Brian T. Majeski
JONAS SALK INVENTED the polio vaccine in 1955, eradicating a global scourge that had killed or paralyzed thousands each year. Anyone who grew up in the following years could be forgiven for assuming that widespread infectious diseases were a thing of the past. The ugly reality of the COVID pandemic has shattered those previously comforting assumptions. The virus has forcefully reintroduced us to the truth that nature can be cruel and that we are less in control than we like to think. Months into the epidemic, we still have much to learn about the virus—its fatality rate, how it spreads, why it triggers out of control immune reactions in some but not others, and how best to minimize its health impact. With so much uncertainty, policy makers should be forgiven the mistakes that will inevitably arise as they strive to guard the public health while steering clear of a complete economic collapse.
“Unprecedented” is a much over-used word, but is an apt description of the circumstances we are currently living through: thousands of casualties, 30 million unemployed, and economic activity in free-fall. The closest parallel we can think of is World War II, when production of nearly all civilian goods was suspended for over four years to support the military effort. With little precedent to serve as guidance, attempting to determine the impact of the epidemic on the music products industry raises more questions than answers.
Some online retailers, including Sweetwater and American Musical Supply, are reporting surging order input. Is this because the shelter-in-place decrees have kindled a newfound interest in music making, or because they are capturing sales that previously would have been made by the brick-and-mortar stores that are currently shuttered? Perhaps a combination of both?
The impact of the epidemic varies widely from product category to product category. With large gatherings of any type prohibited in most of the country, sales of live sound products, DJ gear, and lighting have plummeted. Yet sales of entry level keyboards and acoustic guitars seem to be faring well, possibly because people stuck at home are looking for new ways to pass the time. Sales of recording gear, audio interfaces, and USB microphones seem to be holding steady, also because they are products well suited to home use. However, school music, long the industry’s most stable product category, is facing serious potential challenges. Falling tax revenues at the state and local level will most likely lead to reductions in educational spending and music programs on the block. More ominously, come September, will social distancing protocols allow for budding instrumentalists to crowd together in a band room? Will these trends continue after the virus is hopefully contained?
A decade of interest rates at near zero has encouraged increased leverage in and out of our industry. Look no further than Guitar Center, which, after furloughing 9,000 employees, suspended payments on its roughly $900 million in debt. Does this signal a trip to the bankruptcy courts? Or, because GC is an inherently viable business, will it be able to secure forbearance from its creditors and persevere? The same questions can be raised about scores of independent retailers, and even some of the industry’s larger suppliers. We’ll soon get a better idea of which enterprises have the financial wherewithal to survive the shutdown. Or, as Warren Buffet once noted, “you find out who’s swimming naked when the tide goes out.”
Disruptions on the magnitude of the COVID pandemic are bound to reorder the commercial world, creating winners and losers. Will a struggling Guitar Center create opportunities for well run independents? Will leading suppliers try to hedge their credit risks by stepping up their direct sales? Is the supply side of the industry ripe for consolidation? Will those “shelter in place” guitar and keyboard buyers evolve into a significant customer group?
Let us be the first to admit that we have no clear-cut answers to any of the questions above. Like most others we know, our forecasts were for 2020 to play out much like the previous three years, marked by modest growth and incremental shifts in market shares and product preferences. However, in the months to come, Music Trades’ real time industry data, tracking retail sales, import and export volumes, and company revenues will offer some much-needed clarity in an uncertain time.