Gibson Guitars Files for Chapter 11 Bankruptcy Protection

Gibson Guitars Files for Chapter 11 Bankruptcy Protection

On Tuesday 1st of May 2018, Gibson Guitars filed for Chapter 11 Bankruptcy Protection. Those in the business knew it was inevitable - but what does it mean for the electric guitar market? Eastwood Guitars CEO Michael Robinson reflects on the news.

Gibson Guitars

After more than 100 years in the business, Nashville-based Gibson has finally filed for Chapter 11 bankruptcy protection - struggling with $500m (£367m) of debt.

Lenders will now take control of Gibson Guitars, which was founded in 1902, and aim to focus the company on musical instruments once again.

Chief executive Henry Juszkiewicz, said the Chapter 11 filing would assure the company's "long-term stability and financial health".

Does the news mean something is wrong not just with Gibson, but with the market for electric guitars in general - after all, Gibson is not the only key player in this market.

Michael Robinson, President/CEO of Eastwood Guitars, INC, doesn't think so and has issued the following statement:

"In light of today's news, I thought it time to revisit the commotion from June 2017 stirred up by a report in The Washington Post entitled Death of the Electric Guitar. At that time, many people in the industry were concerned about the future of electric guitars, as were many employees and fellow guitar players. 

Below is a response I wrote at the time to address the unrest, with the hope of putting a few things into perspective. Today’s news is simply the natural progression of things. All is fine in this industry and also for us passionate guitar players. Strum onward and upward!"

Death of The Electric Guitar? I Think Not.

(July 29, 2017 By Mike Robinson)

The Parrots band

A recent article in The Washington Post titled, “Why my guitar gently weeps. The slow, secret death of the six-string electric. And why you should care,” has stirred up a lot of emotions, discussion, and lively debate. You might want to read this first.

In the article, George Gruhn said: “What we need is guitar heroes.” In my opinion, that has nothing to do with it. 

The basic premise of the article circled around the opening argument:

‘In the past decade, electric guitar sales have plummeted, from about 1.5 million sold annually to just over 1 million. The two biggest companies, Gibson and Fender, are in debt, and a third, PRS Guitars, had to cut staff and expand production of cheaper guitars. In April, Moody’s downgraded Guitar Center, the largest chain retailer, as it faces $1.6 billion in debt.” 

Later in the article, the author notes: 

“Over the past three years, Gibson’s annual revenue has fallen from $2.1 billion to $1.7 billion, according to data gathered by Music Trades magazine. The company’s 2014 purchase of Philips’s audio division for $135 million led to debt — how much, the company won’t say — and a Moody’s downgrading last year. Fender, which had to abandon a public offering in 2012, has fallen from $675 million in revenue to $545 million. It has cut its debt in recent years, but it remains at $100 million.”

OK. Let’s talk about the elephant in the room. It’s Guitar Centers $1.6 billion in debt. It’s not about needing new guitar heroes; it’s about Greed vs. Passion. 

The question should be “What went wrong?” not “Who is going to save the electric guitar?”

To answer that question, let’s go back more than two decades and take a look at the industry. In fact, we need to go back to the years before Guitar Center.

With people now speculating that the electric guitar is going the way of the piano, you might find it ironic that Guitar Center was originally named Organ Center. No kidding. It started in 1959 and was renamed to Guitar Center in 1971.

It’s safe to say that the electric guitar industry was growing at a healthy rate from the early 1960s with new brands, new shops and new players entering every year. Even through the 70s, it continued to grow worldwide – but especially in USA – at a manageable rate, with the keyword being “manageable.”

Fast-forward to the early 90s when Guitar Center started a non-stop parade of acquisitions and grand openings – similar to many other Big Box retailers in other industries - until it gradually wiped out most of the independent guitar dealers, making it almost impossible for most small music stores to survive. 

Guitar Center

Pic: Guitar Center - perhaps not the best business model for the guitar market?

Here is an excerpt from the Guitar Center website:

“During the '90s, Guitar Center underwent monumental growth period opening nearly 70 stores throughout the decade, earning the company the moniker, "The largest musical instrument retailer in the world." During this fast-paced growth period, store grand openings took place at a rate of one or two stores a month, surpassing all other musical instrument retailers.”

In parallel to this activity, the Internet was born and along with it came monster online retailer Musicians Friend - which in 1999 was acquired by Guitar Center - further nailing the coffin closed for the traditional North American retailers, who were in the early stages of understanding how to utilize the Internet to their advantage. 

Before we knew it, a behemoth marketing machine kicked into gear and started offering everybody with an inkling to own a guitar the means to own one, or multiple. This meant aggressive discounts and credit terms extended to everyone and anyone who walked into their stores. It was just another death punch to the undercapitalized independent stores who could not compete on these levels.

To the big dogs like Fender and Gibson, this was a dream come true. The industry quickly grew from around 600,000 to over 1.5M guitars being sold every year. Meanwhile, Fender and Gibson continued to pile on to their massive debts to keep up with demand and expand their businesses. 

And so here we are today. Mainstream news is writing the eulogy for the electric guitar. 

But is this the death of the electric guitar? Of course not. 

Jack White live

Pic: Guitarists such as Jack White continue to inspire people to pick up the instrument

For argument's sake, let’s go back and look at what might have happened if Guitar Center never existed.

Imagine it’s 1987 and the industry is selling 400,000 guitars a year.  It continues to grow at a manageable year over year rate until today - 30 years later – where we would expect to see the industry selling 800,000 guitars a year. 

That’s still 200,000 per year below where we are now. Greed created the unmanageable heights of 1.5 million guitars a year in 2007, which has now fallen to 1 million a year in 2017.

The guitar is not dead - Greed's role in this industry is dead. Passion has been there all along.

Guitars - like most musical instruments - are about one simple thing. Passion. The passion for creating. The passion for learning. The passion for inspiring others. It's not about price, which is what big-box retailing brings us. It’s never been about price. It’s always been about passion. 

Black Lips live

Pic: The Black Lips - one of the bands proving that guitar is alive and well - at Rock'n'Roll gigs across the globe...

As the old adage goes, “you’ve made your bed, now lie in it.” Nobody here is weeping except the debt-burdened behemoths. Meanwhile, the rest of the industry is busy doing what it’s always done best - inspiring millions of people every day to passionately create. 

As the President of an electric guitar manufacturer founded in 2002, we’ve continued to grow year over year without the need or desire to be involved with big-box retailers like Guitar Center and Musicians Friend. We work directly with customers and specialty retailers that share our passion for electric guitars. We’ve developed innovative new production models and streamlined our distribution chain putting all our staff directly in contact with the customers, where we can simply and efficiently listen to their needs. They like it that way and as a result, we continue to grow. 

So from where I sit, the electric guitar is certainly not dead, it’s passionately thriving. 

Mike Robinson

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