This is not a business blog, but sometimes boring business crap threatens to impact our daily lives. We’ll get through this, I promise.
So over a year ago, Fender was going to go public. Rich old dudes everywhere were going to shell out $15 for a stock certificate to hang up next to their ’57 Strats. Fender was going to pay down a ton of debt, and all of us were going to fool ourselves into thinking the largest guitar manufacturer in the world could actually grow larger.
But then everyone realized the last part of that equation would never happen. Fender was going to spend every penny they made from the IPO to pay creditors. And in the end, they’d only get about 30% of the way there1. It became obvious that one of their major stakeholders was trying desperately to cut ties with the company. Fender saw their share price tanking on day one the same way Facebook did. So panic set in, and they pulled out of the market.
So instead, Fender continues the shell game with debt. They’re doing the corporate version of getting a new credit card to pay off their old cards. It’s not a game you can win long term unless you find a serious way to flip around your finances. But with income on the yearly decline and the instrument market as a whole limping along with the crappy economy, there’s not much hope in sight.
The thing is, when you’re the largest company in your industry, it’s really hard to grow. Let’s say the new Dimension basses are a HUGE hit2 and they sell 10,000 of them this year. That is a cool $16,00,000 in revenue. Sweet! But that’s only 2% sales growth. Crap! And those Dimension sales probably come at the expense of P-Bass sales in a lot of cases, so, even less growth. Damn.
And this is why big companies usually buy other companies in order to grow. But Fender is in no position to buy a company of any substantial size. It might seem logical for them to get involved with a retailer like Guitar Center or Sam Ash, but that means taking on far more debt than they currently have and getting into a market that is more fractured by the day3. About the only real hope would be a merger with rivals like Gibson or Marshall… neither being likely.
So where does this leave Fender? With no way to raise more money, no way to pay off debt and no way to expand; it seems bleak. And it probably is. They certainly aren’t about to go out of business, but it seems we could be looking at another dark age of Fender if things don’t miraculously improve. Costs will need to be further cut, product lines will need to be streamlined. While cutting down on the inane number of artist series guitars could be a smart move regardless, it will likely come with attempts to sell low-class guitars at middle-class prices4.
While some folks may scoff at what Fender produces these days, they’re still important in the guitar eco-system. They own a LOT of other brands (any of which may be sold or dissolved). They also serve as an entry point for a lot of players. There are hundreds if not thousands of parents out there who will buy their kid one of those “Start Playing” kits because they know the Fender name. Would they just buy something else if Fender didn’t exist? Most of them, probably. But as the guitar industry is shrinking already, less customers, in any number, is a bad thing for everyone.
- Moody’s puts Fender at B2-PD, which means they have risky long term outlook and a high probability of defaulting on loans. Amazingly, that’s a middle-of-the-road rating. ↩
- Not likely, these Music Man knockoffs aren’t easy to get excited about, but let’s pretend. ↩
- And always faces the risk of being wiped out by Amazon. ↩
- -Insert price/quality jokes here- but the US/Mexican guitars are priced as middle-class guitars and the quality generally fits that price range. They’re not great, just average, and $1,600 gets you average these days. ↩