Gibson's financial woes

exocet

andyoz said:

I can't think of any other manufacturing industry business model that is based on basically selling a 60yo design which is essentially what Gibson and Fender do.

Innovation drives new sales/customers and fiddling with the electronics on a LP isn't going to do it.  I can't think of any similar example in manufacturing industry - anyone?

The same applies to any manufacturer of traditional musical instruments....some of those designs are even older!

RocknRollDave

p90fool said:

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.

Great post, well said.

guitars4you

57Deluxe said:

it currently makes sense to carry a lot of Bank debt with rates soooo loooow....

Not so bad if fixed term loans say on a car - but compound interest on an 'open ended loan/overdraft is a killer'  a per a credit card- A while ago an African country borrowed 5 billion via the IMF - They've paid 15 billion back and still owe £25 billion - See if I can find the link - Just like the UK debt - It can never be paid and is the USA now at 20 trillion - both can only service the interest 

andyoz

exocet said:

andyoz said:

I can't think of any other manufacturing industry business model that is based on basically selling a 60yo design which is essentially what Gibson and Fender do.

Innovation drives new sales/customers and fiddling with the electronics on a LP isn't going to do it.  I can't think of any similar example in manufacturing industry - anyone?

The same applies to any manufacturer of traditional musical instruments....some of those designs are even older!

Good point, I guess all musical instrument manufacturers have ramped up growth to some degree.

How come Yamaha do things so well - they have alot of other strings to their bow as a company to shift around loses but I wonder how the MI part is actually doing.  The Line6 Helix thing would be helping anyways

dindude

The issue with the big players, as it has already been mentioned, is that they aren't able to downturn production in line with the market due to their financial commitments, it will have to happen eventually but it will not end well.

I've no idea how profitable Rickenbacker is or not, but there is a business that seemingly knows it's boundaries. The wait list is purported to be over a year for a dealer (yet there is enough to buy in the market), so always a healthy order book you would assume. They haven't gone for growth by introducing the Rick 7-string, far eastern lower priced alternative etc, have protected their design and maintained quality.

This is not an example of a "great" business from a traditional assessment, way too conservative and unambitious - but it is I think how most heritage guitar companies should be running right now, if they could, as it reflects the nature of the market.

Moe_Zambeek

How long will the faithful continue to buy Rics though, when they are such a heritage brand, rooted in the 60s more so than any other? There are no (or vanishingly few) contemporary Ric users of note beyond probably the early 80s. Their market must be dying...Really it's only their bass (and one model at that) that has any cross-genre popularity. 

guitars4you

dindude said:

The issue with the big players, as it has already been mentioned, is that they aren't able to downturn production in line with the market due to their financial commitments, it will have to happen eventually but it will not end well.

I've no idea how profitable Rickenbacker is or not, but there is a business that seemingly knows it's boundaries. The wait list is purported to be over a year for a dealer (yet there is enough to buy in the market), so always a healthy order book you would assume. They haven't gone for growth by introducing the Rick 7-string, far eastern lower priced alternative etc, have protected their design and maintained quality.

This is not an example of a "great" business from a traditional assessment, way too conservative and unambitious - but it is I think how most heritage guitar companies should be running right now, if they could, as it reflects the nature of the market.

Rickenbacker is a different issue - Yes it is a stand alone business that has to create its own wealth - But the Hall family who proudly own Rickenbacker lock stock and barrel are massive in the real estate business  - Rickenbacker is a delightful hobby that they are proud to own, but effectively it is petty cash in relation to their other assets

guitars4you

impmann said:

A while ago, I was talking to a a well known and highly clued up guy in the MI - he said before 2020 we will see a major scalp in the industry. He wouldn't say who, because he said "it was 50/50 between them" but he believed that both the big players were in such a financial quagmire, along with the industry being in decline and the channel being almost at capacity with new, unsold guitars that there would come a time soon where one of them would *have* to stop production.

He also spoke of a supplier with warehouses of unsold stock that languish in the far east and ships that sail around in circles with stock on board that can't dock because the notional 'value' of the stock keeps the investors happy. The truth is that if those boats dock and the goods land, there is no demand for the units on board and the duty would almost wipe out the true sales value. All the time they are at sea, these units are valued at full value for the purpose of accounting, and then depreciation is applied - the point that the depreciation wipes out the value, the units go back to where they were made to be destroyed (that way, no duty is ever paid)... and the circle starts again. The purpose of this is to ensure that the 'value' of the stock/inventory is maintained, to ensure that the company's debts do not exceed the value of the business. I don't know how true that is, but he made a good case for it.

I regularly see a 'trader' at guitar shows - he buys such stock from some of these warehouses that are loaded to the hilt with un-sold last years models - they are then re-branded but ex top name far eastern guitar brands - He sells them with a healthy profit at cash n carry prices

I know a good customer who co-owns various of empty warehouses - they just 'rent' such warehouse for storage - and they are again loaded with un-sold products

guitars4you

@TTony  - The focus on growth, growth, growth has intrigued/worried me for years, but it's what our capitalist economies absolutely depend on.  If people stop buying new, "improved", every product cycle, then many businesses would have to reinvent their business models.  That applies to seemingly successful businesses (eg Apple) as well as those that appear less successful (such as Gibson).

I could chat with you for hours on this - coupled with the debt cycle created by banks who create money out of thin air - So maybe a PM sometime after I've moved or when I see you again - but leave you with an interesting thought

From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took them only 8 years to create the next Trillion

ICBM

martinw said:

It shouldn't surprise anyone that the Chinese can manufacture and export high quality goods, after all, they've been doing it for hundreds of years, and at one time they were very fashionable. Porcelain, carvings, furniture...anything that will turn a profit.

If you look at it in longer historical terms it's the last 200 years that are the aberration - before the West industrialised and became militarily powerful with new technology at about the same time as China was finally becoming decadent and weak, China was the world's leading economy, as it had been since around the time of the Trojan War in the West.

bobliefeld

You gotta grow.  Stagnation will kill your business because it means you're not competing.

If someone comes along doing what you're doing better, cheaper or with better marketing then you need to invest in making your product better, making your production methods better or upgrading your marketing.  Then you will need to sell more to justify the investment.  If you do nothing then your customers will eventually all go to the better alternative.  

Guitars are weird though.  Gibson are only really competing with the ghost of Gibson past.  

OilCityPickups

RocknRollDave said:

p90fool said:

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.

Great post, well said.

This completely! The 'dilution of the brand' cries soon fade when confronted with handsome, well made instruments at good prices. The only Epiphones we have as demo guitars are Vs because of the piss poor headstock on other Epi's. I'd buy in a couple of Epi Les Pauls for demo and my own use if they had 'open book' rather than clubby and nasty headstocks.

peteri

Random thought - has Gibson ever been that viable?

Looking back over the history - the V and Explorer were attempts to fight back because the Les Paul wasn't doing that well because Fender was turning out all the Strats and Teles which were selling better.

From what I've read the late 50's weren't massively great for Gibson, hence they stopped the Les Paul. They muddled through the 60's and have kind of staggered on since.

So my question being - have they ever had a boom time? Or are they one of these companies who only seem to be big and successful, and their glory days were always just behind them?

Evilmags

Jazz Guitars amd the Lloyd Loar era are considered a success. They should be successful given the brand history. Their strategy seems very peacemeal amd I suspect receivership would improve them from a customer viewpoint. 

bobliefeld

They've been fairly successful since Henry J took over I think.  He got them relatively cheap, upped the quality, Slash.. 

andyoz

peteri said:

Random thought - has Gibson ever been that viable?

From what I've read the late 50's weren't massively great for Gibson, hence they stopped the Les Paul. They muddled through the 60's and have kind of staggered on since.

I was amazed when I read that all through the 60's they were making just over 1,000 SG Standards a year.  That was one of their main models and that volume is peanuts.

bobliefeld

^ I bet they sold all 1,000 of them though !

crunchman

andyoz said:

peteri said:

Random thought - has Gibson ever been that viable?

From what I've read the late 50's weren't massively great for Gibson, hence they stopped the Les Paul. They muddled through the 60's and have kind of staggered on since.

I was amazed when I read that all through the 60's they were making just over 1,000 SG Standards a year.  That was one of their main models and that volume is peanuts.

How many of those did Townshend destroy?  Maybe they need a modern day Townshend to ensure people keep buying new  ones.

olafgarten

I think the issue is that Gibsons style guitars cost more to make. Most cheap guitars are based on Strat's and Tele's, this means that most people learn to play on Fender style guitars, and have no reason or incentive to make the switch.

The few of those who get famous continue playing with Fenders and then the next generation grow up seeing their Guitar Heroes with a Fender in their hands.

The truth is that there are more famous guitar players with Strats than Les Pauls and the only reason a beginner would buy a Les Paul is if they like an artist who plays one.

And the cycle continues.

guitars4you

peteri said:

Random thought - has Gibson ever been that viable?

Looking back over the history - the V and Explorer were attempts to fight back because the Les Paul wasn't doing that well because Fender was turning out all the Strats and Teles which were selling better.

From what I've read the late 50's weren't massively great for Gibson, hence they stopped the Les Paul. They muddled through the 60's and have kind of staggered on since.

So my question being - have they ever had a boom time? Or are they one of these companies who only seem to be big and successful, and their glory days were always just behind them?

SG's and Semi's in the 60's was a big sales period - In fact if you look at Strat sales, until Jimi came along they were not as influential as a 335 or SG and Strats were often seen on those old video clips we can still see today  - If you look at the Gibson serial number sequence for that period, production effectively doubled from 66-69, compared with 1960 to 1966 - obvious boom in the pop/rock industry - LP's came back in vogue thanks to Eric and Bloomfield amongst others - almost an accident that it found its place in popular music as it was never designed to play rock/blues with gain through a Marshall

Yes they have had a few different owners and this will have created good and bad business changes with resulting variation in profits

I suppose a question might be asked about who creates the trends and who responds - The 80's was about anything fitted with a Floyd Rose, so  until Slash came along Gibson appeared to be not flavour of the month - Yet essentially since the 1960's, classic models have generally sold well and still the guitar that many players aspire to - Yes they've tried to release new ideas and many have flopped and many examples to choose from, but I dare say that you can apply this criteria to any form of business

Have they made errors ? - Yes - Could it be better run? - Yes - but it still represents something that is very important - I'm not a fan of Gibson's business ethics today regarding demands on the dealer, but I fully appreciate what Gibson represents to the guitar business - It has consistently been the 2nd largest USA guitar brand since the 1960's and nothing wrong with that - Remember Fender nearly died a death come late 70's and early 80's, until a new team that included Dan Smith (RIP) - hard to believe today,  but yes it was on its last legs with no USA factory for a large part of the 80's

I would say that as a Guitar Store, it is almost impossible to run a successful electric guitar shop without some form of major presence from Gibson - ESP, Ibanez, Yamaha, Musicman, PRS, Rickenbacker etc create many fine guitars, but you would not make a healthy living out of any of those on their own, or in fact just a combination of those lines alone

Fender + other brands or Gibson + other brands and you can have  a healthy business - Without F and G you would be very lucky to survive