Fender's IPO ... cancelled

"The other sticking point was Fender’s problematic relationship with Guitar Center, on which it depends for roughly 15 percent of its sales. Despite $2 billion in annual sales, the retailer is saddled with $1.6 billion in debt, $650 million of which carries a 9.9 percent interest rate."

What's shocking is that Guitar Center has that much debt...they're gonna have to sell a lot guitars to hit that nut.

... how many lame puns do you think an MSNBC writer can use in a news article?

Sticking my neck out here, it depends on how in tune he/she is with developments or whether he's/she's just a highly strung nut using internet journalism as a bridge to pick up some readers in order to scale further up the ladder toward becoming a major player.  Either way it's likely he/she won't tone down his style at the expense of losing a greater volume of exposure. 

I suppose I see it less as someone using a chorus of lame puns and more like a solo player with a bit of drive using a nifty finger style and his/her own rhythm to amplify key points in order to get heard in such a big arena.  Don't forget either that the story likely just started as a bunch of slurred notes that he/she had to bend into something harmonious that could be pitched at an editor.

We all know Martha is using a female pen name as an alias. This is the internet remember Michelle?...

(Now fixed in original post, amended for universal gender correctness... )

Cheers for pointing out my oversight, nothing malicious intended. That'll teach me to bother to read the original article before I indulge in a bit of word-play in future...

Regards

Guy Chapman (aka Person Personperson.)

"Fender IPO dented by impending crash".

I don't care how you slice it, or try to justify it, $ 1.6 billion dollars of debt is obnoxious for a guitar store. Somebody is going to really get screwed.

GC acquired this huge debt, how?

Mystic38


no need to fret about it.

You're making the right noises, I'm taking notes.

Fender has great potential in emerging markets where some billions of people are just learning to play western style guitar music.

Fender gutted it's domestic market by systematically extorting the smaller dealers with threats of yanking dealerships to favor the relationship it had with Guitar Center.

I don't know how it is today, but a few years back Fender required that dealers join the network by paying a large "fee" up front as the cost of entry to any particular segment of their product line. You could buy into the privilege to sell particular subsets of what Fender made. After they extorted that money from the smaller dealers then they would then offer the product at the highest whole sale price while reserving whole sale discounts and floor plan financing for quantity vendors. The quantity discounting and financing seems to make perfect sense until you learn what a system like that evolves in to. Fender has ended up with a legacy of bitter and angry small shop dealers that resent the fact that Fender strong armed them into or out of the Fender business. Instead of a network of happy profitable dealers it is left with a mega chain holding a bloat of floor planned inventory that it doesn't know how to sell.

To be sure there are many independent Fender dealers making great business. But these are remarkable businessmen who enjoy special circumstances such as easy access to capital or great access to a thriving market.

Here's one of my favorites:

http://www.wildwoodguitars.com/

These guys sell boat loads of hi priced Fender gear... some how they have convinced Fender that they will not be burdened with all the extra low end junk that Fender seems to think it can force on most dealers. I think it is because they are so good at what they do that Fender lets them buy what they want without aggravation.

The small shops that get hurt worst by Fender are the ones that pay the sign up fee, buy the Fender product at level 1 pricing so that they can't price it competitively at retail without a blood letting discount, and accept the fate of buying all the other low end junk as conditional to getting the guitars. They usually get burned and what we have seen so often in the past decade is that they end up loosing the dealership and hating Fender (and all the other Fender family brands). That's a lose-lose. Fender makes real good stuff and the dealers miss a great opportunity to represent good product once this cycle is started. Fender loses as well.

The very best dealers, the ones that give such great service that even the Manufacturers envy their operations, are the ones that have some chance to make the best of it. Many dealers don't know it but they can negotiate a fortuitous deal with companies like Fender.

So, it is a two way relationship but Fender is making it a high stakes game. Only the best and most aggressive small shop dealers are finding balance. The smartest ones are demonstrating that their partnership with Fender is good for Fender and they are negotiating to endure less and less of the strong arming.

If Fender wants to move forward it will open up more opportunity for small shops to select or cherry pick from the Fender line with pricing that allows them to be competitive with less discounting pressure from the mega chains. Fender can do that by simply minimizing the quantity discounts to mega chains so as to level the playing field and re build a solid network of dealers.

It's a great irony in retail that Musicians Friend etc. can sell a Fender Product for so much less than a small music instrument shop while actually making more profit off the sale. That may be good for the customer hunting a particular SKU at a price point but it's bad for the overall business and the easiest way to minimize the damage is too simply stop selling the stuff so cheaply to the big quantity discounters.

In this case Fender gave great discounts to Guitar Center. Fender floor planned them out the yin tang with financing. It's hard to see how that was a good idea.

Music stores can thrive but they need to able to match what they can buy to the interests of their market. They can not suffer extortion by way of being forced to stock a bunch of junk just for the privilege of having access to the good stuff at premium pricing. The stores need access to what's good for them and their customers. All the crazy schemes dreamed up by suppliers just stifle the market where the market actually happens. Unfortunately, it seems as if it is up to the dealers to grasp this and push back and make requests and demands on suppliers like Fender. Too often I see the dealers surrender and begin stocking B or C grade lines as an alternative. When this happens the shops become stigmatized as second tier outlets which further encourages a price point discounting mentality with both customers and staff. This trend runs counter to an interest in excellence of both service and quality of product and it leaves communities without good connections to good manufacturers.

It seems complicated. As a consumer the best we can do is try to identify, appreciate, and do business with the few small shops that have figured out how to make the best of circumstances such as these. Personally, I hope that the shops will thrive and provide the community with full service for generations to come.


best regards,
mike

It's been so long ago I can no longer remember which it was... but I bought an amp from Daddy's Junky once and I very much enjoyed the news letter/ used gear listings they used to send out.

It's a sad thought to think they are no longer "jamming".


best,
mike

"the internet killed the music store.
...but it has brought us better prices right?"

The last "American Standard" I bought at my friend Morty's retail store set me back $550... now the internet wants to sell me one for  $1049.

That particular synopsis in post 16 Mike is actually right on the money.

The so called 'mom and pop' stores however will continue to innovate and thrive as they have done consistently over the years, that trade is a fairly small family with many members of it having successful business running for decades through all manner of boom and bust conditions, it just means less likelyhood of Fender products being the brand they lead with.

Independents will always survive simply because, through much practice, they are good at side-stepping big firms that attempt to strong-arm them and historically often introduce newer and more appealing as well as more profitable products to market.  There are plenty of people too that over spend on the shiny advertising and slick marketing and are prepared to let sell-off stuff at a highly-reduced rate because having such a cavalier attitude to buying means they often get themselves in the kind of trouble that such emergency measures are required.  Local stores are full of that stuff, plenty of it with Fender badges on too.

Nobody in the music industry, including Fender, is big enough to be the be all and end all to front line traders who have instincts borne out of pure survival and detailed knowledge of the local circumstance.  Fortunately the distributors that service these small traders know this even if some big manufacturers constantly fail to recognize it.  Some of these small traders have been around at least as long as Fender have and have a far less chequered history of profitability over that time too.