Dear Small Business Owner: Thanks for
or...Musical Instrument Retailing in 2004.
Update, December 2004:
We got our copy of the February 2005 Vintage Guitar magazine, and found that Gibson was really helping out its dealers. Read all about Fender, then check out the update on Gibson.
One of the most common rants here at GuitarAttack is the takeover of the musical instrument business by Wal-Mart-like superstores and online retailing. What you are about to see will convince you that what we've been saying for the last several years is absolutely true: the big instrument makers are deliberately pushing the small dealers out of the system.
KK's Music has been a Fender dealer since 1985. Ken, the owner, and I went to the New Orleans NAMM Show in that year and, among other things, got signed up with Fender. Ken's Fender Rep in Middle Tennessee was none other than the legendary Fender icon, Bill Carson and his wife Susan. I got to meet Bill and Susan through Ken, and they were absolutely great people. Ken has carried the water for Fender in his part of Middle Tennessee, and has continued to stay competitive as the business climate has changed. Ken stuck with them even though there was no way he could possibly carry every model of Strat -- who could?-- and has sold a lot of Fender products over the years.
Then, on January 6th, 2004, and without warning, the following letter arrived at Ken's office.
Note the personal, form-letter touches. What is most amazing is that Ken's current rep didn't have the courtesy, or balls, to let him know that this was coming. Now how is that for loyalty to a dealer of 18 years?
Ken was able to keep it going in spite of all of the pressures from other retailers, no thanks to Fender. One of the most common was the catalog challenge. You music guys know the deal -- a teenager walks in with a Musician's Friend catalog and wants to pay the same for the Strat hanging on Ken's wall as he would buying from the catalog. Ken would make the attempt to sell the guitar, while explaining that paying a little more and buying locally was a good idea. Hard to explain to someone who doesn't play guitar anyway, and this is something we've talked about before.
Next was the internet challenge. I've often said, "How many stores on the internet can make a profit selling the exact same product like a Delta drillpress?" The answer is probably "one" because the internet makes no distinction for geography. To be top dog in this big marketplace, you have to distinguish yourself, and the big factor is usually price. This is what Mr. Gruhn refers to as a "reverse auction" -- retailers undercutting each other for the privilege of selling you a guitar and usually not making much, or any money in the process.
Couple this with the move to mega-retailers like Guitar Center sprouting up around the country. We've talked about Guitar Center being able to retail guitars cheaper than small dealers can buy them wholesale from Fender. We also told you about the special "invited guests only" sale in Scottsdale where Fender blew out an incredible amount of inventory to a select few retailers -- way below cost!
Fender and the other manufacturers have been fueling this shift by not protecting territories for retailers, and allowing their product to be literally "blown out" by the big retailers while still twisting the small retailer's arms to buy more product. The irony is that small retailers built Fender, and they are the first to go in the NAFTA-friendly, one-world commerce strategy. We'll probably get some PowerPoint charts that will attempt to prove us wrong, but it doesn't matter. Are dealers in trouble? Check out the huge amount of new product on eBay, and bets are it comes from small dealers in trouble with their floorplan, or finance agreement. Additionally, you aren't going to pay your rent selling straps and strings in a small shop.
We've said it before -- this is the next step in cutting out the middle man entirely and transitioning to a direct-sales model for Fender. We see it forming with Gibson already. Go check out Musicyo.com for the evidence.
While the MBA types will continue to tell us this is good for America, will create jobs, blah, blah, blah, we are now losing one of the things that made a lot of us want to play guitar in the first place -- the local music store. I guess in a few years there won't even need to be a NAMM Convention. Guitar Center can just invite the big manufacturers to a cocktail party and call it a day.
Is it good for the customer? Time will tell, but you young guys will know nothing but buying a guitar impersonally, and that is a real shame.
Good Luck, Fender, and thanks for showing so much class.
Update, December 2004:
We got our copy of the new (February 2005) Vintage Guitar magazine, and guess what we found? Right there on page 24 there is an editorial that lines-out Gibson's new internet policy. Here is the headline:
Well folks, here it is again. Here is our favorite quote from the article:
You idiot...don't you understand business models? So you would think this applies evenly across all stores? Not so fast...there are four retailers who get to advertise and sell on the web, exclusively. They are:
Notice Gruhn Guitars is not on there? That is right -- Mr. Gruhn dropped Gibson. Good for you, Mr. Gruhn.
So, is it just the high end Gibson stuff that can't be sold or advertised? No...it is everything, and we mean everything Gibson makes. Remember when Gibson got all of the small retailers to take Epiphone? According to our sources Gibson is also requiring new dealers to sign up with at least $150,000 of inventory, and renewing dealers to buy at least $85,000. That is not the worst of it: they are also mandating the product mix and the minimum acceptable number of instruments in the shop. For example, you will have to have at least 10 American solidbodies on the wall, along with x number of Custom Shop guitars, the Epiphone line, two sets of Slingerland drums, two Tobias Basses, etc.. If you sell a Les Paul, you immediately have to reorder one to keep the minimum stock levels. Too bad, Mom and Pop!
Here is a post from a popular music dealer in reaction to the policy:
That is correct...they can't even post photos or describe the guitars they have in stock. Nor can they sell dead stock at a guitar show or on eBay. The next step in the plan is to push the other four retailers out and go direct, something we predicted years ago. We also stand by the article regarding our friends at Fender.
Thanks, Gibson. Is Peavey next?