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THE Source for the Vintage Instrument World

Newsletter #20, October 2004

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Thirty-five years of ups and downs in the vintage business

Since the establishment of Gruhn Guitars in January of 1970 my business and the guitar market in general and certainly specifically the vintage guitar market have experienced enormous growth. Gruhn Guitars started out as GTR Inc. with George Gruhn and Tut Taylor as partners and Randy Wood as our sole employee, hence the name GTR for George, Tut and Randy, as well as being an abbreviation for guitar. While today Gruhn Guitars occupies a four-story building and has 22 employees, growth in size and profitability has not been as smooth or easy as many would assume. The economy has had its ups and downs and the guitar market has experienced cycles of its own. Both retailers and manufacturers have faced many challenges during the 35-year period in which Gruhn Guitars has been in business.

1970 was a year of recession in the US economy. GTR Inc. was such a new business that we had virtually no idea how the economy might affect us. We had a very small inventory, starting out with only 22 instruments belonging to me and Tut and a small shop set up with a 15' x 20' showroom and the rest of our 20' x 60' foot space devoted to a small office, repair, and storage. Randy was able to stay busy with repair work from the start, but there were many days in which Tut and I had little to do. We were fortunate in having a location very close to the stage door of the Ryman Auditorium where the Opry was held each Friday and Saturday night. It was not until 1974 that the new Opry house at Opryland was completed and the Opry moved away from downtown. In addition, the Johnny Cash TV show was taping at the Ryman and through that show we had the opportunity to meet numerous performers ranging from country artists to rock performers such as Crosby, Stills, Nash & Young and Eric Clapton. In spite of this there were many days in early 1970 when we did not take in nearly enough money to pay overhead.

Within a few months it became evident that there would be sufficient repair and custom work to keep Randy busy, and I could support myself dealing vintage guitars although it was by no means lucrative. Instrument prices were extremely low by today's standards and our total business volume was miniscule. Tut had entered into a partnership with me with the intention of doing custom carving and painting on new Gibson banjos along with Randy. When that project did not materialize and business was slow to bring in enough profit to support his family, Tut decided to leave. He sold his share of the business to me in September of 1970.

Tut remained active in the Nashville music scene. He joined John Hartford's band along with Norman Blake and Vassar Clements. Hartford's Aereoplane album with this band is regarded to this day as a classic. In 1971 when the Grammer guitar company went out of business Tut was the successful bidder at the auction and assumed their lease and acquired the assets of the company. He and his sons ran the business for a number of years. The current Crafters of Tennessee company in Mt. Juliet, a Nashville suburb, can trace its roots to Tut's ventures of the early 1970s.

Randy stayed with GTR for three years after which he, along with Tut Taylor and Grant Boatwright set up the Old Time Pickin' Parlor on Second Avenue just two blocks away from GTR. Tut and Grant remained in partnership with Randy for only a short time, but the Pickin' Parlor endured for a number of years. Today Randy has his own shop in Savannah, Georgia, and is highly regarded as a fine builder and repairman.

GTR continued to grow. By the mid '70s, Marty Lanham and John Greven were both working as repairmen for me. Both of these people have gone on to achieve recognition as superb independent guitar builders whose instruments are highly sought today. While business volume at GTR was much greater by the mid '70s than it had been when we first opened, it was by no means smooth sailing. 1974 was a year of economic recession which hit the guitar market hard. Manufacturers as well as retailers were struggling and GTR was no exception. We pulled through, but it was not easy. We were fortunate that in spite of economic ups and downs, public demand for guitars remained strong. The "great folk boom" of 1959-63 had been replaced by the rock and roll era of '64-69, as typified by the Beatles and Rolling Stones, and then evolved into the folk-rock era as typified by Crosby, Stills, Nash & Young from 1970-75. During this entire time period from 1959 through 1975, demand for guitars remained strong in spite of occasional difficulties caused by ups and downs in the economy.

1976 marked the beginning of what I consider to be a new era in the music market. Whereas the baby boom generation had dominated the scene from 1959-75, by 1976 many of these people were dropping out of the scene. From '76 through the mid '80s it appeared that music in general was less important to most people than it had been and that musical trends not only came and went quickly, but were shallow in their penetration compared to the past. Disco, funk, punk, pop, new wave and heavy metal trends seemed to come and go with remarkable speed, but did not do much to inspire guitar sales. Many of the bands popular at that time were de-emphasizing the guitar. Some eliminated fretted instruments altogether. Fortunately for me, I was selling enough instruments in Europe and Japan to help offset the lack of demand in the US. Business was good enough that in 1976 I was able to purchase a building at 410 Broadway with three floors. At the time of the move I changed the name of the company from GTR Inc. to Gruhn Guitars. Not only had a I received a legal challenge from an East coast corporation named GTR which made electronic organs, but with Tut and Randy both long gone it seemed logical to change the name of the company.

In spite of a music market that was at best listless, Gruhn Guitars prospered through the late 1970s with domestic and strong import sales. By 1979 as much as 40% of our total volume was export, which was divided almost equally between Western Europe and Japan. The early 1980s were, without any doubt in my mind, the most challenging time in my memory for both retailers and . manufacturers. Interest rates had been rising rapidly. Early during Ronald Reagan's term of office with Paul Volker as the Federal Reserve chairman, the prime rate rose to well over 20%. Not only was it virtually impossible for businesses to borrow money to fund operations, but retail consumers could not afford to pay the prevailing interest rates to fund new purchases. Collectors were faced with the dilemma that they could earn as much as 17% simply putting money into certificates of deposit, but guitar prices were stagnant. Musical instruments required maintenance, physical space for storage which needed to be properly controlled for temperature and humidity, and instruments needed to be insured against loss, whereas stocks, bonds and certificates of deposit seemed far more lucrative at the time.

When the US prime rate rose so high, the value of the dollar rose as well. Foreign investors bought US stocks, bonds, and set up cash accounts here to take advantage of our high interest rates thereby helping to drive the dollar to record highs against foreign currencies. This along with worldwide recession further complicated any efforts to sell American vintage or used instruments as well as new ones overseas. Our export market virtually died. Although I had been in business for 10 years, I was still a relative novice when it came to finance and business management. Had it not been for drastic belt-tightening, including selling my home and moving the family into a rental house to pump money back into the business, as well as friendly bankers and help from my parents, the business would not have survived. It was not until late 1983 that business had recovered sufficiently to appear viable.

Gruhn Guitars was certainly not alone in facing financial difficulty during this period. When GTR was first established Gibson had just been purchased by Norlin, Guild was owned by Avnet, Fender was owned by CBS, and only Martin among major guitar makers in the USA was independent. By the mid 1980s Gibson's volume had dropped precipitously and the company was in great financial difficulty. Fender did well financially from 1965 through the mid 1970s under CBS, but by the early '80s it, too, was hemorrhaging money. Avnet had lost interest in Guild by the mid '80s after it, too, had become a money-losing venture. In 1979 Guild had been producing close to 100 guitars per day whereas by early 1985 their production was down to 21 instruments daily. Although Martin remained independent and is so to this day, the early 1980s were a bleak period for them as well. By 1983 the number of guitars made yearly at Martin had fallen to levels not seen since the Great Depression.

Fortunately for me and for guitar manufacturers and retailers in general, musical trends changed dramatically in the mid 1980s. I first noticed a return of baby boom age buyers in 1984. I have written extensively about this in a number of articles as well as newsletter #2. In my opinion, the return of baby boom age buyers to the guitar scene is one of the most significant developments during my entire career. Prior to this time guitars were primarily bought by young men and boys between the age of 13 to 23 and by retirees who had leisure time and some money and who wished to return to some of the nostalgia of their youth. Middle-aged buyers simply were not a major factor in the marketplace prior to the mid 1980s. Since that time much of the vintage instrument market as well as the market for high-end new guitars has been fueled by middle-aged baby boomers after they have gone through their mid-life crisis. From 1984-92 prices of vintage instruments as well as new ones escalated at an amazing pace. Japanese as well as American buyers eagerly sought American vintage instruments after interest rates dropped in the mid 1980s and the dollar exchange rate was more favorable to foreign buyers. It was my experience, however, that the European buyers did not return with nearly the force of the Japanese. Whereas vintage instrument values had been relatively stagnant, in many cases not even keeping up with inflation from 1976 through 1983, from '84-92 prices of many highly sought after vintage instruments increased ten-fold.

During this same period of the mid 1980s onward when the vintage instrument market was booming, the major holding corporations decided to bail out of the guitar market. Norlin sold Gibson to the present owners, Fender was acquired by its present owners from CBS, and I was part of a group which purchased Guild from Avnet. Unfortunately for me, Guild's management team, of which I was only a minority shareholder, proved not up to the job, and the company was sold to Chuck Faas, who in turn did not do particularly well with it and sold it to Fender, which owns it today. Fender has prospered under its present management and Gibson has grown tremendously since being acquired by its current owners. Guild has not prospered nearly as well, but Fender appears to be determined to turn the company around. Martin not only has remained independent, but has prospered and is today making more guitars than at any other time in its history. Not only have the baby boomers returned to the market, but since Clapton's live Unplugged album in 1992, acoustic guitar manufacturers have boomed. Taylor, which was a tiny company at the time of Unplugged, has now grown to be second in size only to Martin among acoustic guitar makers in the USA. The Unplugged album and the dramatic turnaround in the acoustic market was a godsend to the makers of acoustic guitars. At the height of the heavy metal boom, it seemed that acoustic guitars were becoming almost out of fashion, and electrics without "divebomb" Floyd Rose or Kahler type tremolos were looking almost obsolete to many of the younger buyers. While some of this growth may be attributed to improved management, it is my opinion that the largest factor is due to dramatic changes in the music scene which generated renewed demand for guitars.

From 1993-99 the stock market took off like a rocket and many investors decided that it was more profitable to invest in mutual funds or stocks rather than musical instruments. Demand for guitars remained good, but prices did not escalate nearly as rapidly as from '84-92 and in fact some prices fell. At the end of '92 it was my experience that a good pre-World War II Martin D-28 would sell for $25,000 within two weeks, whereas after the first quarter of 1993 I found the same guitars difficult to sell for more than $17,000 and it took several months to achieve that result. Over time during the 1990s, Martin guitars and most other instruments gained back the ground they had lost and in fact escalated in value, but after the mid 1990s the market for archtop f-hole acoustic jazz guitars and four-string tenor and plectrum jazz banjos, with the exception of Gibson Mastertones, stagnated and in some cases fell.

The late 1990s were a challenge for Gruhn Guitars and numerous other retailers not only because investors were finding it easier to get good returns in stocks and bonds, but the older baby boomers were maturing and had already amassed enough instruments that some of them were becoming satiated. The Japanese market "bubble" burst, causing them to dramatically cut back on purchases of high-priced collectibles. In addition, large chain stores such as Guitar Center and Sam Ash were growing rapidly and adding pressure on the retail front. One of the greatest impacts, however, in my opinion was caused by computerization. The advent of desktop publishing made magazines such as Vintage Guitar a reality. Whereas in the past Gruhn Guitars put out a printed vintage instrument catalog every three to four weeks with little competition from smaller dealers due to the fact that it was too expensive for others to assemble, print and mail such a catalog, after the introduction of desktop publishing and magazines such as Vintage Guitar, hundreds of dealers were able to advertise at very low cost. When I first opened up GTR in 1970 a 2.25" x 2.25" display ad in Guitar Player cost more money than the monthly rent on my building. I was the only vintage guitar dealer advertising in the magazine, whereas in the case of Vintage Guitar magazine I was one of hundreds.

The rise of internet websites and email dramatically increased the level of competition even beyond what had been achieved as a result of desktop publishing. Instead of competing against a few hundred dealers advertising in magazines, Gruhn Guitars and other retailers were faced with competing against thousands of websites and later with millions of people listing instruments on internet auction sites such as eBay. The level of competition has never been greater. Mass marketers such as Guitar Center have grown exponentially, with Guitar Center now doing over $1 billion volume per year. Both Guitar Center and Sam Ash deal vintage as well as new instruments. The growth in the number of guitar shows, websites, internet auction sites and large-scale discount retailers not only has escalated competition to levels never before seen in our industry, but has tended to drive down profit margins on new instruments as well as make it much harder for dealers to acquire vintage guitars at prices which permit profitable resale.

The stock market took a nosedive in the year 2000. While many investors lost a great deal of money, those who were able to get out in time to salvage their net worth were looking for new investment opportunities. Fretted instruments became a far more attractive avenue for investment than they had been in the late 1990s. When the economy is facing hardship, gold, gemstones and collectibles such as fine art and guitars frequently fare better than the economy as a whole. From 2000 to the present some of the most sought-after vintage models have quadrupled in price. Pre-World War II flathead Gibson Mastertone banjos, prewar F-5 Gibson mandolins, sunburst Les Pauls from the late 1950s, vintage Stratocasters and Telecasters, vintage Gretsch Chet Atkins models, and Martin and Gibson acoustic guitars from the 1950s and earlier have all proven to be great investments as well as fine musical instruments during this period. Japanese and European buyers were critically important in fueling the market in the past, but from 2000 to the present the vast majority of our business has been with American buyers.

While I have concerns about the direction of the market after the baby boomers age upward, I have yet to experience any decline in business as a result. We have to adapt to greatly increased levels of competition, but it has been our experience that good old-fashioned service counts now as much or more as it ever did in the past. The internet and computerization in general have made it much easier for dealers and the public to communicate with each other, but repair and restoration and determination of authenticity and appraisals of instruments remains virtually unchanged in technique today from over 100 years ago. It takes anywhere from a few minutes to an hour to buy an instrument, but the same guitar, banjo, or mandolin may take 50 to 100 hours of time with a highly skilled restorer before it is ready for sale. Virtually instantaneous and effortless communication has not diminished the need for skill and integrity on the part of dealers.

We have lived through "interesting" times and can expect that the market will continue to be so, but my experience has shown that over the past 40 years vintage fretted instruments have been one of the best investments I have encountered. As Gruhn Guitars approaches its 35th anniversary the business is far more stable and prosperous than at any time in the past.

George Gruhn