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Fender gross sales growth as a guitar recreation throughout the pandemic

Andy Mooney, CEO of Fender Musical Instruments, says there is a boom in guitar sales during the coronavirus pandemic.

Henry Diltz

Business with Fender Musical Instruments Corp., the legendary guitar maker, looked pretty grim when the coronavirus pandemic hit the US coast in March last year. Suddenly 90% of the physical stores of global dealerships closed, as did many of the online sellers' distribution centers. Fender's factories in Corona, California and Ensenada, Mexico closed and employed hundreds of people. The headquarters in Scottsdale, Arizona, has closed, as has the Hollywood hub, where CEO Andy Mooney and his management team work.

"We honestly looked over the edge of an abyss and went into maintenance mode," Mooney told CNBC in late October while still doing things from his home in LA after the Long Island summer. He and every other of Fender's roughly 2,000 employees made up to 50% wage cuts. "We just tightened our belts."

Well, in the upside-down world that Covid-19 spawned, Fender's misfortune has since turned on its head – to the cheery tune of record-breaking sales that Mooney valued at over $ 700 million this year compared to last year increased by almost 17% annually to more than 600 million US dollars. "We assume that 2021 will be another record year," he predicted, "no matter how the pandemic develops."

Guitar sales skyrocket during the pandemic

As much pain as the pandemic originally inflicted on Fender, the virus also produced a balm. The turning point actually began in late March with what Mooney describes as a "sheer gesture of goodwill" for the unexpectedly homebound public who want hobbies other than baking bread and riding bikes. The company offered Fender Play, the online video platform for learning guitar, bass, and ukulele launched in July 2017, to the first 100,000 subscribers free of charge for 90 days.

Fender hit this mark on day one, hit half a million signups in week one, and had around 930,000 subscribers by June. Nearly 20% of the newcomers were under 24 and 70% under 45, the company reported. Female users accounted for 45% of the new wave, compared to 30% before the pandemic. "I might never have predicted that," said Mooney, noting that the same offer was extended through the end of this year.

At the same time, Fender saw a surge in sales of Stratocasters, Telecasters, Jazzmasters, precision basses and other iconic models of electric guitars, as well as orders for acoustic guitars, ukuleles, amplifiers, home recorders and other devices. Fender models that sold for less than $ 500 grew 92% from mid-March to mid-October. Most were acoustic guitars that beginners bought online. Experienced players opt for more expensive electric guitars, from the Strat for beginners for around $ 700 to the Acoustasonic for $ 3,300.

When Fender reopened factories in April, he hired laid-off workers and added extra shifts to keep up with demand. The company also had sufficient inventory to support the spate of online sales across its US network of approximately 1,000 authorized dealers. "Our third-party distribution centers never closed, nor did the dealers," said Mooney. "We delivered the product directly to consumers on their behalf." Most Fender brand guitars are made in Corona and Ensenada, but some are made in Japan and Southeast Asia.

In addition to its own e-commerce operation, which has been accelerated since Mooney was discontinued in 2015, Fender sells online via pure instrument e-tailers such as Sweetwater and Thomann from Fort Wayne, Indiana, with headquarters in Germany as well as Amazon, Walmart and Target. Before Covid, half of Fender's sales were online, Mooney said, and have grown to 70% since then.

"At Sweetwater, we've seen 50% to 100% year-over-year growth for most guitar brands, both acoustic and electric, at any price," said Mike Clem, the website's chief digital officer. "Some beginner instruments are seeing three-digit year-over-year growth."

Music fans start playing the guitar

Fender was founded in 1946 by radio mechanic who became guitar inventor Leo Fender in Fullerton, California. He still relies on hundreds of brick and mortar music stores, a key gateway to the brand ubiquitous in rock & # 39; n & # 39; scooters past and present including Buddy Holly Dick Dale, Bonnie Raitt, Jimi Hendrix, Eric Clapton, Eddie Van Halen, Susan Tedeschi and John Mayer.

Guitar Center, a well-known Fender seller based in Westlake Village, California, closed most of its nearly 300 locations when the pandemic broke out. "We have seen a consumer shift to our e-commerce channels," said Michael Doyle, senior vice president of guitar and tech merchandising. This resulted in triple digit sales growth for Fender and other top guitar brands on its website, especially new hits.

"Covid buying trends have re-emphasized the importance of the novice," added Doyle. In fact, we expect one of our hottest deals of the holiday season to be an exclusive, entry-level Fender guitar pack for the guitar center, which includes a Squier Stratocaster electric guitar and frontman amp for $ 220. (Still, Guitar Center, the country's largest musical instruments retailer, which had sales of $ 2.3 billion last fiscal year but is in debt of $ 1.3 billion, made an interest payment last month of Missed $ 45 million and filed for bankruptcy Nov. 13 concurrently with a debt rescheduling plan with hopes of balancing the books by early next year and continuing business uninterrupted.)

As the 2020 pandemic ravaged Fenders, the company continued to adjust its marketing strategy under Mooney, who had previously strengthened brands for Quiksilver, Disney and Nike. Another Nike alumnus, Evan Jones, was hired as Fender's first chief marketing officer around the same time Mooney arrived. "The company has moved from retail-based to consumer-centric marketing," said Jones. "We have built a full-fledged, integrated organization that enables us to invest in community building through social channels, CRM and a visual ecosystem."

Covid buying trends have re-emphasized the importance of the beginner (guitarist). In fact, we expect one of our hottest deals of the holiday season to be an exclusive entry-level Fender Guitar Pack at the Guitar Center.

Michael Doyle

Senior Vice President, Guitar Center

That organization – along with Fender's design and manufacturing operations – was put to the test in October when they unveiled the American Professional II series, the second generation of their flagship electric guitars and basses. Fender hired Wieden + Kennedy, known for its Nike ads, to work with its in-house creative team to develop a campaign called "For One. For All". The launch included producing videos with 20 professional guitarists playing the new models and announcing their improvements. "You can articulate what the tools do as well or better than any product reviews," continued Jones.

Produce new products

The design process for the new series began more than two years ago, said Justin Norvell, executive vice president of products. "We spoke to players, beginners and professionals, to find out what drives them, inspires them and what they are looking for," he said. While the new Strat, Telecaster, and other updated models look like their classic models, changes have been made to the necks, fingerboards, and pickups to improve sound and feel. "A lot of this relies on manufacturing technology and quality control to create instruments that are easier to play," said Norvell.

Norvell coordinated these efforts with Ed Magee, executive vice president of operations at Fender, who was asked to equip the factories following the pandemic shutdown. "We brought back most of the employees on leave," he said, reconfiguring the workplaces to allow social distancing. "We had to get masks and other PPE," he added. "We had to innovate spontaneously, but worker safety comes first."

The culmination of the design and production effort is when a guitarist buckles up a fender like the one the new Acoustasonic Strat Nile Rodgers recently got his hands on. As a Rock & # 39; n & # 39; Roll Hall of Famer, he and his bandmate, the late bassist Bernard Edwards, created a funky disco sound in the early 1970s that spanned an entire era with enduring hits like "Good Times" and " Le Freak "defined.

The Rock & # 39; n & # 39; Roll Hall of Famer Nile Rodgers is developing a different sound for the Fender Acoustasonic, an acoustic and electric hybrid.

Fender musical instruments

Rodgers still plays the 1960 white Strat nicknamed Hitmaker, which he traded for in 1973 at a pawn shop in Hialeah, Florida, but develops a different sound with the Acoustasonic, an acoustic and electric hybrid. "When I got the instrument, I started practicing it and came up with a whole new concept," he said. The result can be heard on a song, "Inside the Box," and a video he made with Fender that highlights the various vocal pairings on the instrument.

The experience inspired Rodgers to tirelessly practice and compose dozen of new songs while he is incarcerated at his home in Westport, Connecticut. "I made a promise to myself – I'm 68 now – that I'll be a better guitarist at 69."

Katie Pruitt, 26, an aspiring country / folk / pop singer, guitarist, and songwriter, is a comparative freshman whose mother introduced her to the guitar as a child outside of Atlanta. "She played in our church and I learned basic chords from her," said Pruitt. She stuck with it through high school and joined a band while attending Belmont University in Nashville, where she now lives and makes music.

Pruitt's parents bought her a Strat, which she still plays, "and I got a Jazzmaster that I also did 'Expectations' with," she said, referring to her debut album, which was released in February . She is promoting both the record and the Jazzmaster among the American Professional II models in a "Fender Sessions" video with the theme song made with her current band. Like so many musicians whose live concerts were canceled during the pandemic, Pruitt used the time at home to work on new material. "My mind is completely lost in writing a second record," she said.

Fender helps bring forth new artists like Katie Pruitt, an aspiring songwriter and singer.

Michael Weintrob

While Fender may help bring new artists out of the beginners who take online lessons and buy their instruments in droves, research found that "90% of first-time players who pick up the guitar give it up in the first year" . But on the flip side of that sharp decline, he added, the 10% that remain engaged are buying several more guitars. "They have a lifetime value of $ 10,000," he calculated, "and that's a $ 1 billion bubble on top of sustained organic growth."

No wonder Mooney is optimistic about Fender's future as well as the entire fret instrument industry, which topped $ 8 billion last year, according to research organization Music Trades. "I keep reminding people that we are a growth company that is in a growth industry."

The pandemic has changed the way people create and consume content and access entertainment. But are these changes permanent? Take part in the CNBC Evolve livestream on December 3rd for a conversation about changing consumer trends and how far media companies should go to change their strategies to reach their customers and meet their needs.

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