Gibson Guitars has 146 days to save itself; how did an iconic brand with $1.2b revenues get into a mess?

Gibson Guitars has not gone into bankruptcy – but it has 146 days to save the brand that is virtually synonymous with rock music’s guitar sounds.

Gibson Guitars owes US$375 million in loans – and its holders have offered two options.

Either get rid of CEO Henry Juszkiewicz and recently reappointed CFO Benson Woo, or be declared bankrupt.

But Juszkiewicz has a third proposal: secure $400 million worth of separate fresh loans to avert the catastrophe.

The deadline date before the loans default is July 23.

Some analysts have doubts that Gibson can raise the loans.

The problem is that the guitar company is perceived as a bad credit risk, after being downgraded in August 2017 by Moodys to Caa3, the third-lowest of the 21 ratings.

Late November, the Nashville-based company also announced it was selling off two of its three factories in Memphis and Nashville, for $14 million and $11 million respectively, leaving only the one in Montana.

Being a private company Gibson does not divulge earnings or profits.

But revenue is estimated to have fallen from $2.1 billion to $1.7 billion over the last three years, and probably now closer to $1.2 billion.

The problem was that its expansion into other audio businesses has failed to stick.

Orville Gibson, who patented the single-body mandolin founded the company in 1902 as The Gibson Mandolin-Guitar Mfg. Co. Ltd.

By the 1930s it began to make acoustic and electric guitars, and business escalated especially after rock and roll exploded in the 1950s.

The company went through a series of owners, in the 1970s going through a period of corporate mismanagement and decreasing product quality.

It was three months away from going out of business when Juszkiewicz and two friends from Havard, David H. Berryman,and Gary A. Zebrowski took over in January 1986.

While rival Fender focussed on making better guitars, Gibson expanded to becoming a more diversified audio company with more consumer electronics, DJ and EDM offerings.

Rock was going through a generational change – less guitar heroes, more hip hop and dance figures.

The decision to place its G FORCE automatic string tuner in its 2015 electric guitars was a failure, not only unreliable but also making stringing difficult.

Juszkiewicz also puts the blame on the changing face of musical instrumental retail.

Once musical instrumental stores were mom & dad pop stores which stocked every instrument.

Then came the advent of the guitar outlets, focussing on “real players” and not placed where families and women wanted to go to – especially since most guitar stores are in low-rent porn areas, as Juszkiewicz points out, and especially since they’re staffed with people with a low concept of customer service or exciting merchandising.

Juszkiewicz emphasises the difference between Apple stores and most guitar stores.

Apple puts its latest and most expensive products out on the floor, for customers to play around with, fall in love with, and eventually buy.

Guitar stores, though, tend to put their most expensive guitars high on the wall and out of reach in case they’re stolen – and not appealing to those who might want to start playing.

“And Apple stuff is more expensive than guitars”, he points out.