Problems at Gibson: "Gibson Brands" suffers credit downgrade

Gibson Brands

Gibson Brands

So what's the deal with Gibson? For those who don't know, the Gibson Guitar Company changed its name to Gibson Brands a few years ago and shifted into making consumer electronics their primary business. Now 75% of their revenue comes from electronics, which rose from $300 million a year from guitars to $2.1 billion with their acquisitions of Onkyo, Teac, Pioneer and Cerwin Vega, to name a few.

So why the recent Moody's credit downgrade?  

Increased debt, smaller earnings (profits), executive turnover and employee dissatisfaction are the main reasons.

Look I get it. A lot of music today, unfortunately, does not incorporate the electric guitar (damn rappers) so as a guitar company, how do you survive and grow? But this is a classic example of how increased revenue doesn't always mean increased profits. And yes, I get that these things take time, but I think Gibson screwed up. Here's why...

Brand reputation is important! Look, a lot of us are devoted Les Paul lovers but we also know there have been times when production was shoddy. It was their brand reputation that allowed them to still charge premium prices and carry them through. But when complaints rose to a screaming pitch from the faithful, they were finally heard and production quality always improved.

Is it? 

Is it? 

Many don't realize that Gibson is a privately held company, which means they are not publicly traded on the stock market. Look I know how this stuff works: I have a Bachelors degree in investment finance and a law degree and learned this stuff in the "greed is good" era of the Reagan '80s. But that era also taught me that using debt to acquire companies to grow revenue isn't always a great business strategy. It's about doing more of what you already do well, but that is a slower process.

In my humble opinion, they should have used a different company name and/or focused on  improving and marketing those individual brands separately from Gibson Guitars.

Maybe they should not have been so aggressive in acquiring so many of them and instead focused on making the guitar division better and more profitable. It's not easy to undo damage to a brand once done but I'm hopeful that recent changes in 2016 will continue to help preserve the mighty Gibson Guitar brand and quality.

What are your thoughts? Feel free to comment here. 

For more details, here's a link to a good article from about six months ago.