Gibson CEO Talks Challenges Facing Guitar Retail Industry: 'These Are Troubled Times'
If Gibson Guitars is in serious financial straits, longtime owner and CEO Henry Juszkiewicz has an extremely good poker face - but he's realistic about the challenges ahead.
Sitting at the head of a conference room table just outside his office at the company's Nashville headquarters just days before Christmas, he's leaning back in his chair while discussing the future of Gibson Brands Inc. with Billboard. Only a few weeks before news that the company's new CFO Bill Lawrence would be leaving the company -- replaced by former CFO Benson Woo -- and less than six months away from $375 million of Gibson's senior secured notes reaching maturity (at which time another $145 million in bank loans will be due immediately if those notes, issued in 2013, are not refinanced by then) he is discussing how both the guitar segment of his company and the music instrument industry as a whole need to embrace the future of retail.
"There are problems with the guitar retail industry," explains Juszkiewicz who has been CEO of Gibson since 1992, after acquiring the company in 1986. "All of the retailers are fearful as can be; they're all afraid of e-commerce, with Amazon just becoming the second largest employer in the US, and the brick and mortar guys are just panicking. They see the trend, and that trend isn't taking them to a good place, and they're all wondering if there will be a world for brick and mortar stores for much longer. It’s a turbulent world to be a retailer, and many of our retail partners are facing that same issue."
The holiday season was kind to Gibson: "We were expecting very good sales and exceeded expectations. While this refers to our sales to dealers, sales to consumers at the store level were up year on year even more so," says Juszkiewicz. But the company's relationship with its retail partners is under strain. While Gibson announced in a recent press release that it has met all current obligations to the bondholders and is in the process of arranging a new credit facility to replace the bonds, fully expecting the bonds to be refinanced in the ordinary course of business, revenue still fell from $2.1 billion to $1.7 billion over the last three years. From old merchandise clogging store inventory spaces, to retail shops that hire employees who know nothing about the instruments nor how to sell them, the longtime CEO has ideas on how the industry can right the ship.
How long has the guitar retail industry been struggling?
When the stock market collapsed [in 2008], almost all retail across the board fell 30%; not just the guitar sector of that, although I will admit that the guitar business still hasn't fully recovered yet. The musical instrument industry as a whole hasn't recovered; its getting there, but its still not at the same level as where it was before.
How does Gibson plan to embrace e-commerce in an industry where a lot of people still want to get a feel for a guitar before they purchase?
Guitars are unique, and are a lot like clothing. There are some products that I call fashion products, where before you buy it you want to see how it feels and looks on you, and the guitar definitely fits both of those criteria. There is a feeling, and I believe it’s true, that every guitar is slightly different from each other; its made out of wood, and two pieces of wood will always be different from each other. We've always been loyal to retail; we still don't have a site where we sell directly [to consumers]. We probably will in the future, and part of that is in reaction to general trending toward e-commerce. These are troubled times for retail.
Where do you feel that retail has failed the guitar buyer?
The issue for Gibson in retail is that the industry has gone into a really narrow customer focus. In the 50s, music retailers were neighborhood family stores. If Johnny wanted to play an accordion, and Suzy wanted to play saxophone, there were full line stores. They weren't big, but they carried most instruments, sheet music even. It was a neighborhood staple. Those days are gone, and those stores were in deep trouble when rock and roll came along. When that happened, guitars became extremely popular, and everyone became a guitar buyer if not player. That changed the retail quite a bit; even though it was still mom and pop shops, they also became more "rock" shops, and [the business] became much younger. It also became quite unprofitable. As that demand started to decrease in guitar - at this point in time, only people who already played were starting to be the only people actually buying guitars - stores lost their family roots and started concentrating on "real" players. They had to, but they hyper focused on those buyers, and started losing money. They couldn't pay their rent anymore. I like to say, "You know where the good music stores are? Look in a city's pornography district." Sure enough, that's where [they] are. Well, parents with kids don't like to go into those areas to shop. Musicians don't have a problem going into those areas - there are usually a lot of hip clubs around there, too - but this is how the guitar business took a hard left, and left behind a lot of consumers. We've lost a lot of consumers. Women, by and large, aren't comfortable going to guitar stores. If you look around, you'll see a few, but if they are there chances are they're already musicians. You're not going to mom and dad; you're only preaching to the converted.
So how do you find new converts?
With great difficulty. I've been called someone that hates retailers, and I don't; we make a real effort in making sure our retailers make a good profit off of our product. We also serve the consumer, though, and we have to focus on the person that is paying a good deal of their money on us sometimes. The more people that like what we do, the happier the industry is as a whole.
I remember going inside [a defunct music shop in Nashville], and I saw a guy pull into the parking lot in a $150,000 Mercedes. He walks up to the counter where they kept their recording stuff, and he told the young guy working the counter, 'Look, I used to screw around with keyboards and guitar, and I want to put together a little home studio. I'm clueless about it, though, so can you just tell me what to get?' A normal merchant would hear a cash register going off in their head! This kid looked totally confused, said he needed to get something from the stockroom first, and never came back. That guy waited ten minutes before finally leaving. That is the experience that people see over and over again. It's the biggest impediment that we have to getting new people into [buying guitars]. Nobody really walks into those stores anymore without already knowing what they want, and how to get it themselves.
What specific changes do you see needed at the retail level?
The first thing we are doing is try to teach the stores how to merchandise. I've been arguing with retailers for a long time that you have to be a place where [potential customers] can sit and take in the store, and be a destination that is friendly. If you walk into most music stores, there's nowhere to sit. Give me a break! Most stores aren't comfortable places. You don't have the people in the stores that care [that there aren't any new customers].They put all of these guitars on the wall, and they put the best ones out of reach. Because you might steal one? Well, that's one way to look at it, but Apple doesn't look at it that way, and most of their stuff is more expensive than a lot of higher end guitars. Their products are just out on tables for everyone to pick up and look at, and while they have some theft protection, its not like they have a security force in each store. We just have the whole thing wrong. If you want customers, you have to be nice to them, and give them a place where they are comfortable.
Also, the merchants don't have merchandising in our industry. If you are Wal-Mart, every year you are deciding what goes inside of your stores; they know exactly what products are going to be on every square foot of shelf space, and every store is the same. That's what a chain store is supposed to be! Walk into a Guitar Center and try to tell me where anything is. It's obvious that they don't use the same planogram. They don't have the same guitars. You never know what you're going to find when you walk into one. The basics have been around for a long time; it's all about making the customer feel welcome, and helping them out by being knowledgable. That's what the industry needs, because it doesn't have it. We have to get people involved in music, and offer them a helping hand. There's a lot that can be done that just isn't being done. We have to give people options, and we can use new technology to give better experiences to our consumers. Kids are out there creating their own music and their own videos; we have to find a way to be a part of their lives. We're losing by not being a part of their lives, and insisting that they become a part of ours.
How do you get the younger generation, whose music of choice may not be particularly guitar driven, to pick up a guitar?
Kids these days are very eclectic in their interests, and they don't listen to any one genre of music. The younger generation will listen to The Beatles, Dr. Dre, and jazz. They teach themselves Garage Band; they make videos on their iPhones...they give themselves license to create their artistic visions, in as many areas of art as it takes them.
[The industry is] stuck in a time warp, and the 'purists' have a very loud voice on the online forums. If you are a kid today, you have an iPad by the age of two, and if you're not offering new technology you're old. Kids today may think some music from the 50s is kind of cool here and there, but what other industry do you know that hasn't changed since the 50s? Those guitars from the 50s are what the purists want, but we have to have something new and exciting. Imagine if the camera had never changed. Innovation is a part of every business to some degree, but [the guitar industry] hates it. The kids demand it, and if you don't have it, they walk.