Fender Musical Instruments’ CEO Andy Mooney says a boom in guitar sales is happening during the coronavirus pandemic.
Business was looking pretty grim for Fender Musical Instruments Corp., the legendary guitar maker, when the coronavirus pandemic reached U.S. shores last March. Suddenly, 90% of its worldwide dealers’ physical stores closed, as did many of its online sellers’ distribution centers. Fender’s factories in Corona, California, and Ensenada, Mexico, shut down, furloughing hundreds of employees. Its headquarters in Scottsdale, Arizona, shuttered, as did its Hollywood hub, where CEO Andy Mooney and his management team work.
“We were looking over the edge of an abyss, frankly, and went into company preservation mode,” Mooney told CNBC in late October, while still running things from his home in L.A. after summering in Long Island. He and every other one of Fender’s roughly 2,000 employees took up to 50% pay cuts. “We just tightened our belt.”
Well, in the topsy-turvy world that Covid-19 has wrought, Fender’s bad fortunes have since turned upside down — to the merry melody of record-setting sales, estimated by Mooney to top $700 million this year, rising nearly 17% from last year’s more than $600 million. “We are anticipating 2021 being another record year,” he predicted, “no matter how the pandemic plays out.”
As much pain as the pandemic initially inflicted upon Fender, the virus has also produced a balm. The turnaround actually began in late March with what Mooney describes as “purely a goodwill gesture” to the unexpectedly housebound public looking to take up hobbies other than baking bread and riding bikes. The company offered Fender Play, the online video platform for learning guitar, bass and ukulele introduced in July 2017, free for 90 days to the first 100,000 subscribers.
Fender hit that mark the very first day, reached a half million sign-ups the first week and settled at about 930,000 subscribers by June. Nearly 20% of the newcomers were under 24, and 70% were under 45, the company reported. Female users accounted for 45% of the new wave, compared with 30% before the pandemic. “I never would have possibly predicted that,” Mooney said, noting that the same offer has been extended to the end of this year.
Simultaneously, Fender saw sales of Stratocasters, Telecasters, Jazzmasters, Precision basses and other iconic electric guitar models surge, along with orders for acoustic guitars, ukuleles, amplifiers, home-recording equipment and other gear. Fender models selling for under $500 grew 92% from mid-March to mid-October; most were acoustic guitars bought online by beginners. More experienced players go for pricier electric guitars, ranging from an entry-level Strat for around $700 to an Acoustasonic for $3,300.
When Fender reopened the factories in April, it rehired laid-off workers and added extra shifts to keep up with demand. Plus, it had ample inventory to support the flood of online sales among its U.S. network of about 1,000 authorized dealers. “Our distribution centers, owned by third parties, never closed, even as dealers’ did,” Mooney explained. “We shipped product directly to consumers on their behalf.” Most Fender branded guitars are manufactured in Corona and Ensenada, though some are produced in Japan and Southeast Asia.
Besides its own e-commerce operation — accelerated since Mooney was hired in 2015 — Fender sells online through pure-play instrument e-tailers such as Fort Wayne, Indiana-based Sweetwater and Thomann, headquartered in Germany, as well as Amazon, Walmart and Target. Pre-Covid, half of Fender’s sales were online, Mooney said, and have since swelled to 70%.
“At Sweetwater, we are seeing 50% to 100% year-over-year growth across most guitar brands, both acoustic and electric guitars, and at all price points,” said Mike Clem, the website’s chief digital officer. “Some beginner instruments are seeing triple-digit YOY growth.”
Fender, founded in 1946 by radio repairman turned guitar inventor Leo Fender in Fullerton, California, still relies on hundreds of bricks-and-mortar music stores, a key gateway to the brand ubiquitous among rock and rollers 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 prominent Fender seller based in Westlake Village, California, closed most of its nearly 300 locations when the pandemic hit. “We saw a shift of consumers to our e-commerce channels,” said Michael Doyle, senior vice president, guitar and tech merchandising. That translated to a triple-digit sales growth for Fender and other top guitar brands on its website, particularly among new strummers.
“Covid buying trends have re-emphasized the importance of the beginner player,” Doyle added. “In fact, we expect that one of our hottest deals of the holidays will be a Guitar Center exclusive entry-level Fender Guitar Pack,” featuring a Squier Stratocaster electric guitar and Frontman amp for $220. (Nonetheless, Guitar Center, the nation’s largest musical instrument retailer — which generated $2.3 billion in sales in its most recent fiscal year, but is mired in about $1.3 billion in debt — missed a $45-million interest payment last month and filed for bankruptcy on Nov. 13 concurrent with a debt restructuring plan, with the hope of balancing its books by early next year and its business operations continuing uninterrupted.)
While the pandemic played havoc with Fender’s 2020, the company has been steadily retuning its marketing strategy under Mooney, who previously boosted brands for Quiksilver, Disney and Nike. Another Nike alumnus, Evan Jones, was hired as Fender’s first-ever chief marketing officer around the same time Mooney arrived. “The company has shifted from trade-based to consumer-based marketing,” Jones said. “We’ve built a full-fledged, integrated organization that allows us to invest in community-building through social channels, CRM and a visual ecosystem.”
That organization — along with Fender’s design and production operations — was put to the test in October when it introduced the American Professional II series, the second generation of its flagship electric guitars and basses. Fender hired Wieden+Kennedy, known for its Nike ads, to work alongside its in-house creative team to develop a campaign dubbed “For One. For All.” The launch included producing videos starring 20 professional guitarists playing the new models and heralding their improvements. “They’re able to articulate what the instruments do as well as or better than any product reviews,” Jones maintained.
The design process for the new series began more than two years ago, said Justin Norvell, executive vice president of products. “We talked to players, beginners to pros, to figure out what drives them, inspires them, what they’re looking for,” he said. So, while the new Strat, Telecaster and other updated models look like their classic selves, changes were made to the necks, fingerboards and pickups to improve sound and feel. “A lot of that comes down to manufacturing technology and quality control to create instruments that are easier to play,” Norvell said.
Norvell coordinated that effort with Fender’s executive vice president of operations, Ed Magee, who was challenged with gearing up the factories after the pandemic shutdowns. “We brought back most of the furloughed employees,” he said, and reconfigured workstations to allow for social distancing. “We had to source masks and other PPE,” he added. “We had to innovate on the fly, but worker safety comes first.”
The culmination of the design and production efforts is when a guitarist straps on a Fender, like the new Acoustasonic Strat Nile Rodgers recently got his hands on. A Rock and Roll Hall of Famer, he and his bandmate, the late bassist Bernard Edwards, created a funky disco sound in the early 1970s that defined an entire era with enduring hits like “Good Times” and “Le Freak.”
Rock and Roll Hall of Famer Nile Rodgers is developing a different sound on the Fender Acoustasonic, an acoustic and electric hybrid.
Fender Musical Instruments
Rodgers still plays the white 1960 Strat, nicknamed the Hitmaker, that he traded for at a pawn shop in Hialeah, Florida, in 1973, but is developing a different sound on the Acoustasonic, an acoustic and electric hybrid. “When I got the instrument, I started practicing on it and came up with a whole new concept,” he said. The result is heard on a song, “Inside the Box,” and video he made with Fender, highlighting the instrument’s multiple voice pairings.
The experience has inspired Rodgers to practice relentlessly and compose dozens of new songs while locked down at home in Westport, Connecticut. “I made a promise to myself — I’m 68 now — that by the time I’m 69, I’m going to be a better guitar player.”
Katie Pruitt, 26, an up-and-coming country/folk/pop vocalist and guitarist and songwriter, is a comparative neophyte whose mother introduced her to the guitar as a kid growing up outside of Atlanta. “She played in our church, and I learned basic chords from her,” Pruitt said. She kept at 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 she still plays, “and I got a Jazzmaster that I also used in making ‘Expectations,'” she said, referring to her debut album, released in February. She promotes both the record and the Jazzmaster, among the American Professional II models, in a “Fender Sessions” video, featuring the title song, made with her current band. Like so many musicians whose live concerts have been canceled during the pandemic, Pruitt has been using the at-home time to work on new material. “My mind is fully submerged into writing a second record,” she said.
Fender helps spawn new artists like Katie Pruitt, an up-and-coming songwriter and vocalist.
While Fender may well help spawn new artists from the beginners taking its online lessons and buying its instruments in droves, Mooney said research revealed that “90% of first-time players who pick up the guitar abandon it in the first year.” But on the flip side of that sharp drop off, he added, the 10% who remain committed buy several more guitars. “They have a lifetime value of $10,000,” he calculated, “and that’s a $1 billion bubble on top of sustainable, organic growth.”
No wonder Mooney is optimistic about not only Fender’s future, but that of the entire fretted instruments industry — which last year topped $8 billion, according to research organization Music Trades — that it dominates. “I keep reminding people that we’re a growth company operating in a growth industry.”
The pandemic has changed the way people create and consume content and access entertainment. But are these changes permanent? Join the CNBC Evolve Livestream on December 3 for a conversation about changing consumer trends and how far media companies should go in changing their strategies to reach their customers and meet their needs.
Rise in Covid spread puts hospital workers at risk: Allina Health CEO
The sharp uptick in coronavirus cases across the Midwest is increasing health-care workers’ risk of getting infected, jeopardizing staffing levels needed to care for other Covid-19 patients, according to the CEO of a Minnesota hospital system.
Dr. Penny Wheeler, who leads Minneapolis-based Allina Health, told CNBC on Monday that the not-for-profit health network has more personal protective equipment, ventilators and available beds to care for Covid-19 patients than it had during the initial outbreak in the spring. Nurses and doctors, however, are harder to come by, she said.
“You cannot manufacture a talented and compassionate caregiver,” Wheeler said in a “Squawk on the Street” interview. “And that’s where we’re having trouble with now, especially with so many of them being affected or their family members being affected by community spread in our organization and in the community.”
Wheeler said for that reason, it is imperative people take seriously the public health strategies that can reduce the chain of coronavirus transmission in the community. Doing so reduces the likelihood that hospital workers become sick, she said.
“The need for masking, physical distancing and washing of hands, all those things — I know people are fatigued but so are the health-care workers, and you can keep our health-care workers healthier and able to care for you if you do those things,” Wheeler said. “These are incredibly skilled people, and you can’t replace them.”
Minnesota is one of 25 states seeing record-high hospitalizations for Covid-19 patients, based on a seven-day average, according to a CNBC analysis of data from the COVID Tracking Project, which is run by journalists at The Atlantic. Minnesota also is one of eight states where daily deaths from Covid-19 are at all-time highs, with 48 people on average dying per day in the last week, according to CNBC’s analysis of Johns Hopkins University data.
At least 3,297 people in Minnesota have died from Covid-19 during the pandemic, Hopkins data shows.
Wheeler’s concerns about staffing are shared elsewhere across the country, especially in some of Minnesota’s nearby states, which have been hit hard by the fall coronavirus spike. “Our geography in the Midwest, upper Midwest, has been seeing unprecedented numbers of infections and case growth,” she said.
Earlier this month, the head of the University of Wisconsin’s health network told CNBC its seven-hospital system was “short of staff all times, either because they have Covid or they have some other illness and we need to rule out Covid before we bring them back to work.”
“There is no surplus staff to deploy to other hospitals to help each other out, so we’re trying to equal the load. We’re all trying to keep patients local,” UW Health CEO Dr. Alan Kaplan said then.
The U.S. has continued to experience a worsening of its coronavirus outbreak in recent weeks, with daily average new cases setting a series of record highs. While Wheeler said a series of positive developments around Covid-19 vaccines are a “wonderful ray of hope,” the widespread availability is still some time away.
“We just have to hold on … so let’s take what is in our control — mask up, physical distance, wash your hands,” Wheeler said. “We can take that, and then we can bridge that to a time where there’s greater hope in the vaccines in the offing, then we’ll be doing a great service and we’ll have more lives here than lost.”
— CNBC’s Nate Rattner contributed to this report.
Oxford-AstraZeneca Covid vaccine has some advantages over its peers
AstraZeneca’s building in Luton, Britain.
Tim Ireland | Xinhua News Agency | Getty Images
LONDON — The coronavirus vaccine being developed by AstraZeneca and the University of Oxford was found to be “highly” protective, potentially paving the way for a vaccine that is more affordable and easier to distribute than some of its peers.
An interim analysis of clinical trials showed the Oxford-AstraZeneca vaccine had an average efficacy of 70% in protecting against the virus.
Researchers said this figure could be as high as 90% by tweaking the dose, but the overall results show the vaccine’s efficacy is slightly lower than other leading candidates.
However, White House coronavirus advisor Dr. Anthony Fauci has previously said a vaccine that is 50% or 60% effective against the virus would be acceptable.
It is hoped a Covid vaccine could help to bring an end to the coronavirus pandemic that has claimed more than 1.3 million lives worldwide.
Huge challenges remain before a vaccine can be rolled out. The global battle to secure prospective supplies has raised concerns about equitable access, while questions remain over the logistics of mass production, distribution, and cost.
Equity analysts at Jefferies said it was “challenging” to compare the efficacy of AstraZeneca’s vaccine with those of Pfizer-BioNTech and Moderna, citing key differences in how the trials have been conducted.
The analysts highlighted weekly swabbing to detect Covid-19 among participants involved in AstraZeneca’s trials — not just confirmation of suspected cases by symptoms as in U.S. trials. They also stressed that a meningococcal vaccine was used for comparison, not placebo.
The Oxford-AstraZeneca vaccine was assessed over two dosing regimens. One showed an effectiveness of 90% when trial participants received a half dose, followed by a full dose at least one month later.
The other showed 62% efficacy when given as two full doses at least one month apart.
No hospitalizations or severe cases of the disease were reported in participants receiving the vaccine.
A motorcyclist wears a protective mask while sitting at the side of the road at the Sabarmati Riverfront in Ahmedabad, India, on Thursday, Oct. 22, 2020. Prime Minister Narendra Modi said his government will ensure that all 1.3 billion people nationwide will have access to a Covid-19 vaccine as soon it is ready.
Sumit Dayal | Bloomberg | Getty Images
The Jefferies analysts said that when it comes to storage, affordability and distribution, AstraZeneca’s vaccine appears to have an advantage.
The British pharmaceutical giant has said its vaccine can be stored, transported and handled at normal refrigerated conditions (36-46 degrees Fahrenheit) for at least six months and administered within existing health-care settings. It has also pledged to distribute the vaccine at no profit “for the duration of the pandemic.”
The Financial Times has previously reported the Oxford-AstraZeneca vaccine, which requires two doses, is priced at approximately $3 to $4 — significantly lower than the prices reported for Pfizer-BioNTech and Moderna.
In comparison, Moderna has said its vaccine candidate remains stable at the temperature of a standard home refrigerator for up to 30 days. It can also be stored for up to six months at minus 4 degrees Fahrenheit.
In August, the U.S. biotechnology firm said it was charging $32 to $37 per dose for its vaccine for some customers.
The Pfizer-BioNTech vaccine requires a storage temperature of minus 94 degrees Fahrenheit and requires special storage equipment and transportation. This could make it difficult for some countries to distribute.
Pfizer is reportedly charging $20 per dose for its vaccine.
Strategists at Deutsche Bank described the news from AstraZeneca on Monday as a “big deal,” saying a string of encouraging vaccine developments in recent weeks constituted “an unprecedented victory for science.”
They suggested that emerging markets, most notably Brazil, Mexico, India and Indonesia, were likely to be the “big beneficiaries” of the AstaZeneca vaccine. That’s because “the cheaper cost of production and distribution of AstraZeneca is especially relevant for lower and middle-income countries,” they said.
AstraZeneca has said it is making “rapid progress” in terms of manufacturing, with a capacity to produce up to 3 billion doses of the vaccine next year.
The U.S. and India have agreed to procure 500 million doses of the Oxford-AstraZeneca vaccine, according to data compiled by researchers at Duke University’s Global Health Innovation Centre.
The EU has reached a deal to buy 400 million, and the COVAX facility, a global initiative aimed at ensuring equitable access to Covid-19 treatments and vaccines, has ordered 300 million.
The U.K., Japan, Indonesia, Brazil, and Latin America excluding Brazil have each confirmed orders of at least 100 million doses.
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