Guitar Dealer Trend: Moving Away from the Low End

It wouldn’t make a thrilling murder mystery, because there’s little or no disagreement as to who killed the low-end guitar market. The accomplices are easily fingered, too.

“That market is dead — and not just dead for Sam Ash Music,” Sammy Ash says. “We have sold half the number low-end guitars last year as we did the previous year.”

Ash is among those who think that market is hurting for all types of retailers and sees the demise of the segment even for mass merchants. In what might be the biggest trend of the year, it appears that the big boxes appear to be falling out of love with the idea of musical instruments in general (though they will likely stock for Christmas). Exports of MI are off as much as 25% from Asia, and just go to your local Best Buy and you’ll most likely imagine tumbleweeds along with a mere one or two guitars in dog-eared, taped-up boxes and accessories only partially stocked. At Target, you’ll notice markedly decreased shelf space for musical products.

The rumor is that the big retailers are unimpressed with profit margins and turns and frustrated by the customer service requirements of selling instruments.

“Those guys don’t want to deal with a broken string and have a guitar returned because of it,” Ash notes. Meanwhile, the New York-based chain has responded by shifting emphasize away from the low end.

“We’ve refocused,” he continues. “We will still be in the low end, but you’re not going to find 50 different guitars at $150. You’re going to see more focus on midrange priced guitars.”

He’s not alone. One retailer has eliminated low-priced six-strings, and even the middle range, nearly completely. Umanov Guitars in New York has abolished 90% of new instruments retailing for under $1,000 in the last few years (though in his case, Guitar Center, not a mainstream mass merchant, took the market away and to that owner Matt Umanov says good riddance.)

Meanwhile, the proliferation of new guitars makers aren’t going to be encouraged by what these industry leaders have to say about taking on new lines, either.

“There are so many,” sighs John Grabowski of Ft. Wayne Ind.-based mail-order dealer Sweetwater Sound. “It’s hard to begin to comprehend how all those manufacturers exist. I think it’s really cool, but it’s hard to understand sometimes …”

Abandon the Low End Completely?
“We’re out of that business,” says Matt Umanov emphatically. “I dumped the low end, then I dumped the mid-priced. Why? I’ll give you two letters: G.C. End of story.”

Guitar Center opened up a flagship store six blocks from Umanov’s Manhattan location, and he gives credit where credit is due: “They are smart people, and have great displays. Those places are about bang and flash there’s a lot of commotion, and they do great with it. But I hate commotion. I don’t need it.”

The proliferation of brands and competition created numbers that just didn’t add up. “Let’s say there are 10 brands of low-end acoustics, and I happen to know that out of those, three are well-made and the others are junk.

“Of those three, say I carry one each of three of their models. That’s a total of nine of those guitars on my floor. Now a Guitar Center carries all 10, five of each of their five models — that’s 250 guitars! They can do that because they have the space and the money.” But talk about making lemonade: for Umanov, ditching the low end provided him with the opportunity to open up space for vintage guitars that require a lot less handholding — why spend 45 minutes with a novice for a $150 sale when that time and space could be used for a $2,000 used guitar sale?

Replacing the majority of his low and mid-priced new products with pricier older pieces has also provided smiles. “I’m so happy — I should have done it years ago,” Umanov concludes.

“That $150 guitar sale is way down,” says Ash. “There’s always going to be that $150, $200 guitar pack, but it’s got to be a name brand because the kids are savvy. They know what their heroes are playing and they don’t want an off-brand name. Here it’s either Fender or Ibanez — we make less margin, but we don’t have to explain what some other [less known] guitar is.”

“Unfortunately, the low end has softened up considerably because of all the channels of distribution manufacturers are in now,” says Chris Gleason of Daddy’s Junky Music, Manchester, N.H. “A sizeable portion of that business is no longer available to us, particularly during the holiday season. The most unfortunate part is that we’re losing the best way we have to cultivate new customers. When those potential customers get cut off before they come in our front door … that does not bode well for any of us down the road. It’s going to be harder in the future to turn them into regular customers.”

While manufacturers who have been selling to the mass merchants say they are creating customers for traditional music stores, Gleason is not seeing them and fears they are lost forever. “We see a tiny, tiny percentage of people who bought instruments in mass merchant stores coming in and trading those instruments up. We’ve been told year in year out by those suppliers who have chosen to do business in those channels that they are seeding the market for us, but that’s one of the big lies. It doesn’t work.”

‘It’s an Instrument, Not an iPod’
Gleason too senses that perhaps the mass merchants are frustrated and disappointed with the MI market and he is not at all surprised.

“The frustration on my end is that people in our industry don’t see that these outlets cannot properly service the customer. It’s an instrument, not an iPod — you can’t just take it out of the box and start using it. Specialty retail products don’t work in the big boxes.

“Some of the biggest manufacturers in the business are doing potential harm to their core constituents, which are the music stores.”

So for the past four years, there has been a conscious effort made at Daddy’s to hit some of the higher price points. This shift is fueled by the success with Gibson products. “Gibson has done an exceptional job of getting placement of their products on TV shows, movies, and every form of mass media, and it’s really brought a lot of focus back to the brand. At the same time, they have come out with some new and exciting models and they are thriving for us.”

Yet Gibson, some argue, is an accessory to the alleged crime, anxious to do business with their Gibson-Baldwin lines with the big boxes at the expense of those who are able to deliver on the high-end sales.

“If you want to know how to play an electric guitar, you’ve got to put in some wood-shedding,” states Gary Gand of Chicagoland’s Gand Music & Sound.

Gand says there is a history of guitars failing in the mass market. “Plenty say they started on a Silvertone guitar bought at Sears, but there are a lot more folks who picked it up and put it right down again. You don’t hear from those folks because they are not on the survey list.”

Yet the paradox for Gand is that it’s still important to lure entry-level players into the shop for long-term industry benefits. “If we don’t stick with the package guitars, we will only get the ‘survivors’ of the holiday feeding frenzy and I can tell you that will not be enough to sustain our individual operations, mom & pop, or Guitar Center. The manufacturers should give us the better deal instead of Target and Wal-Mart because we are the ones preaching the gospel of rock ‘n’ roll, not them.”

‘I Haven’t Given Up’
At Portland Music, Portland, Ore., the low end is slower, and it isn’t picking up, so owner Mark Taylor is not stocking as deep, although he still maintains a good selection, if on principle. “I never neglect one segment of the market for another,” he says. “We always have an extraordinary selection and we still want to bring in those entry-level players. I haven’t given up on it!”

At the low end, Portland Music does well with Fender despite the competition at that level — and they do stock the competition. “We stock a lot of off brands — we have one guitar on our floor that goes for $69,” says Taylor. Those that do well include Johnson, Hohner, and the Indiana brand Strat-style guitars.

It’s those guitars that often put more cash in the register than their better-known cousins, too, he points out. Even Taylor sounds surprised when he hears himself say he makes more money on a $99 Johnson then he does with a $149 Fender.

At White House of Music in Waukesha, Wis., you’ll still find a fair amount of guitar packs — though with their own twist. Owner Chris White says the dealership has partnered with a few vendors to come up with a unique, better pack than the traditional $199 version, At $299, the White House pack includes a hardshell case and other upgrades that make it more of an instrument and less of a toy. “That has shifted things from the very low end to a little bit better of a guitar,” notes White.

Also when a customer starts asking about one of the low-end packs, the staff suggests the option of a guitar rental. The idea is to skip the lesser-quality package and get a $500 guitar in the customer’s hands, which makes for a better playing experience from day one. Typically, they use the Guild GAD-25 acoustic for this purpose and charge $25 a month with payments applied toward the purchasing the Guild or any other guitar.

The math works out too, adds Chris White: “You think about a two-month rental, and you’ve made $50 compared to the $40 you would have made for a sale … what’s better for business?”

Some have never bothered to dabble in the wading pool of the low end.

“We specialize in the higher end,” says Wade Stark of Wade’s Guitar Shop in Milwaukee, Wis. “Our number-one guitar is Martin, and the number-one bass is Rickenbacker. We also carry National Resophonic Guitars, which do well for us.”

For lower end, Stark did come up with a novel idea: making his own brand of lower-cost guitars. They take a kit from Saga, custom paint it, set it up to their own specifications, and sell the instrument for around $199. With a nod to his grandfather, a bombardier in World War II, Stark named the line after that a favorite military phrase: SNAFU –Situation Normal All [Fouled] Up. “Our SNAFUs blow away the [similarly priced] Squiers and the Epiphones away,” he says.

For John Grabowski over at Sweetwater, “it’s never really been a price point that we’ve focused on. Sweetwater tends to do better with the nicer guitars. The average price point of a guitar we sell is higher than you’d typically find in a chain store.” The holidays are different: they do sell a lot of Strat packs then, he says.

Style Trends: Traditional, Retro, Mid-Level
Many agree with Gary Gand that it’s the season of the traditional, with the Fender Strats, Telecasters, P-Basses, and Rickenbacker 4001s, among others, selling well, as are any retro reissues. Additionally, Gand’s bestsellers trends listed on his Web site include the ESP LTD Viper-50, Taylor T5 Custom, and the Fender Squier Standard Telecaster.

For Umanov, the bulk of his sales are older models, a lot of U.S.-made Fenders (“no Squiers, no Mexican stuff”), anything by Martin, and then some Taylor, Collins, and Gretsch. “Also the Seagulls are nice, as are the imported Guilds,” Matt Umanov details. “The Seagulls acoustic in the $400 to $800 range are good — [Seagull maker Robert] Godin is a very smart guy. With the imported Guilds, we have done well with models in the $700 to $1,000 range.”

Also in the mix are PRS, which he says goes up and down in popularity over time.

At Sweetwater the mid-level is healthy, and higher-end Squiers and Epiphones are doing well. Imports continue to get better and Grabowski says many manufacturers are coming in with great guitars built overseas, particularly PRS. They are also seeing acoustic/electrics doing better than electrics, though their customers tend to be more technologically oriented he adds.

For Sam Ash Music, the acoustic business is on fire. Sammy Ash says he used to carry just a few pieces in the $2,000 to $3,000 range, but now he has dozens from Taylor, Martin, and Larrivee. For the customer, it’s not just an instrument purchase, but is becoming a matter of investment — he cites the recent 1959 Les Paul Flame Top that was auctioned for a cool million dollars as an extreme example.

Limited editions are big, too, and the reason “why PRS sells every Dragon model they make — it becomes a very private club.”

At Portland Music, acoustics continue to be strong, making up a disproportionate amount of sales. “About 70% of our inventory is electric, 30% acoustic, but more than 50% of all guitar sales are acoustic — and that’s something we’re addressing right now,” says Taylor. Otherwise, he notes the mid-priced electric guitars, around the $400 to $600 range, continue to be weak, as are those in the $900 to $1000 range.

The higher end is still healthy as well for Portland Music as baby-boomers who aren’t necessarily great pickers are drawn to them. “A lot of affluent professionals are nostalgic,” Mark Taylor says, with limited-edition vintage runs feeding this nostalgia.

At Daddy’s, the most recent shift is that solid body electric guitars have come back in the last six month and Chris Gleason has seen a nice increase in that business. Straight acoustic guitars have been soft, though the acoustic/electrics are doing very well.

As for the guitars whose notes dwell below the treble clef, “nothing terribly exciting there!” says Gleason.

“We need more bass players out there!” agrees Taylor, which pretty much sums up the bass market for all interviewed. For him, five-string basses are gaining ground, including newer Fender models at the $300 price point. “Even beginners or people who have just been playing for a short time are more open to trying a five-string lately,” he observes. “It used to be you’d only sell them to better, more experienced players at price points $500 and up.”

“We have yet to find our place in the world of bass guitars insofar as what customers want and what is a good mix to be profitable,” sighs Chris White of Wisconsin’s White House of Music. “But we carry Fender, Ibanez, Peavey, and Spector, and that’s a good mix.” Five-strings are picking up for him, too, he adds.

At Sweetwater it’s Fender, Ibanez, and Gibson basses moving best, and they too are seeing more players being more comfortable with five- strings. Bass-guitar wise, at Matt Umanov Guitars, it’s Fender, then Music Man, then Spector.

Rickenbacker basses are so hot, though the wait to get them requires patience. Milwaukee’s Wade Stark, who has been a Rickenbacker dealer for 14 years, says he has $35,000 in back orders for the company’s popular basses.

Who Will Be the Next PRS?
“As far as new guitars go, what it takes [to be successful] is a unique selling proposition and the possibility of longevity as a product line,” Gand says. “I always compare it to investing. When you buy a stock, you want a company that has a unique product and a possibility of surviving and prospering in the long run.

“So a guy invents a guitar with tuning pegs in the bridge, or plastic snap on sides, or a sound hole the shape of the crescent moon (like on an outhouse) … Well, that sounds kind of fun, but is that something that 10 folks are going to be asking for years from now? If they are, don’t we all think the big manufacturers will have added those features to their line?”

But Gand adds that there is room for a great product at a great price. “We want something that we think will have a future and not just be this year’s Beanie Baby. It’s not the fad that kills you; it the end of the day when you’ve got an attic full of the stuff and nobody wants it.”

Gleason agrees it’s hard to take on an unknown line, as the cards are stacked against newcomers. Even if someone comes out with some new feature, the more established manufacturers quickly adapt the feature and are able to parlay it into models at every conceivable price point. Ibanez is particularly aggressive in recognizing trends and responding to them in a very efficient manner, he says.

“A bunch of the other guys are answering the call for niche markets that do exist out there,” he adds. “People are able to go on the Internet and find out exactly the guitar their favorite player is playing very quickly” and that’s good for the smaller makers who are able to get their products in the hands of popular and up-and-coming players.

At White House of Music, they too are “pretty conservative when it comes to new lines we add,” says Chris White. He would rather stick with the name brands rather than copies because “our customers expect the quality.”

Having a long courting period, White too has added PRS, which is hardly a new name. That’s gone well.  Others, not so much … “Not that long ago we did try a new guitar and it was a failed experiment … and that company shall remain nameless!” he laughs. “But the customer is in more control than ever before — if they start asking? Darn tootin’ we’re going to carry it.”

Taylor says the idea of taking on new brands is also strictly customer-driven.  “I can only say that unless I’m hearing from my staff that we’re getting demand for a new product, I can’t justify increasing our product selection.” The most recent addition to his floor is Taylor, which he was just able to add after several years of effort.

Others have gone by the wayside. For years he tried both Garrison and Michael Kelly, both of which are great companies making good instruments. They trained the staff on them and yet there just was not enough sell-through. He’s not quite sure why those didn’t work out, though he says he doesn’t sit around and worry about it.

In general: “Clearly I don’t stock as many lines as I used to.”

“We’re very relationship-driven with customers and vendor — we’re not interested in a knock-off and that’s why we look to name brands,” says Sweetwater’s Grabowski. They do keep an eye out for a new manufacturer doing something different, addressing a different need in the market. Of course, it needs to complement their existing offerings. “We look for reputable vendors and people who want to partner with us.”

Ibanez — again, hardly a new brand — is Sweetwater’s most recent addition. Others have come calling, and Grabowski says he has a short list of those who have impressed him enough to keep his eye on them. If and when the time comes to consider bringing on another line, he’ll refer to it, but it seems it won’t be soon and it won’t be done without a lot of thought and discussion.

“We’re not interested in being everything to everyone. We try to be selective. We try to be smart in how we grow.”

“You mean the pointy stuff?” Umanov says in reference to new lines. “I’m not in that business and never was.” That said, he does have some nice ESP guitars and does well with those, but overall it’s the “traditional, quality stuff” that fills his store and he’s been fine-tuning his inventory to emphasize that stance for 20 years.

One company that has added a line and done well is Wade’s. They took on Eastwood models which, particularly in the $600 to $900 price points, are doing well. But even that seems to be the exception and not the rule. “We briefly sold another smaller, less-known brand, and it didn’t work out,” he comments.

“There are a million guys making $2,500 to $4,500 guitars, but either because of under-funding or under-advertising, they will stay small companies,” Ash says. “Very few can climb to that PRS level. At one time, too, Taylor and Larrivee were small guitar makers but they understood the market better.” As to why it’s not easier for niche guitar makers, Ash cites peer pressure. Of course there are really great guitars being made, but when someone spends $2,000, $3,000 on one, they end up quickly bringing it back in to exchange it for a Fender because their friends thought they were a jerk for spending so much money on a guitar no one has heard of it. As analogy, imagine spending $100,000 on a car no one has heard of instead of a Maserati. “So we kind of stay away from that.”

That aside, Ash is involved in one experiment: he has taken on Warrior after eyeing their hand-made guitars closely for five years. “They are known for a $4,000, $5,000 guitars, but we worked with them to get some models down to the $2,000 price point. There’s a lot of talent there, but then again there’s a lot of talent out there. There is more talent and product than customers.”

Whatever your market is, whatever your trends, some final words of general advice from Gary Gand: “Stay lean. This fall is going to be a roller coaster ride and you don’t want to have too much inventory in January 2008. Better to miss a few sales than to have a day of reckoning when the calendar changes.”