Fender Guitar CFO Plays Through the Economic Blues

The 76-year-old Fender guitar brand is no stranger to withstanding the test of time.

For decades, musicians both young and old have clamored for the company’s wide range of iconic products popularized by legendary stars like Jimi Hendrix, Eric Clapton, Stevie Ray Vaughn and many others, making the brand a staple on holiday wish lists.

Fender Chief Financial Officer Matt Janopaul talked with PYMNTS about how the company has emerged from the pandemic stronger than ever, and why those learnings are helping define its approach to the current macroeconomic climate.

Janopaul has been involved with Fender for more than two decades, acting first as an investor, and then serving as both president and chief operating officer before moving to his current role as CFO in January.

“When you think about the blues and some of the most famous genres of guitar music in American history, they’re actually tied to hard times,” Janopaul said. “That’s why we always know [Fender will] get to the other side — music is always needed, right? People play music to celebrate in good times, and people play music to console themselves during times of hardship.”

Inflation, Inventory, Interest Rates

So, how is the company dealing with the contemporary consumption environment, where inflation is hammering consumer confidence, and close to 6% of the U.S. population is holding off from buying holiday gifts, including shiny new Fender Stratocasters, this year?

“I think consumers, at least those buying musical instruments, still have the money to spend on them,” Janopaul said, adding that Fender is prepared for some softening on the lower end or entry level of its product lines, which commonly happens whenever there is economic hardship being felt by consumers. “Fender has made it through global recessions, crises, wars, you name it. We had a record breaking Q1 in 2022, and by Q2, when we started to see the slowdown, we immediately made changes to how we were running the business.”

Internal data from Fender shows that learning guitar was one of the more popular skills picked up during COVID-19 quarantines, with 7% of the U.S. population aged 13 to 64, representing approximately 16 million people, deciding to play the guitar for the first time ever during the pandemic.

Supplier Relationships

In order to get the brand’s guitars, amps and more in the hands of this emergent class of musical hobbyists, Fender has had to deal with supply chain bottlenecks, inventory pinch points and more — even geopolitical crises.

“Our ocean freight shipments of chips or amplifiers coming from Asia to California, those are now three-to-four-times the cost,” he said. “We were able to pass along some of our price increases, while with others, for example with our high-end tube amps where we were getting parts from Ukraine and as a result of the situation over there faced significant backorders. But there’s always been shortages in our industry, and we’ve always had to be very nimble to figure those things out.”

The company can also leverage its industry-leading suite of next generation technology and tools to weather lackluster economic environments.

“We have a dealer portal that gives every one of our retail partners the ability to look at our inventory, see what’s there, and place their order,” Janopaul said. “Then the next day, it’s into our fulfillment system and gets shipped by our logistics partner FedEx wherever in the world it needs to go. I think that makes our dealers a lot more comfortable meeting consumer demand.”

Still, he told PYMNTS that there were significant order cancellations at a wholesale level this past year, as retailers themselves pulled back their own spending.

“If anything, the silver lining to that is from a cash standpoint, we are in good shape as it relates to industry replenishment needs going into 2023,” he said.

Cost of Doing Business

Fender is a global brand. Teens in both Ohio and Okinawa are just as likely to proudly strum a Stratocaster or a Telecaster, and Janopaul told PYMNTS that half of the company’s sales are outside the United States.

“The currency headwinds that we had were significant this year,” he said. “Because so much of our sales are international, we’ve had to deal with this, although we have a good hedging strategy which has helped a lot. But I want to be as conservative as possible when it comes to budgeting currency.”

Janopaul said the company’s main priorities for the new year include “staying cautionary on spending and being nimble in addressing both B2C and B2B customer needs around product and inventory” to meet demand as best it can.

As for other areas like cryptocurrency and authenticated resale or trade-in programs, the Fender CFO said we will just have to wait and see what the future holds.

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