their Mexican plant and it is handy to Corona.

Of course they  get the Modern Player series made in China already.

 

guitars4you

Haych said:

I work in the finance industry and the whole growth and expansion of businesses is something I still fail to fully understand. There seems to be a mentality that a business must grow at all costs. 

Sure, there has to be some sustainable growth but there comes a time when the whole thing is just going to implode unless your customer base expands at an exponentially greater rate than your business expansion.  Gibson, IMHO, have tried to be too big and have miscalculated and are now finding out that their customer base isn't large enough to support the growth.

At least with their consumer electronics subsidiaries technology does move on, things stop working, people upgrade etc.. I think that's less likely with wood and wires where the used market is flooded and the new stuff (especially from Gibson) is seen as particularly inferior to the old stuff.

I predict they'll sell off a few subsidiaries to recoup some cash then they'll be sold for the brand value after which the business will be asset stripped and investors will be sold down the river.

I agree with your opening comment about growth - Fully appreciate you need profit and cash flow - But if you make say 100K each year, then in 10 years the asset value has grown to 1 Mill - sounds good to me - But banks/financial institutions etc want 100K then 150k, then 200K etc -4 years of 100K is seen as poor

Yet if say Man City only win 1-0 each week then that sounds good to me - a similar financial requirement might imply they have to win by more each week

Evilmags

If you've spent 20 years in The City, that bond price graph tells you all you need to know. I would not lend them money, period. 

Neil

stickyfiddle said:

They've been leveraged to fuck for donkey's years now. I'm sure the 2015 debacle won't have helped but it isn't the main source of the problem, as Fender are in a similar position. 

As soon as the baby boomers start dying in serious numbers both companies will hit chapter 11, get bought out and continue on a smaller scale.

That's a valid prediction.

When you see that Fender alone produce hundreds of thousands of guitars a year - where do they all go?

Evilmags

Fender don't seem to have the same quality control issues as Gibson. 

Neil

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

They wouldn't have would they?

Fixing two pieces of flat wood together with wood screws is a lot less complicated than making a Les Paul for example.

And I say that as a Fender fan.

crunchman

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

From what I've read though they are still in a financial hole the same as Gibson - maybe not to quite the same extent though.

Moe_Zambeek

Neil said:

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

They wouldn't have would they?

Fixing two pieces of flat wood together with wood screws is a lot less complicated than making a Les Paul for example.

And I say that as a Fender fan.

It's not only the neck fixing method that is a problem for Gibson, it's the woodworking as a whole, finishing, fretting, wiring, binding...

octatonic

Weird that the article came out now when Moody's downgraded Gibson something like 6 months ago.

guitars4you

crunchman said:

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

From what I've read though they are still in a financial hole the same as Gibson - maybe not to quite the same extent though.

Somewhat compounded by Guitar Centre - they account for around 2.1 billion of a 7 billion USA market - and they have similar issues with big debt and payments due on big loans and a contracting market place, especially in bricks and mortar - plus seriously declining profits

Stats indicate that something like the biggest customer for Fender and Gibson is Guitar Centre - the next biggest customer is the rest of the USA - so they need each other yet all appear to be supported with dodgy stilts

crunchman

guitars4you said:

crunchman said:

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

From what I've read though they are still in a financial hole the same as Gibson - maybe not to quite the same extent though.

Somewhat compounded by Guitar Centre - they account for around 2.1 billion of a 7 billion USA market - and they have similar issues with big debt and payments due on big loans and a contracting market place, especially in bricks and mortar - plus seriously declining profits

Stats indicate that something like the biggest customer for Fender and Gibson is Guitar Centre - the next biggest customer is the rest of the USA - so they need each other yet all appear to be supported with dodgy stilts

This is the problem when a small number of big retailers come to dominate the market.  Gibson and Fender would be better off with a wider dealer base so they are not as dependent on Guitar Center.

This country is going the same way.  You have big players like Guitar Guitar expanding while independents shut down.

Moltisanti

it does start to explain some of the strange decisions Gibson has made in the last couple of years - the 2015 changes, going direct on Amazon all looks a bit like attempts to get in cash quickly either through innovation (which failed massively) or through taking a hit on the margin and going through Amazon to get numbers in, which has harmed their dealer network.

Best case scenario - it all comes to a head, the rights to the name end up going to someone with a more realistic vision and enough capital to not get into bed with the banks, and they just sell the Custom Shop stuff.

richardhomer

Neil said:

Evilmags said:

Fender don't seem to have the same quality control issues as Gibson. 

They wouldn't have would they?

Fixing two pieces of flat wood together with wood screws is a lot less complicated than making a Les Paul for example.

And I say that as a Fender fan.

I agree a Fender guitar is easier to make - Leo's whole ethos was about making them efficient to manufacture - before CNCs made consistency easier to achieve.

But the issue with Gibson appears to be around some fairly basic guitar making elements - like properly finished fingerboards, fretwork, neck angles and nut height. These things are so frequently wrong on a Gibson it's just unacceptable. 

In most areas of manufacture (cars being a good example) standards improve constantly, due to competition in the market.

In terms of 'the basics' Norlin era Gibsons (whilst less historically 'correct' in design terms) were generally better than most modern examples. And it was the shortcomings of the Norlin guitars which established the vintage market in the first place....

ICBM

Strat_a_tat_tat said:

Haych said:

 There seems to be a mentality that a business must grow at all costs. 

Same with every nation's economy. The whole thing is dependant on growth.

"Capitalism sows the seeds of its own destruction" - Carl Perkins

shrinkwrap

Fender don't seem to have too many problems supervising the Chinese /Indo Gretsches - very like Gibsons.
Noticed in that article Gibson bought Onkyo, Teac and Philips consumer audio in last few years - Teac OK, but the other two? What was the MD on?

p90fool

chris45 said:

From a purely business view if I was in charge I would outsource all manufacturing of Gibson to the Far East

They don't even need to do that, they just need to use the Gibson headstock shape on Epiphone Les Pauls, SGs and Dots, then every Gibson player (or aspirant) will have a couple as backups instead of walking away from the hideousness of them.

Squier Teles look great on stage, Epiphone SGs look stupid and cheap. I know it's shallow but it would be a massive worldwide sales boost for their Asian guitars for practically zero cost.

Yes they'd lose a few Gibson sales to cheaper Epiphones, but over a decade or two Fender have managed to blur the lines between the Fender and Squier brands and the different countries of manufacture to the point where most people don't care either way.

The headstock thing would start that process, to the point where it wouldn't be such a shock to see an Asian-made Gibson. Fender started by make Fender-branded Acousticasters in China, they were a bit of a niche-market novelty so nobody minded the logo being "tainted", then everyone just slowly got used to the idea.

Banging on about USA this and USA that has painted Gibson into a corner - they can't afford to either build them or stop building them, and we can't afford to buy them either way.

ICBM

We're going to have to get used to the fact that China will soon be making not just the bulk of the cheap products in the world but some of the high-quality stuff too. They already do outside the guitar field, and there's no reason they can't here too - especially as they seem to have a much more lax attitude to enforcing the regulations on tropical hardwoods, which as most people know are behind some of Gibson's less popular decisions like the laminated rosewood and baked maple fingerboards.

Gibson't current strategy seems to be to get away with as much corner-cutting as possible at the lower end of the product range hoping to make enough profit on volume of turnover, and get away with as high a price and profit as possible at the high end of the range hoping that it doesn't cut the volume of sales too much. Both of these seem like risky approaches in a fairly slow or even shrinking market.

guitars4you

ICBM said:

We're going to have to get used to the fact that China will soon be making not just the bulk of the cheap products in the world but some of the high-quality stuff too. They already do outside the guitar field, and there's no reason they can't here too - especially as they seem to have a much more lax attitude to enforcing the regulations on tropical hardwoods, which as most people know are behind some of Gibson's less popular decisions like the laminated rosewood and baked maple fingerboards.

Gibson't current strategy seems to be to get away with as much corner-cutting as possible at the lower end of the product range hoping to make enough profit on volume of turnover, and get away with as high a price and profit as possible at the high end of the range hoping that it doesn't cut the volume of sales too much. Both of these seem like risky approaches in a fairly slow or even shrinking market.

my father stills buys and sells violins and what is coming out of China now for 2K is incredible - still handmade - they are streets ahead of the crap Skylark models from 30 years ago - With the greatest of respect to whoever, but a lot more worked required to make the body of a  violin than a Tele

p90fool

guitars4you said:

my father stills buys and sells violins and what is coming out of China now for 2K is incredible - still handmade - they are streets ahead of the crap Skylark models from 30 years ago - With the greatest of respect to whoever, but a lot more worked required to make teh body of a  violin than a Tele

The Loar realised this too, using the top-carving skills of Chinese violin manufacturers to enable them to market proper carved archtop guitars at exceptionally low prices.
They're obviously built to a budget, but acoustically they're streets ahead of any laminated archtop costing twice as much.

guitars4you

p90fool said:

guitars4you said:

my father stills buys and sells violins and what is coming out of China now for 2K is incredible - still handmade - they are streets ahead of the crap Skylark models from 30 years ago - With the greatest of respect to whoever, but a lot more worked required to make teh body of a  violin than a Tele

The Loar realised this too, using the top-carving skills of Chinese violin manufacturers to enable them to market proper carved archtop guitars at exceptionally low prices.
They're obviously built to a budget, but acoustically they're streets ahead of any laminated archtop costing twice as much.

Valid comments - most of us would never get to play, let alone own an original D'aquisto New Yorker - Yet those far eastern carved archtop models are streets ahead of pressed lam top models from 10/20 years ago and indeed many of those European models from the 50's and 60's - Look how much better sub £500 even sub £1000 acoustic guitars are today with solid woods - They may never capture the fine attributes of a pre WW11 Martin, but nevertheless for what most of us need them for they are credible instruments