12.07.10

Made In China: American guitar

Posted in Made in China, Rock 'n' Roll at 4:33 pm by George Smith

Continuing with the posts on how US electric guitar manufacturers outsourced their production for middle class pieces for the sake of concentrating on custom business for the non-playing wealthy, I have a few items of interest.

The first dates from a year before the economic crash. At the time you could still read stories on what a jolly good business it was to be able to buy Chinese-made US branded guitars displayed in cardboard boxes at Target, Wal-Mart and BestBuy.

From the Newhouse News Service, in 2007:

“Rock has gotten so mainstream that you see or hear guitars in just about every movie and commercial,” says Dana Clarke, manager of Guitar Center in North Olmsted, Ohio. “Combine that with guitars being made overseas, cheaply, and it’s no surprise you see them everywhere.”

Everywhere, as in the aisles of Target, Wal-Mart, even Costco. They come packaged as “rock kits.” In brown boxes. Stacked up like stairways to heaven.

And they’re cheap.

The outsourcing of production to Mexico, China and South Korea has dropped electric-guitar prices to levels that have made them competitive with electronic toys and gadgets.

One penny shy of $70 for an ax at Target. Less than $87 for a “guitar pack,” amp included, at Wal-Mart.

At the same time, prices skyrocketed for domestically-made guitars, made for the collector crowd:

[The Guitar Center man] has witnessed an explosion in price appreciation, even for unloved guitars that would hang on the wall for months.

“In the 1980s and ’90s, guitars became a collectible with a Blue Book value,” he says.

Guitar Center, the article went on to state, “pioneered the guitar-for-masses concept.”

Fender’s new CEO, Larry Thomas, was formerly chairman of Guitar Center.

And while things were heady in 2007, Guitar Center is now stuck in the doldrums. When the middle class was beggared by the economic crash, GC suffered.

“Moody’s downgrades Guitar Center debt,” reads a news story from November 12:

Moody’s Investors Service has downgraded private equity-backed Guitar Center Holdings Inc., parent of Guitar Center, to Caa2, from Caa1, citing increased interest expenses when it begins paying down its senior unsecured pay-in-kind notes starting in April 2011. Until last month the business, owned by Boston buyout firm Bain Capital LLC, has deferred paying cash interest on its $375 million senior notes held at the holding company level. Moody’s said Friday, Nov. 12, that, while sales have improved, its earnings are not expected to recover sufficiently during 2011 to fully cover its interest expense through internally generated cash flow. The agency said the Westlake Village, Calif.-based music store chain, the largest in the U.S., “could voluntarily pursue a debt restructuring or an amendment to its debt facilities” at terms it would deem to be equivalent to a default.

Caa2 means holdings are of “poor standing.” Guitar Center, in other words, is a substantially risky business not far away from falling into default.

Fender, for its part, has had a great deal of trouble controlling who uses its designs. It’s a consequence of other companies fabricating them uncontested and the company’s own mass outsourcing to China. The temptation to capitalize on the brand name and look is very strong.

Paradoxically, in a news item from the Arizona Republic in 2009 (Fender is based in Scottsdale), one reads:

Fender filed for the trademarks as part of its global strategy to fight counterfeiters and protect its intellectual property, he said. The problem has gotten worse as copycats have guitars made in China, ship them to warehouses in the United States and sell them over the Internet …

Over the years, again prior to the current troubles, domestic guitar production as investment pieces for the wealthy was generally hailed.

For example, this from 2003, on a guitar show:

Things took off in the late 1980s and early 1990s as Boomers with increasing disposable income started buying the axes preferred by their musical heroes. Most of those were built in the 1950s and 1960s, the first two decades for mass-marketed electrics. Suddenly, certain models and years, mostly Gibsons and Fenders, started commanding seriously crazy cash — $10,000-$40,000.

And this news piece from 2006 on Gibson’s peddling of premium models to the stupid rich in Japan is also revealing:

Gibson makes a range of guitars solely for the Japanese market, including rocker Tak Matsumoto’s signature Les Paul in such special guitar shades as canary yellow.

“It is so cool,” says Yuki Yamaguchi, a 19-year-old student who bought a $5,400 Tak Matsumoto Gibson on three-month credit. “I open the case and look at in and go: ‘It is so cool.'”

Amateur musicians such as Yamaguchi, who acknowledges he hardly has time to play his guitar and spends more time admiring it, may be just buying a dream.

But they make for serious business.

“Some of these consumers own five, 10, 20 guitars because they’re collecting … They’re collecting for the love of collecting,” a Gibson sales exec told the newspaper reporter.

“The Japan-only Les Paul with the beat-up look costs about $3,000 …” added the piece.

Ironically, flooding in Tennessee stalled Gibson’s domestic production for a couple months earlier this year.

The Nashville newspaper, The Tennessean, reported on the matter:

Widespread flooding two weeks ago pushed many of the city’s rivers and streams well beyond their banks, including Mill Creek, which flows just behind Gibson USA’s sprawling factory complex near Nashville International Airport.

The plant churns out 2,500 guitars a day. It is one of several mass production facilities the company operates around the globe – including in Memphis; Bozeman, Mont.; and at least five factories in China.

Gibson guitars manufactured in the flooded plant cost between $700 and $3000. Paradoxically, the custom shop — which produces Gibson’s really idiotically priced pieces for the plutonomy or Nashville recording artist with a label deal — was not impacted.

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