Gibson Guitar Corporation

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Gibson Guitar Corporation

founded: 1894

Contact Information:

headquarters: 1818 elm hill pke. nashville, tn 37210 usa phone: (615)871-4500 fax: (615)889-5509 toll free: (800)444-2766 email: [email protected] url: http://www.gibson.com

OVERVIEW

Gibson Guitar Corporation is one of the most diversified musical instrument companies in the world, both in terms of product and market reach. In the late 1990s it was a $150-million global company. The topof-the-line Gibson guitars, featuring Les Paul and other signature models, account for about 50 percent of revenues. The recently energized Epiphone brand of lowand middle-market guitars make up 30 percent, with the remaining 20 percent coming from smaller musical instrument companies that were acquired to broaden the line. Of the guitar models, nearly 50 in all bearing the Gibson name over the past century, one stands out above all the rest: the Les Paul solid-body electric. Similarly, Gibson's, The Explorer, Flying V, and Moderne are also among the most valuable of any Gibson production models today. Gibson celebrated 100 years of musical instrument design and production in 1994.

ANALYSTS' OPINIONS

Gibson's brand name, tarnished under the Norlin Company, has regained respectability. In the late 1990s, according to Paul Majeski, publisher of Music Trades magazine in Englewood, New Jersey, "Gibson enjoys universal acceptance with musicians. This has translated into tremendous sales." Gibson launched a web site three years ago on which consumers can order instruments and parts, however, retailers feel the company is attempting to sell around them. Management has been trying to reassure retailers on this issue. There is a dealer referral service on Gibson's Web site.

HISTORY

The earliest documented instrument was made by Orville Gibson, a 10-string guitar, in 1894. In his workshop in Kalamazoo, Michigan, this former shoe clerk combined his love for woodworking and passion for music into new designs for mandolins and guitars. Gibson designed his new mandolins and guitars similar to violins, with carved tops and backs instead of flat ones.

In 1902 the Gibson Mandolin - Guitar Mfg., Ltd. was formed to manufacture instruments with Gibson's designs when it became apparent that he could not keep up with orders for the instruments. Five Kalamazoo businessmen bought rights to his name and patent for $2,500 and hired him as a consultant.

A year after Orville Gibson's death in 1918, Lloyd Loar joined the company and refined many of Gibson's original designs. The Master Model F-5 and L-5 guitars were quickly acclaimed; the F-5 was judged the finest mandolin ever built and the L-5 became the first guitar to take a serious role in the orchestra. The L-5 pioneered the concept of building a specific pitch into the sound box by tuning the f-holes, air chambers, and other structural components. It was during the second decade of the twentieth century that the company relocated many times and opened a factory on Parsons Street in Kalamazoo.

Loar resigned in 1924 when Gibson management did not approve of one of his new radical designs. During the Depression, Gibson entered the toy market, began making violins, and introduced an inexpensive line of "Kalamazoo" acoustic guitars.

During the 1930s and 1940s Gibson introduced the Super 400, an extra large jazz guitar. It also enlarged the size of its L-5 model to compete with the horn section in orchestras. A modified version of the Super 400 became Gibson's first electric model in 1951.

During World War II Gibson suspended production of its musical instruments due to a shortage of materials. In 1944 the company was bought by Chicago Musical Instruments, a music wholesale company. With the end of the war, production resumed in 1946 to fill the pent-up demand for musical instruments. Ted McCarty was hired in 1948 and his tenure as company president lasted from 1950-1966. In 1952 the first Gibson Les Paul made its debut as the first solid body electric guitar. For the first time, two woods—maple for the top and mahogany for the back—were combined on a solid instrument for a musical purpose.

In 1957 Gibson acquired Epiphone and a whole new line was introduced in 1958, expanding Gibson's dealer base. This proved to be an impressive move for Gibson, because in 1965 the company hit record production, shipping over 100,000 Gibson and Epiphone instruments for the only year thus far in Gibson history. The 1960s were a period of incredible growth for the music business in general and Gibson in particular. The explosion of rock and roll, jazz, and folk music produced unprecedented demand for guitars of all types. Back orders were as long as two years on many models.

In 1969 Chicago Musical Instruments was purchased by Ecuadorian Co., Ltd. and was renamed the Norlin Music Corporation. The overall quality of Gibson products began to decline and so did the company's profits—at an annual rate of 20 percent each year for three years. Its Nashville factory, opened in 1975, was producing only 75 guitars per day in 1986, and was selling its factory failures at discounts.

Under the leadership of the Norlin Music Corporation and with the recessions of 1980-81, Gibson was on the verge of being dissolved. By the mid-1980s the company was near bankruptcy. Norlin folded all of Gibson's product lines (including its famed acoustic guitars and mandolins), except for a couple of electric guitar brands. With the music market still weak, in 1986 Henry Juszkiewicz and David Berryman purchased the company for $5 million. There has since been a successful corporate turnaround.

FAST FACTS: About Gibson Guitar Corporation

Ownership: Gibson is a privately owned company.

Officers: Henry Juszkiewicz, CEO; David Berryman, Pres.; Traci Kaufman, Dir. of Human Resources

Employees: 500

Principal Subsidiary Companies: Gibson's principal divisions are Oberheim, The Epiphone Company, Tobias Musical Instruments, Flatiron Mandolins, Dobro Resonator Guitars, Slingerland Drums, and Steinberger Basses and Guitars.

Chief Competitors: Gibson's competitors are other guitar manufacturing companies. They include: Fender; Ibanez; Washburn; Yamaha; Bigsby; and Jackson.

A new research and development (R&D) team expanded Gibson's product lines and invented new ones. The Chet Atkins family of guitars were expanded and the SST and SST-12 string guitars were introduced. Gibson revived the Les Paul Classic. Acoustic instruments were also evaluated and new designs created. In 1990 Gibson opened a state of the art facility for acoustic production in Bozeman, Montana, where the dry climate made building conditions ideal.

STRATEGY

In the music business the best way to win consumers is to get their favorite musicians to play the company's instruments. In order to accomplish this the company recruits celebrities to endorse its products. Among the company's current endorsers are Chet Atkins, Tom Petty, Mathew Sweet, and John Lee Hooker. Gibson has taken an innovative approach to marketing its instruments: targeting consumers, as opposed to the trade (manufacturers and dealers). In order to attract new consumers that Gibson wasn't reaching in Guitar Player or other industry magazines, the company began running ads in magazines such as Esquire, GQ, and The New Yorker. Most importantly these ads include an (800) number that consumers can call for more product information.

As it becomes increasingly apparent that the guitar market will unlikely reach the sales volume of the 1960s' boom years, Gibson has acquired businesses that make electric basses, amplifiers, mandolins, keyboards, and drums to augment its line of guitars. These include the Flat Iron Mandolin Company in 1987; Tobias, a line of electric bass guitars in the early 1990s; Steinberger Guitars and Basses; Slingerland Drums; Oberheim Keyboards and drum machines; OMI dobros; and Kramer Electric Guitars. In the late 1990s the company had 13 divisions overall. The strategy behind the acquisitions was to get Gibson to compete in multiple markets. Gibson is also "aiming to become more involved in the burgeoning business of computer-based music," according to Joshua Rosenbaum of The Wall Street Journal.

Not long after Juszkiewicz took over Gibson he raised prices and reinvested the profits into improving product quality and production. Equally important, Gibson discontinued selling factory seconds—flawed guitars from the factory that had been sold at a discount.

One Gibson strategy that failed miserably in the early years of Juszkiewicz's term was a discount strategy. When the new management took over Gibson in the 1980s, it considered trying to compete with Japanese guitar makers by cutting prices. However, Juszkiewicz discovered that the lower priced guitar didn't sell. In fact, the more the company charged for the guitar, the more the product sold. Gibson management reversed the discount strategy and revenues and earnings grew.

INFLUENCES

In the past there has been some instability in Gibson's 30-person sales force. Henry Juszkiewicz has reorganized it several times since taking over the company, usually with the aim of cutting down on bureaucracy and making sales representatives and managers more responsive to customers. In its most recent reorganization, the company shifted the sales management responsibilities from its headquarters staff to its regional managers.

The company had no product offering in the entry-level and middle market. The Epiphone brand is an example of Gibson's strategy of targeting a specific market segment with a specific brand set aside as a stand-alone company. Gibson's Epiphone division is located in Korea where it employs quality control workers who regularly check production. In the late 1990s Epi-phone was boosted to the number two brand.

CHRONOLOGY: Gibson Guitar Corporation

1894:: Orville Gibson makes his earliest known guitar
1902:: The Gibson Mandolin-Guitar Mfg. Co., Ltd. is formed
1918:: Orville Gibson dies
1921:: A Gibson employee invents two of the most important facets of guitar design—the adjustable truss rod and the height-adjustable bridge
1935:: The first Gibson electric is introduced
1944:: Chicago Musical Instrument Co. purchases Gibson
1952:: The Les Paul Model solidbody is introduced
1957:: Gibson acquires Epiphone
1965:: More than 100,000 Gibson and Epiphone instruments are shipped for the only time in company history
1978:: Gibson begins reissuing vintage guitars
1986:: Henry Juszkiewicz and David Berryman purchase Gibson
1994:: Gibson celebrates its 100th year of continuous operation—the only American guitar maker to do so

Sales of musical instruments have always been influenced by trends in the music industry. Matt Umanov, a veteran New York guitar dealer, was quoted in a February 1998 Wall Street Journal article as saying, "There have been no guitar heroes, like Eddie Van Halen, for several years now, and that's what spurs sales of guitars." Today's stars are making their music with rap and other songs without guitars. But Gibson Chairman Juszkiewicz says there just might be a "guitar renaissance." He points to music videos and pop music becoming more guitar oriented.

CURRENT TRENDS

Gibson chairman Juszkiewicz would like his company to become a lifestyle company representing the musician lifestyle the way Nike represents the athletic lifestyle. Juszkiewicz recently opened the first Gibson cafe in downtown Nashville and named it Henry's. It is a combination coffeehouse, performance space, and exhibition space for Gibson guitars. It is similar to Planet Hollywood and Hard Rock Cafe. Henry's showcases acts from country bands to gospel singers to mandolin orchestras, and has been attracting tourists, musicians, and record producers. Juszkiewicz's goal is to launch a nationwide chain if it proves successful. The growth of the guitar market has been growing steadily for the past five years and Gibson has clearly benefited.

While focusing on consolidation of its bluegrass division, Gibson acquired a four-story building in Nashville, Tennessee, which will be used specifically for all its bluegrass instruments. The building will include a bluegrass museum, a diner, an outside stage seating 300 to 400 people, and a store in which tourists can purchase bluegrass instruments and other merchandise.

PRODUCTS

Gibson guitars are priced as low as $200, to as high as $100,000 for custom-made models. Gibson's principal instruments and trademarks include Gibson Bluegrass Banjos and Mandolins, Gibson Custom*Art*Historic, Gibson Montana Acoustic Flat Top Guitars, Gibson Strings & Accessories, Gibson USA Electric Guitars and Basses, Gibson Tourwear, Dawn Pro Audio, DOBRO Resonator Guitars and Basses, Epiphone Instruments, Flatiron Mandolins, Obherheim Electronics, RedBear Amplifiers, Slingerland Drums, Steinberger Basses and Guitars, Tobias Basses, and GMI Licensed Products.

Recently the Hallway Entertainment of Nashville, Tennessee, signed a license with Gibson to produce a documentary/video biography on the history of Gibson instruments and the musicians who play them. This documentary will be produced for broadcast as well as for home video release and will feature many legendary musicians. Also, Gibson and Les Paul are in the process of designing a guitar that will incorporate new solid-state electronics. Gibson estimates they have built and sold 500,000 Les Paul guitars over a period of 43 years. The company will continue to revive historic models and design new ones.

CORPORATE CITIZENSHIP

Gibson has been giving increasing attention to the city of Memphis. In the early 1990s it became a sponsor of the Blues Foundation's W.C. Handy and Lifetime Achievement Awards and International Blues Talent Competition. Gibson is also a sponsor of the Foundation's Beale Street Caravan radio program. The goodwill is further reflected in the recent announcement that Blues Foundation president David Less will soon join Gibson in its Gibson Entertainment division. The division, which will have offices in the Memphis facility, is expected to lead the company into new businesses beyond the manufacture of musical instruments. Terry Clements, director of visitor development at the Nashville Convention and Visitors Bureau, stated, "They [Gibson] are outstanding corporate citizens." Gibson sponsors live events such as "Battle of the Bands" with equipment and recording opportunities as prizes. In April 1998 the Epiphone company, partnered with the Red Cross, Nashville's Shiloh music, and local bands for a free concert to benefit the victims of two tornadoes that devastated Nashville's downtown and suburbs.

GLOBAL PRESENCE

Gibson has had a presence in Europe and Asia for 30 to 40 years. Still, global opportunities weren't being effectively exploited until the Juszkiewicz era. In 1986 sales outside the United States were just about $2 million. In the late 1990s, 60 percent of Gibson's products were sold overseas. The number of U.S.-based factories has increased from 1 to 11.

Gibson's global sales have grown 50 percent since 1995. In fact those sales account for half of the company's revenues, up from 20 percent in 1995. The company has begun to devote more resources to finding and managing distributors in markets around the globe. Gibson has incorporated a distribution system and added executives with global experience to operate the international division. This division is currently segmented as western Europe, Pacific Rim, and developing markets including Russia, the Eastern Bloc, South Africa, and Central and South America.

The company also supports its international distributors. Via frequent phone calls, faxes, and e-mail, the company keeps them posted of new products, price increases, and marketing plans. In addition, Gibson holds annual distributor meetings in Nashville, Tennessee, and Europe to discuss sales strategy. Top management also meets with distributors at major music industry trade shows, including the Frankfort Musik Messe, an international music show held annually in Germany.

EMPLOYMENT

Gibson's workforce has grown from 250 in 1986 to approximately 500 in 1998. In fact, part of Gibson's rein-vestment of profits went toward increased manpower. The company has six regional teams of five salespersons each, which are headed by a regional manager who works directly with individual division heads for problem solving. Compensation for each team is tied to group accomplishment, with about half of their pay driven by regional performance.