After declaring Chapter 11 bankruptcy and parting ways with the sometimes controversial Henry Juszkiewicz, Gibson will emerge from bankruptcy protection on November 1st with a new management team and funding from private investment firm KKR.
It’s safe to say that the future of Gibson the guitar company was never really in doubt. As a brand it is healthy and well-respected, and annual sales of Gibson and associated brands like Epiphone are somewhere in the $300 million range. But while Mr. Juszkiewicz can be credited with taking Gibson from a struggling brand in the 80’s to the giant it is today, his quest to build Gibson into a “lifestyle brand” was also Gibson’s financial undoing.
The Gibson acquisition 1986 was Juszkiewicz’s home run, but nearly every other attempt to build the brand — Stanton, Phillips, Baldwin Piano, Garrison Guitar, Gibson branded restaurants, etc — were essentially financial drags that puffed up the top line, did little to grow the bottom line, and added piles of debt. And when Gibson skipped the 2018 NAMM show and instead attended the CES (Consumer Electronics Show) in Vegas, things had gotten truly weird. In the end, Gibson’s bonds were rated at near junk status, and the “lifestyle brand” was brought down by what kills most distressed companies: They ran out of money to pay their debts.
With KKR funding and shedding some of the under-performing dead weight, Gibson guitars and Gibson Pro Audio will enter a new chapter of ownership, and has recently announced their new management team. You can read about the new team here: https://tiny.cc/wzsi0y
It would appear that things are looking up for Gibson: They have a great brand, loyal customers, formidable financial resources, and if you look past the buzzword-gibberish of their resumes, a capable management team. But their are some things to watch for with the New Gibson.
KKR is a Private Equity (PE) firm, meaning that they have their own funding to invest with, and are not a publicly traded company. PE firms tend to target companies that they believe are under-valued, with the goal of increasing their financial worth, and selling them at a profit down the road. PE firms are typically not in it for the long haul. They want to get their initial investment back, and hopefully drive up the value for a future sale.
So while the new CEO professes to be a personal fan of Gibson guitars — make no mistake — this is about making money, and preferably quickly. PE firms are not touchy-feely organizations, and they are not always particularly patient. There will be plenty of pressure to perform and create solid financial returns. Hopefully, they will do this by making great guitars that musicians love and want to purchase. But this is not a labor of love, and at some point KKR will want to recoup their investment.
From personal experience, one of the tricky things about Gibson is the steadfast traditionalism of their fan base. In contrast to Fender, Gibson fans have less tolerance for deviating from tradition (no Gibson “Parallel Universe” guitar, that’s for sure). Silly things like robo-tuners aside, Gibson fans push back rather swiftly — sometimes even making personal YouTube complaint videos — when they feel that Gibson has strayed off course. So when the new management team talks about “innovation” they have to keep in mind that their core customer may not be looking for something different. Technology has revolutionized recording, pro audio and even guitar amplifiers, but guitar players tend to like their instruments just as they’ve always been, and are slow to change.
Also, while the internet is a powerful selling tool, many guitar players still like to have a personal shopping experience. The “old” Gibson made it pretty much impossible for smaller stores to do business with them, and put all their chips in with major big box and internet retailers. While Sweetwater is the major exception, most of the big internet retailers don’t know the product well, frequently have inaccurate descriptions, pricing and sometimes even the wrong photos. You do yourself no favors when your chosen retail channel does not know what they are talking about. Feeling good about where you bought the product is part of the ownership experience (premium car brands focus intently on this aspect of the sales process)
So best wishes to the new Gibson management team. The music business really is different and more emotionally-linked than other products. Guitar Center and Mars Music were supposed to be the future of music retail. Mars folded eons ago, and Guitar Center has struggled for years to turn a profit (they are also in junk bond territory and routinely flirt with insolvency). The great thing about selling musical instruments is that it’s not like selling blue jeans, and a great many of our customers are emotionally invested in the product. Let’s hope they take that into consideration.