Fender Musical Instruments Company
Address:
7975 North Hayden Road
Scottsdale, Arizona 85258
U.S.A.
Telephone: (602) 596-9690
Fax: (602) 596-1384
Statistics:
Private Company
Incorporated: 1959
Employees: 600
Sales: $160 million (1995)
SICs: 3931 Musical Instruments
Company History:
In 1996, Fender Musical Instruments Company was the leading maker of solidbody electric guitars with an estimated 50 percent of the U.S. market. The company, which marketed products under several brand names, including Fender, Guild, Sunn, Floyd Rose, Rodriguez and Squier, produced an estimated 1,000 guitars a day in more than 100 different colors and finishes.
Clarence Leo Fender, born in 1909 near Anaheim, California, never learned to play the guitar, but the company he started in 1943, which would become the Fender Musical Instruments Company, and the guitars and amplifiers he designed changed the course of popular music. Fender's reputation for producing quality amplifiers and electric guitars was already established in country music when rock and roll began to sweep the nation in the late 1950s and early 1960s. When early rock stars, including Buddy Holly, Jimi Hendrix, Eric Clapton and The Beatles, began playing Fender's brightly-colored guitars and basses, the company's success was ensured.
The Early Years
Fender began tinkering with radios in 1922, and by the time he graduated from high school in 1928, he was operating an amateur "ham" radio station. He was also building amplifiers and public-address systems, and from 1930 until 1938, he supplemented his income as a California civil-service accountant by renting his homemade equipment for dances, political rallies, and baseball games. In 1938, he opened a repair shop, Fender's Radio Service, in Fullerton, California. The shop also sold phonographs and repaired amplifiers.
In the early 1940s, Fender teamed up with Clayton "Doc" Kauffman, then a professional violinist and lap-steel guitarist, to design a phonograph record-changer. They sold their design for $5,000 and formed K&F Manufacturing. In 1943, K&F Manufacturing developed a new pickup for electric guitars in which the strings passed through the magnetic coil. K&F filed for a patent on the pickup in 1944, which was granted in 1948. Fender later said that K&F built its first guitar to test the new pickup.
By 1945, Fender and Kauffman, working out of a shack behind the radio-repair shop, were manufacturing amplifiers and lap-model Hawaiian steel guitars, which were sold as sets. Fender wanted to expand the business, taking advantage of the fact that many musical instrument companies had gone out of business during World War II, but Kauffman was worried about going into debt.
Fender told BAM magazine, "It cost a lot of money to get into large scale production, and the 1930s depression was still fresh in Kauffman's mind, so he didn't want to get involved. He had a ranch or farm in Oklahoma, and he was afraid if we got over-extended on credit he might lose it. He thought he'd better pull out while he had a full skin." Kauffman told much the same story to Guitar Player magazine: "I got scared of the business.... I didn't have much faith in guitars, and I asked Leo to buy out my half of the business." Fender agreed to trade Kauffman a small press punch for his share of K&F Manufacturing.
In 1946, Fender renamed the business the Fender Electric Instruments Company. That same year, he signed an agreement with Radio & Television Equipment Company (Radio-Tel) of Santa Ana, California, which had been supplying parts for his repair shop, to be sole distributor for Fender amps and guitars. Fender also turned over operation of his repair shop to Dale Hyatt, so he could concentrate on making musical instruments. By 1949, Fender amps and guitars were firmly entrenched in the country music industry.
The 1950s Telecaster
In the spring of 1950, the Fender Electric Instruments Company introduced a single-pickup, solidbody electric guitar, which it called the Esquire. The company started taking orders for the Esquire, but before Fender could start full production, the guitar had been redesigned as a dual-pickup solidbody called the Broadcaster. The Broadcaster was renamed the Telecaster in 1951 because of a conflict with Gretsch Broadkaster drums. Although it was sometimes derided as a "canoe paddle," because of its plain solid-ash body and screwed-on fretted maple neck, the Telecaster became the first commercially successful solidbody electric guitar.
Other guitar makers had created solidbody electric guitars as early as the mid-1930s, and in his book, Fender: The Inside Story, Forrest White, former vice-president and production manager for the Fender Electric Instruments Company, traces the concept of the Telecaster to a guitar that a part-time guitar maker in southern California, Paul Bigsby, created in 1947 for Merle Travis.
Fender supplied amplifiers for the Saturday night "Cliffe Stone Show" in Placentia, California, and there seems little doubt that Fender would have seen Travis play his custom-designed electric guitar on the show. In 1979, Travis wrote in the JEMF Quarterly that he loaned his guitar to Fender for a week to make a copy, and he argued for years that he, not Fender, should be considered the father of the solidbody electric guitar.
Regardless, in 1951, Fender received a patent for "a new, original, and ornamental Design for a Guitar," and it was Fender who popularized the electric, solidbody guitar. In American Guitars, An Illustrated History, Tom Wheeler, former consulting editor for Guitar Player magazine, calls Fender "the Henry Ford of electric guitars and the Telecaster ... his Model T." With the success of the Telecaster, which sold for $189.50, Fender closed his repair shop to devote all his energy to designing and manufacturing musical instruments, which by late 1951 also included the first electric bass.
Before long, however, Leo Fender became unhappy with his distribution arrangement with Radio-Tel, which seemed content to focus its marketing efforts on Fender's amplifiers and lap-steel guitars. In his book, White quotes his former employer: "During this time, they (Radio-Tel) didn't sell hardly any of our (solidbody) guitars. [The guitars] just sat there in this garage, and termites got into them and ate through the bodies. We never found out about the termites until dealers started calling us about holes in the guitars. We ended up taking back 500 guitars and had to burn them all."
In 1953, Leo Fender formed Fender Sales, Inc., to take over distribution from Radio-Tel. Surprisingly, his partners in the venture were, or had been affiliated with Radio-Tel, including Donald Randall, former sales manager who became president of the distribution company, and Charles Hayes, a former salesman. The third partner was F. C. Hall, who owned Radio-Tel. Later that year, Hall purchased the Electro String Instrument Corporation from founder Adolph Rickenbacker, putting himself in the position of being both Fender's competitor and partner. When Hayes died in an automobile accident in 1955, Fender and Randall bought his interest in Fender Sales from his widow and ousted Hall. Fender and Randall each then owned 50 percent of the distribution company, although Fender continued to own 100 percent of Fender Electric Instruments.
In 1954, Fender Electric Instruments introduced the Stratocaster. While the Telecaster may have looked like a canoe paddle, Tony Bacon and Paul Day, authors of The Fender Book, describe the Stratocaster as "in some ways [owing] more to contemporary automobile design than traditional guitar forms, especially in the flowing, sensual curves of that beautifully proportioned, timeless body." The Stratocaster also included a built-in vibrato and came in a variety of Du Pont car colors. It became the most popular and most copied solidbody electric guitar ever made. It was also the guitar that would make Fender Electric Instruments worth millions of dollars and make Leo Fender an icon among rock musicians.
Building on the phenomenal success of the Stratocaster, Fender Electric Instruments introduced a line of less expensive guitars and amplifiers in 1955. The "studio instruments" were branded with the name "White," a tribute to Fender's production manager, Forrest White. The company also introduced a three-quarters sized solidbody guitar in 1955, an electric mandolin in 1957, a short-lived electric violin in 1958, and its first acoustic guitars in 1964. Fender dabbled briefly with brass instruments, buying a horn company and introducing the Hayes brand in 1954. However, the horn business, like the White brand, was abandoned a year later. Fender Electric Instruments, which had fewer than 15 employees in 1947, had more than 100 employees by the time it incorporated in 1959.
The CBS Years
In 1964, Leo Fender, then 55, became ill and offered to sell Fender Electric Instruments to Randall, still his partner in Fender Sales, for $1.5 million. At the time, the company was producing 1,500 amplifiers, electric guitars, acoustic guitars, and other instruments per week, and was the largest exporter of musical instruments in the United States. Fender Electric Instruments employed 600 people, 500 of them in manufacturing.
Randall didn't have the resources to purchase the company himself but agreed to find another buyer. After talking with several companies, including the Baldwin Piano & Organ Co., Randall negotiated a deal with the Columbia Broadcasting System. On Jan. 5, 1965, CBS announced that a subsidiary, Columbia Records Distribution Corp., had purchased Fender Electric Instruments and Fender Sales for $13 million. The press release noted, "The Fender guitar is considered the outstanding instrument of its type by both professional musicians and amateurs." The new Columbia Records division was known initially as Fender CBS, but that was changed to CBS Musical Instruments in 1966, as it acquired other companies, including Steinway & Sons and flute maker Gemeinhardt Co.
CBS began making changes almost immediately. Fender Electric Instruments had expanded haphazardly over the past 20 years until it occupied 29 buildings scattered throughout Fullerton. To consolidate operations, CBS announced plans to build a 120,000-square-foot, $1.3 million facility, complete with a dust-free air-filtering system. The building was completed in 1966. CBS also began sending efficiency experts to Fullerton to analyze how the former Fender Electric Instruments Company operated. White, who had been responsible for production since 1954, commented in his book, "We had been invaded by a horde of 'know-it-all CBS experts' at both Fender Sales and the factory."
Demoted from vice-president to plant manager with the takeover, White quit less than two years later in a dispute over the quality of an amplifier that CBS planned to introduce. He wrote, "I asked all of my key personnel to come to the conference room. I told them that I had too much respect for Leo to have any part in building something that was not worthy of having his name associated with it."
Many other longtime Fender employees also believed that quality was declining, as CBS cut back on product lines and produced few new models. Randall, who had become vice-president and general manager under CBS, left the company in 1969 but apparently more because of corporate politics than a concern over quality. White quotes him as saying, "Everybody at CBS was climbing the corporate ladder, stepping on everyone else's fingers as they climbed up. There was a tremendous amount of infighting." However, despite the management upheaval and concerns over quality, sales at CBS Musical Instruments almost tripled from $20 million in 1971 to nearly $60 million in 1981.
Meanwhile, Leo Fender had been retained by CBS as a consultant in research and development from 1965 until 1970, although according to White, CBS executives made fun of his ideas. In 1972, Fender's consulting business, CLF Research, began manufacturing stringed instruments for Tri-Sonics, Inc., a company formed by White and Tom Walker, a former district manager at Fender Sales. Tri-Sonics changed its name briefly to Musitek, short for Music Technology, before finally settling on Music Man, Inc., in 1974. Fender was named vice-president in 1974 and became president in 1975. The company was sold in 1984.
In 1980, Leo Fender and George Fullerton, another longtime Fender Musical Instruments employee who quit CBS, formed G&L Inc. to market instruments made by CLF. G&L originally stood for George and Leo, but when Fullerton sold out in 1986, receptionists began answering the telephone, "Guitars by Leo." The company was sold after Fender's death in 1991.
Post-CBS
By the early 1980s, Japanese competition was beginning to affect the bottom line at CBS Musical Instruments. CBS tried shifting some of its manufacturing to Korea to reduce tooling costs, but that experiment was abandoned by the end of the year because of poor quality. CBS also recruited three top executives from Yamaha Musical Instruments. John McLaren was brought in to head up CBS Musical Instruments, William Schultz was hired as president of the Fender division, and Dan Smith was named director of marketing for electric guitars.
In The Fender Book, Tony Bacon and Paul Day, quote Smith: "We were brought in to kind of turn the reputation of Fender around, and to get it so it was making money again. It was starting to lose money, and at that point in time everybody hated Fender. We thought we knew how bad it was. We took for granted that they could make Stratocasters and Telecasters the way they used to make them, but we were wrong. So many things had changed in the plant."
In 1982, Schultz virtually shut down U.S. production of Fender guitars, focusing instead on re-issuing limited editions of top-of-the-line, "classic" Fender guitars from pre-CBS days. Schultz also formed a joint venture, Fender Japan, with two Japanese distributors, Kanda Shokai and Yamano Music. Fuji Gen-Gakki, which made Ibanez brand instruments, was licensed to manufacture Fender guitars, which were sold only in Japan. Fuji Gen-Gakki also manufactured lower-priced, vintage Fender guitars under the Squire Series brand name. The Squire Series originally was intended for the Japanese and European market, but export to the U.S. market began in 1983.
A year later, with CBS a potential takeover target, the company began soliciting offers for its Fender musical instruments division. Among the companies expressing interest were the International Music Co. and Kaman Music Corporation, which manufactured Ovation guitars. In the end, however, CBS offered to sell to a management group headed by Schultz for $12.5 million. The sale was completed in March 1985, and the company name was changed to Fender Musical Instruments.
According to Forbes, the management group borrowed $9 million and CBS took back a note for $2.5 million, which gave Fender Musical Instruments about $11 in debt for every $1 in equity. Making matters worse, the sale did not include the production facilities in Fullerton, which CBS sold separately. As a result, Schultz, chairman of the company, was forced to halt all U.S. production of Fender guitars, and only Japanese-made instruments were listed in the 1985 catalog. Schultz also slashed employment at Fender Musical Instruments from 800 to about 90 workers, mostly in research and design.
To begin rebuilding the company, Schultz created the Fender Custom Shop in Corona, California, which produced about five models for a Vintage reissue series and began offering free or discounted guitars to rock music stars. In return, the musicians agreed to appear in Fender Musical Instruments advertisements. In 1986, Fender Musical Instruments introduced the American Standards model Stratocasters and Telecaster guitars. By 1996, the Corona plant, which also produced the company's amplifiers and speakers, employed about 600. Schultz, who moved company headquarters to Scottsdale, Arizona, in 1991, also opened guitar-manufacturing facilities in Mexico, China and Korea. By the mid-1990s, production was estimated at 50,000 guitars a year. William Mendello, then president of Fender Musical Instruments, told Forbes in 1996 that he estimated the value of the company at about $250 million if it went public. Revenues for the closely-held company were estimated at $160 million.
Further Reading:
Bacon, Tony, and Paul Day, The Fender Book, San Francisco: Miller Freeman, Inc., 1992.
Matzer, Marla, "Playing Solo," Forbes, March 25, 1996, pp. 80-81.
Smith, Richard, "Fifty Years of Fender, 1946-1996," Fender Musical Instruments (press release), 1996.
Wheeler, Tom, American Guitars: An Illustrated History, New York: Harper Perennial, 1992.
White, Forrest, Fender: The Inside Story, San Francisco: Miller Freeman, Inc., 1994.
Source: International Directory of Company Histories, Vol. 16. St. James Press, 1997.
