Lockdowns not only turbo-charged the growth of digital businesses like Zoom and Netflix – they also gave a jolt to the world’s largest electric guitar maker.
The factory floor is humming as master builder Mark Kendrick leads visitors past a wall of templates for Fender Stratocaster and Telecaster guitar necks, based on the instruments of rock icons like Jimi Hendrix, James Burton and Flea. In a special “custom shop” section nearby, luthiers are distressing (relic-ing, in the lingo) brand new $3,000-plus electric guitars, flogging them with makeshift metal tools resembling chainmail so that they look and feel as worn as a guitar hero’s 30-year-old axe.
It’s January 2022, the Omicron strain of Covid-19 is raging outside, but in Fender’s 200,000 square foot Corona, California facility, mask-clad employees are churning out new instruments at a breakneck pace. Fender factories in Mexico and Southeast Asia, which produce lower priced models, are even busier. Some 16 million people in the United States took up guitar over the last two years, according to a study commissioned by Fender, with 62% citing Covid lockdowns as the impetus. Fender’s sales are booming.
Fender chief executive Andy Mooney never went to college, but his tenures at Nike and Disney earned him an Ivy League degree in marketing.
HENRY DILTZ
“We grew at roughly mid-30% per annum during the pandemic,” says CEO Andy Mooney, who joined privately held Fender 2015 when revenues were $400 million and single digit sales growth was the norm. “Last year we took in over $1 billion in demand. For supply chain reasons we were not quite able to satisfy that demand, but we came damn close.”
Fender, which is headquartered in Los Angeles isn’t alone. Overall sales of musical instruments and recording equipment have surged during the pandemic. According to data from Music Trades, retailers logged $8.9 billion in musical instrument and gear sales 2021, up 22%, and nowhere was the buying more brisk than in fretted instruments. The boom has breathed new life into many of the industry’s long troubled players. Gibson Brands of Nashville, which went through bankruptcy in 2018, saw its sales surge enough for its private equity owners, including KKR, to pay themselves hundreds of millions in dividends. Debt-laden brick and mortar giant Guitar Center, filed for bankruptcy in November 2020, emerged a month later and thanks to the boom in online sales has reportedly filed documents for an IPO. Fort Wayne, Indiana online retailer Sweetwater went on hiring spree, nearly doubling staff to 2400 employees and logging record sales of $1.4 billion in 2021, a 25% jump from 2020, when sales climbed 20% over 2019.
“During the pandemic, when everything shut down, many thought, I need something to ease my soul a little bit, so they bought an instrument and they’re getting back into it.”
“We have seen an amazing resurgence of people who had a passion for music in some way when they were younger, in high school or college, and then put it down and had a couple of kids and bought a house and developed a career.” says John Hopkins, CEO of Sweetwater, which opened a new 500,000 square foot distribution center in 2020 and sold a majority stake to a private equity buyer in 2021. “During the pandemic, when everything shut down, many thought, I need something to ease my soul a little bit, so they bought an instrument and they’re getting back into it.”
Chambers of Music Gear: In 2020 Fort Wayne, Indiana’s Sweetwater new 500,000 square foot distribution center.
COURTESY OF SWEETWATER
Still, no one has benefited from Covid-lockdowns more than 76-year-old Fender, in part because its CEO Mooney, had already overhauled the company’s marketing, borrowing strategies he picked up after 20 years at Nike, and more recently heading up Disney’s Consumer Products business including launch of its Princess line and a revamp of Disney stores.
Prior to Mooney’s takeover, Fender relied heavily on its retail dealers and all of its $16 million marketing budget was directed towards the trade, places like Guitar Center and local music stores.
“From a consumer’s perspective, our new product introductions were like trees falling in the forest, ” says British-born Mooney, an avid guitarist who began his career in finance, “The only people who knew [about them] were the in-store sales associates.” Today Fender’s marketing budget is $100 million and directed entirely at the consumer, mostly via social media.
H.E.R. and and her Stratocastor
FENDER
Research that Mooney commissioned in 2015 revealed that nearly 50% of all Fender guitar purchases were by first time buyers and that 50% of them were women. That’s a problem when your business relies on store sales. Noisy, male-dominated guitar stores, where weekend shredders showcase their chops are particularly intimidating for beginners and women. “The environment is a little bit like the surf industry,” says Mooney,” It’s a club you only get to join if you’re already in it.”
The other revelation Mooney’s research uncovered was that 90% of first-time players abandoned their guitars in the first year, but the 10% who stuck with it became dedicated players who spent on average $10,000 on gear during their lifetimes.
Mooney also hired a chief digital products officer, a radical departure for a company which for three quarters of a century mainly made products of wood and metal. In 2017 the new digital arm launched Fender Play, a video-rich mobile teaching app for guitar, bass and ukulele, with 3,000 lessons and 1,000 songs, taught by a diverse group of Millennial instructors all brandishing the newest Fender guitars and amplifiers.
When Covid struck in early 2020, the app, which costs users $19.99 per month, had 110,000 subscribers. Seizing the moment, Mooney made Fender Play free for 30 days. Within a week his subscriber count doubled. By the end of June 2020, nearly one million budding musicians had signed up to try Fender Play, and soon their email inboxes and social feeds were filling up with promotions to purchase Fender gear.
Other important changes for Fender involved what Mooney calls basic business blocking and tackling which he says he learned at Nike.
Jack White playing his blue Highway One Fender Telecaster
GETTY
“Fender would launch something and tell you it was going to be available in March, which meant you might get it in August or September. It had a history of missing deadlines and didn’t advertise the products.” says Mooney. “Nike hit every single deadline and was always able to match up marketing and product innovation launches.”
Mooney shortened the lifecycle of every major Fender product from seven years to three or four years and revamped its brand architecture to be more like Nike’s, where sub brands, like Jordans or Nike SB or Nike Free are tailored to different customer types.
Before Mooney, versions of Fender’s iconic Stratocasters and Telecasters were mostly differentiated by price and quality, which was directly related to where they were manufactured–either in the U.S., Mexico or Asia. Today classic Fender guitars like its Stratocaster, have sub-brands targeted to different players. Just among California-made Strats there is are numerous segments, including American Ultra, American Professional, American Original and American Performer. The American Ultra, targets well-heeled Gen X’s and Boomer players willing to pay $2,100 for enhanced versions of the classic guitar, featuring noiseless pickups and ease-of-playing modifications not found on the vintage Fenders used by, say, Stevie Ray Vaughn or Eric Clapton. Purists wanting traditional specs and tones on their guitars would choose the “American Original” Stratocasters, which look and cost the same. For younger players similar guitars made down the highway in Ensenada Mexico start at $800 but those wanting the same vintage specs Leo Fender put in his original guitars in the 1950s, can buy Fenders’ Vintera line for $1200. Southeast Asian made guitars target beginners and are priced from about $200 to $600.
Sting playing his 1957 Fender Precision Bass.
GETTY
The block and tackling is working. Despite the pandemic, new product launches from Fender have hardly missed a beat. In 2020, 38 new products, mostly amps and guitars, were launched and in 2021, nearly 30. They are supported with online marketing from an army of young indie artists, and YouTube influencers.
Going forward Fender’s biggest challenge will be converting the boom in novice guitar players into lifelong musicians. “If we could reduce the abandonment rate by just 10%, we could double the hardware sales over time,“ says Mooney.
One way Fender will do this is with new technology–not always welcome by its most loyal customers, classic rockers who tend to be stuck in the past. Besides lessons delivered via smartphone, Fender is trying to hook guitarists by using smart tech to eliminate friction on other fronts.
“Now we believe that the top of the funnel in digital terms, that the market for new players is actually infinitely expandable and there is no reason why there can’t be a guitar in every home in the world.”
“One of the biggest challenges beginners have is overcoming [physical] pain,” says Fender’s chief marketing officer Evan Jones, referring to what happens when uncalloused fingertips pressing against the steel strings of the large body acoustic guitars most beginners purchase.
In 2019, Fender launched a high-tech hybrid electric/acoustic guitar called the Acoustasonic that offered all of the deep resonance of larger acoustic guitars made by Martin and Gibson, only in a smaller easier-to-play electric guitar frame. Underneath its spruce and mahogany hood is serious technology: the mini-USB rechargeable guitar has an advanced digital signal processor and a patented “Stringed Instrument Resonance System” that produces 10 distinct tones ranging from Doc Watson to Keith Richards. The guitar cost $2,000 initially and was heavily promoted to gigging professional musicians ranging from Faye Webster to Lindsey Buckingham, but as per Mooney’s strategic plan, a Mexican version at half the price was released in November.
Says Mooney, “Now we believe that the top of the funnel in digital terms, that the market for new players is actually infinitely expandable and there is no reason why there can’t be a guitar in every home in the world.”
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Source: https://www.forbes.com/sites/schifrin/2022/03/18/shredding-the-pandemic-the-covid-fender-boom/