|Electro-Harmonix founder and CEO Mike Matthews clowns with Technician Narcisa Roca and the new Grand Canyon and Mod Rex effects pedals at the company’s New York City headquarters.|
Consummate industry survivor (rock ’n’) rolls
with punches from mundane to macroeconomic
Mike Matthews is no stranger to adversity. The Electro-Harmonix founder and CEO is legendary in the music products industry for going toe-to-toe with union thugs in Manhattan and racketeers in Russia—in battles that he ultimately won. Some of the challenges he faces in today’s market, while not nearly as brutish, are no less nettlesome, if only because their lack of precedents summons no clear model for response. But whatever the obstacle, the guitar effects pioneer always finds a way forward, driven by his keen survival instinct and an insatiable desire to innovate.
Many industry sectors may eventually suffer collateral damage from the escalating trade war between the U.S. and China, but effects pedal manufacturers, specifically targeted, are already in the line of fire. Unlike many other brands, Electro-Harmonix doesn’t import fully made effects pedals; instead, it produces them in New York using components from both domestic and foreign sources. Starting earlier this year, EHX pedals’ Chinese-made circuit boards and chassis have been subject to tariffs—25% and 10%, respectively—representing substantial hits in a tight-margin market. However, EHX’s exposure to losses is mitigated by its participation in the United States Customs and Border Protection Duty Drawback Program, which reimburses tariffs on goods that are made in the U.S. but exported to other nations. Roughly 60% of Electro-Harmonix’ revenues come from exports, so even though exports to Canada and Mexico are excluded from the program, the company recoups about 45% of its losses due to tariffs. Additional headaches come from the program’s complicated paperwork requirements and especially the eight or ten months’ wait for reimbursement. But, being a fiscally conservative company—on moral grounds and due to life lessons learned, Matthews avoids debt like the plague—EHX can survive this significant interruption of cash flow. In a claim that could stand as the company’s mission statement over the decades, Matthews asserts, “We’re dealing with it.”
In another issue related to international commerce, Matthews must keep one eye on his wholly owned Expo-Pul vacuum tube factory in Russia, which supplies his New Sensor Corporation’s amplifier tube brands including Tung-sol, Mullard, Genalex, Svetlana, EH, and Sovek. Because Expo-Pul is completely unrelated to Russia’s defense industry, it hasn’t yet been affected by many nations’ sanctions on major Russian exports. And rampant inflation there, driven by geopolitical pressures and depressed oil prices, are actually keeping New Sensor’s production costs down. However, Matthews is concerned that announced sanctions on Iran could eventually drive oil prices higher and, in turn, cause those costs to rise.
Matthews also faces roadblocks that are closer to home and hardly unique to his company—for example, the decade-long dip in electric guitar sales and the explosion of boutique effects pedal makers—with a response that basically defines his brand: innovation. As boutique producers multiply, he explains, each newcomer’s market share and sales volume are diluted, so there is additional pressure for their selling prices to rise. Electro-Harmonix competes aggressively on price, but mostly by “coming out with more novel products than any other company.” Also, while most boutique companies make relatively simple analog pedals, EHX’s R&D designs a wide variety of products—analog and digital, simple to complex.
Matthews observes that, in general, today’s players want pedals with smaller footprints, which tend to be simpler and cost less than bigger, more complex ones, so in aggregate they generate more sales volume. But EHX also excels in more sophisticated products, which he says highlight innovation by delivering large palettes of complex sounds and powerfully integrated features. For example, after enjoying great success with its Canyon Delay and Looper pedal, about a year ago EHX’s product development team—led by David Cockerell, whom Matthews calls “best designer of novel electronic musical products in the industry”—began designing the new Grand Canyon Multifunction Delay & Looper. Equipped with 13 modes, 12 effect types, a fully featured looper capable of recording and overdubbing the effects, three seconds of delay time, tap tempo with nine tap divide settings, and stereo output, “It has so many possibilities,” says Matthews, “even I don’t know everything that it can do!” At press time, the Grand Canyon was about to start shipping.
Similarly “complex and innovative,” the new Mod Rex Polyrhythmic Modulator has great potential not only for guitarists, but also for keyboardists, enabling them “to do a lot of things that they haven’t been able to do before.” Designed by EHX’s Manny Silverstein and shipping for a couple of months, the Mod Rex is equipped with four independent, time-synced modulation sections, vibrato, flanger, chorus, phaser, tremolo, a large selection of filters, tempo with nine note length choices for nearly limitless polyrhythmic possibilities, stereo ins and outs, plus full MIDI control of all parameters including recall of the pedal’s 100 presets.
Another hurdle that EHX recently overcame was its longstanding frustration with Amazon. About 18 months ago it stopped selling its products on the platform, and a few months later Matthews directed all of his U.S. dealers to follow suit. “At the time, I thought that it would take eight or ten months to recover from that decision,” he admits, “but it happened much quicker. We got much bigger orders from our large customers, small customers, new customers.... Amazon is great for consumers, but in my opinion, their policies really squeeze the vendors and ultimately erode our dealers’ margins.”
For similar reasons, Electro-Harmonix has constructed a strong MAP policy that it vigorously enforces. “Our dealers appreciate our MAP,” Matthews says, “because it allows them to make a profit. We’re out to support our dealers 100%.”
Looking back at the panoply of adversity Electro-Harmonix has encountered over the years, Matthews is equal parts stoic and pragmatic. “Whatever comes up, you just deal with it,” he insists. “And after making a living in this business for nearly 50 years, I don’t want sympathy—because we’re winning!”