The Gibson Bankruptcy Mess

For reasons I don’t really understand, I’ve had more than a few people asking me about the current story that Gibson might go bankrupt soon. I hope it's cool then, if I break with the normal schedule and insert this 'bonus' post. 😉

Now, I run a very small guitar building and repair business, and am far from CEO or CFO material. I won’t (nor would I want to) be running a multi-million dollar guitar company any time soon but, since I’ve been asked…

And who doesn’t love to criticise and play Armchair Pundit?

 Spare some change for Gibson

Spare some change for Gibson

The Business Background

Not my forte but here is what I think is the story so far:

Guitar sales have been declining, especially electric guitar, over the last decade or so. Declining quite a bit. Gibson are not the only guitar-related company feeling the pinch. Fender has some problems (although not to the same scale) and I think I read that PRS have restructured and let some staff go. And we all know that our local music stores have been having it tough too.

So, Gibson, seeing this, decided to try to diversify somewhat. Let’s not keep all our eggs in the guitar basket and let’s buy up some other companies. Gibson acquired a heap of consumer and audio electronics companies, most notably, Philips.

As a strategy, that doesn’t necessarily suck but, in order to buy these companies, Gibson issued hundreds of millions of dollars in bonds. That means some investors gave Gibson a big bundle of cash four years ago with the promise that, in return, they’d receive a bigger bundle of cash in 2018.

And it’s now 2018, and Gibson’s bonds will come due in August. That’s $375 million of a payout that Gibson has to make. In addition, there’s a further $145 million in traditional bank loans due this year too.

The problem is that Gibson doesn’t have that money. To top things off, the companies they bought to diversify out of guitars have been losing money since acquisition. I don’t understand all the intricacies of it but it boils down to this: their income is not sufficient to pay out on their debts and that’s not good.

So what happens now?

I don’t really know but, as reported, bankruptcy is definitely a possibility.

However, it may be possible to divest some of its recent or older acquisitions to claw back some cash to refinance and offset some of that debt in order to keep investors at bay for a while.

That strategy seems likely. I suspect that whatever happens will be messy, though. Gibson has slipped far out of the ‘prime’ category for lenders and investors. They’re a high credit risk. Whatever survival methods occur, think fire sale, arm-waving business panic, and accounting alchemy here.

If all goes well, Gibson might be able to push out some of their borrowings and hold off bankruptcy for a time.

And what about Gibson’s future?

Ah, this is the really fun bit. What would you do if you were in charge of Gibson? Well, after soiling myself in terror, I’d first re-read this article by Peter Hodgson at I Heart Guitar.

Peter has much the same feeling as I have, and has the added benefit of knowing more about Gibson’s working that I do. Much of what I’d do would be a reiteration of what he’s already written.

But, my two cents on 375 million…

De-Diversify

Dump a lot of the diversifying attempts. For whatever reason (probably overreach and lack of experience on Gibson’s part) these aren’t panning out. Dump ‘em and use every penny to buy time with refinancing.

Dump some of the brands that you’re doing nothing with. There are so many instrument brands that you’ve hoovered up over the years that are stagnating for lack of interest. Sell ‘em off and get ready to double down.

Make buyers want a Gibson

Double down on what makes Gibson great. Yes, guitar sales are declining and those that are buying guitars have a much bigger pond to fish in these days. Make those people want to fish for a Gibson again.

For years, you’ve been pushing customers away. I know your heart’s in the right place but most players don’t want robot tuners, or insanely complicated, poorly-written, manuals to understand how to turn on the electronics in their Dusk Tiger. They don’t even want a Dusk Tiger.

Double down on making the best damn GIBSON that you can. Double down on Les Pauls, SGs, 335s, and the meat of the range. Make them great. Really great.

Which brings me to quality. Damn, I’ve seen some awful stuff over the last decade, Gibson. I’ve seen some utterly unforgivable stuff. The just-ship-it-anyway approach is an unpleasant race to the bottom. Find the will to fix your quality control and assurance processes, because they’ve been shameful for a long time. Fix them and give buyers a reason to really lust after a real Gibson again. Make buyers feel like the — not insubstantial — sums of money they’ve paid have been well spent.

You have a staff of people that want to do a good job and make great guitars. Read your staff reviews on glassdoor.com. There are employees yearning to make fantastic instruments. Let your people make great guitars and have the will to decline and fix mistakes.

Quality, damn it, double down on quality.

Innovation

I’ve said many times that Gibson has long (longer than these current issues) had a problem with change. They actually make an effort to change and they get shouted down by the traditionalists. Or, worse still, they decide on a change they like and try to force it on everyone.

Peter at I Heart Guitar has the perfect solution: A Gibson Modern line. Keep playing with crazy stuff and keep pushing on technology. That’s a good thing. But be realistic with the market for that and keep it separate from the ‘traditional’ line. This is where your Firebird X MkII (ha) could live. This is where the Chameleon Tone Matrix Reprogramming Augmented Reality Interface could live. This is where the Dusk Tiger could live.

Actually, no. Just kill the Dusk Tiger.

A modern line of new, innovative, experimental stuff is perfect. You’ll have enough gear-nerds, geeks, and early adapters to get a feel for the viability of new instruments and tech. The really popular/great stuff might even transition to the wider range of instruments in the traditional line. But, until then, it’s not alienating the more orthodox buyers before it’s ready for prime time and broader acceptance.

Epiphone

Epiphone, in many ways, has improved massively over the last ten or twenty years. Quality is good (it could still be improved but it’s head and shoulders above the Gibson USA stuff) and Epiphone have made some fantastic guitars over the last while.

But something feels ‘stifled’ there still. It seems like there’s still someone pulling back on the reins. All of this is just a feeling but I think Epiphone has more to give.

In my head, when I compare Epiphone to Squier, Epiphone comes up short. Some of that is in the quality at the lower end of the budget stuff — Squier seems like a player would be happier playing it for longer. That’s not across the board but it’s definitely a feeling I have.

But it’s not just that…

Let Epiphone experiment. Let designers and builders there have fun. Throw some crazy shit at the wall with a $150 guitar and see what sticks. If something turns out to be great, make the deluxe model next or something.

That’s it… Have fun and take a few risks with Epiphone.

What if it all fails?

Who knows? Somehow I doubt that Gibson will go away. They’ve been acquired themselves a couple of times and I have a feeling the Gibson brand will go on.

Hopefully, though; hopefully, it will go on to mean what the Gibson brand should mean.

Hopefully, it will mean fantastic guitars that are worth lusting after.

Get that right first.

Here ends my punditry. Hope you don't mind.