Fender Struggles to Stay Profitable in a Guitar-less Age


The Fender electric guitar is synonymous with rock ’n’ roll, the rock star image, and general bad-assery. Rockers like Hendrix, Clapton and Townshend have elevated the Fender to mythic status and made their brand a source of desire for future generations of guitarists. So, why has the company having trouble in today’s marketplace?

The answer as it turns out is multi-faceted. For one thing, sales of all musical instruments took a dive during the Great Recession, with last year’s sales down 13 percent from their peak in 2005. Second, Guitar Center, “accounting for roughly a sixth of Fender’s sales,” has been losing money ever since Larry Thomas, former chief executive of Guitar Center and current chief of Fender, sold the company to Governor Mitt Romney’s old firm Bain Capital. And finally, in a music culture defined by hip-hop and EDM, which use instruments such as synthesizers, turn tables, and laptops, the guitar just ain’t the hot commodity that it used to be.

Fender is a strong brand and will last a tight economic environment, but their storied history points to past regrettable business decisions. When founder Leo Fender sold his company to CBS in 1965, it struggled to maintain its core identity and both product quality and sales began to suffer when it had to cut costs to meet CBS’ quota. In 1980, after Yamaha, a Japanese company that sells “inexpensive, high-quality guitars,” took a huge chunk of their market share, Fender posted a $10 million loss on $40 million sales. After CBS’ head William S. Paley signed off on an investment of $50 million over five years in Fender, it looked like the company was going to be saved, but “three years into the plan, Mr. Paley was out and new management decided to sell the music division.” Bill Schultz, President of Fender, and Bill Mendello, CBS’ top executive in the musical instruments division, “engineered a $12.5 million leveraged buyout,” in order to prevent liquidation. It took the company through the ’90s for the company to crawl back to relevance, moving manufacturing from the United States to countries like Japan and South Korea.

In 2001, private investment firm Weston Presidio bought a 43 percent stake in Fender and since then has drawn criticism from the Wall Street community. In 2008, Fender acquired the Kaman Music Corporation for $117 million and has squeezed the company’s profit margins. And bankers and investors scoffed in March when the company tried to go public, saying that Weston was pushing to sell at a high price when Fender is small in size and its sales were declining. Now, Weston Presidio is “looking for an exit.”

Fender’s current status raises questions about the future of the company. Fender’s shareholders aren’t looking to jump ship anytime soon, and it’s way too early to say whether the culture is making a turn against guitars in general, but what is clear that Fender isn’t drawing the awestruck reactions it used to from consumers. Mendello says Fender is going to try for another public offering down the road, so maybe the company will again capture the public’s interest soon. Fender may still retain its mythic status in rock lore and guitarist’s imaginations, but it might never again be the culture’s idea of “awesome.”


Attribution

“A Guitar Maker Aims to Stay Plugged In,” New York Times


  • Eric Smith

    Should read “Fender struggles to sell guitars because they don’t address hardware quality issues and leave shitty bridges in select models of guitars.” About a year ago I had sold my macbook and had planned on spending money on a blacktop jazzmaster, the only guitar I had considered buying in a long time. Literally every review I found complained that the bridge dropped intonation constantly and needed to be replaced. Sorry, but I’m not going to buy a guitar that needs replacement parts brand new. I was looking forward to spending money on that guitar, and they have given customers a reason to not buy from them. That is their problem.

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