What’s as American as a Gibson guitar? Well, lately, perhaps iconic brands getting run into the ground by mismanagement at the top.
And that’s one way to read the situation with Gibson Brands. Gibson, the Nashville-based guitar company that also owns names like TEAC Tascam and some Philips consumer audio products, is running out of time to pay back debts.
What’s next? Bankruptcy – if the company isn’t successful in refinancing.
Various music press have in the past days jumped on reporting by the Nashville Post that is critical of current management and suggests that owner/CEO Henry Juszkiewicz doesn’t have much time left. It’s the Post writers guessing that Gibson won’t be able to do enough to calm creditors and bondholders. That is – they’re not making loan payments fast enough, or giving a clear explanation, and the people who loaned them the money are getting fed up.
Gibson, for their part, this month offered up their own strategy. The company said in a press statement that it “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.”
They’re also bringing back Benson Woo as Chief Financial Officer.
But that raises both the question of whether they’ll deliver on refinancing promises, and how they got here in the first place.
It’s easy to assume that this is about the demise of the guitar, but that may be mistaken. Indeed, Gibson Brands’ revenue has been down. But guitar sales in the US and worldwide remain fairly stable, looking at larger trends. These are instruments that last you a long time, meaning it’s easy to defer purchases – so the state of the economy is a factor. But while the statistics are hard to get a hold of (these numbers tend to be sold, rather than shared freely), it’s not hard to find evidence that the guitar market remains healthy.
Here’s a good read from 2015, from a marketing blogger:
19 Fascinating Guitar Sales Statistics [brandongaille.com]
Guitars certainly face challenges: think cheaper imports and knockoffs, plus a huge used market (that’s also going to become more and more relevant to synth and modular sales). But looking at the larger numbers and music in general, musicians who want guitars remain loyal to the instrument, and they’re willing to pay for a brand.
The question isn’t what’s going on with guitars, but what’s going on at Gibson.
And there, you might look at their electronics business, where Gibson is seeing sales sagging dramatically versus plans. That’s important, because it’s also where Gibson acquired these debts in the first place – as I noted when Gibson shuttered Cakewalk, the consumer audio push seemed a fools’ errand. Gibson argued at the time they needed to off-load Cakewalk to support that consumer audio push – but that could in turn just dig them deeper, while sacrificing a small part of their business that was insufficient to pay back debts.
So, while the immediate narrative may be: “ah, the demise of the guitar,” maybe it should be more like, “ah, that company loaned a bunch of money to go into consumer audio and now can’t pay it back because they screwed up.” Too much appetite for consumer audio may wreck Gibson the guitar company.
And that’s in fact what the Post argues: that the story at Gibson is mismanagement. Here’s the money quote (so to speak), from Kevin Cassidy, a senior credit officer at Moody’s Investors Service:
“Some type of restructuring will be necessary,” Cassidy said. “The core business is a very stable business, and a sustainable one. But you have a balance sheet problem and an operational problem.”
It seems that has to fall to the leadership at the top – Henry Juszkiewicz, the company CEO and owner. It’s been Juszkiewicz that led this massive expansion, then failed to connect the consumer audio and technology vision to the core instrument business, then failed to keep up with debts as the strategy sagged. But irrespective of whether the buck should stop there, bankruptcy is likely to mean he’ll be unable to retain his current position.
That is, as either debtors or the bondholders get control of Gibson, it may actually be cause for some fans of the core instrument business to applaud. Normally in America, the credit holders are the villains and the plucky upstart business owner the hero – you’ve seen It’s a Wonderful Life. But lately, management losing focus in favor of growth suggests sometimes the people looking at the numbers have a point.
Whatever is about to hit the fan will likely do it soon. Gibson are set to report third quarter earnings and answer to concerns from debtors or bondholders. If the Post article is to be believed – and I suspect it is – you’ll see whatever happens next at Gibson shortly.
It’s worth reading the full story:
Gibson ‘running out of time — rapidly’ [Nashville Post]
At some point one of the guitar manufacturers will realize the future is in “modular” guitars that are easily able to control synths. I’ve seen 20 weak versions of this but no “strong” leading solutions.
“but no “strong” leading solutions.”
This is because guitar players generally want their instruments to sound like guitars.
Guitar players are not growing like synth enthusiasts. The market is the market. No one says they can’t continue to sell $1k-$5k guitars. If they want to make lots of money, they will do well with a decent quality $100-200 piece that can be used with Ableton Live or Garage Band in more unique ways.
The future (present?) of guitars is 100 dollar guitars direct from China. Then you can just hack it into whatever you want and have a couple other ones as backups.
As a business owner and a guitarist (and synth guy), this is not shocking at all. Growth through acquisition of brands like Phillips? TEAC? You’re just buying blue sky with that crap. The death of Gibson-as-we-know-it will be down purely to stupid ownership.
Yep, and spending deeply on white elephants other business were trying to get rid of, no less… uh…
Oldest story in the fiscal book.
Gibson overextended and is buried in debt.
Tower Records anyone?
I would not be surprised if Gibson was purchased by Kuok Meng Ru
Not surprised… I can get a $1200 Godin or a $2500 Strandberg that sounds and plays better than any $5000+ Les Paul currently being made.
But that apparently isn’t the issue – thanks to the strength of the brand. The guitars are selling. What Gibson can’t do is sell its consumer electronics division’s products – never mind that Philips was presumably off-loading it for a good reason in the first place. And that’s what incurred the debt, not guitars.
Typical American big business story… Henry is gonna crash the company but still walk away with millions, prob 100’s of millions as a parting gift/golden parachute, all while a lot of good people lose their jobs…
He’s the type of jack off that needed to get beat up more on the playground.
Gibson didn’t “sell” Cakewalk, they shut it down.
Apparently they sold some of the IP associated with it. Not clear if it was more than just branding, but something got sold.
Gotcha. I hadn’t heard that, nor did I read that in the link included in this article. I hope someone got more than just the brand and can continue it in some form.
Yeah, that was a slip on my part… maybe a Freudian slip, as Gibson being this cash-strapped should ideally have found a way to better divest themselves of Cakewalk. As Paul said, I understand they did sell off some associated assets.
Seems their guitar quality has taken a hit recently too. I have a 1979 Les Paul that plays nicely almost 40 years on with very little maintenance. But a friend of mine bought a recent Les Paul and has had issues with the neck and fretboard after only a couple of years.
The one aspect of this that actually ties-in with “digital music” is the shutting down of Cakewalk by Gibson – and this you failed to mention in the article.
Why wouldn’t they just license the name/logo to a Chinese ODM and have them flood Macy’s with $99 Bluetooth speakers for Xmas? Maybe they could send an acoustics guy over to Guangzhou for tuning and then just kick back and collect fat royalty checks.
Well, that’s what they’re doing – with a Philips logo, though, not Gibson 😉
And of course, that’s the whole problem. Everyone can do that. So I’m not surprised they’re getting hosed 😀
I’ve worked for a musical instrument retailer for 10 years. When I started, Gibson were the jewel in our range of guitars. We made a lot of sales and a lot of money out of it. Now, we get very little interest in Gibson from our customers and those that are interested often lose interest after trying one.
The guitar market is healthy, there’s no problem with Fender, Martin, Taylor etc. Gibson guitars are a shadow of what they were ten years ago. If their consumer electronics push is getting them into financial trouble, they’re going to have to make some serious changes if they expect their guitar business to bail them out of it.
That’s interesting to hear … not surprising, but good to hear from the source.
I don’t think guitars are likely to bail out consumer electronics. More like if the financial interests get hold of the company they’d divest those areas. The Gibson brand is presumably still somewhat valuable, despite the experience you had – you’d assume that’s what they would focus on.
If one were to have a look at the Glassdoor reviews of Gibson’s Nashville factory, it seems as though management problems extend throughout the organization; there are lot of employees who are critical of the CEO.