Re-tuning the business

by Array

Godin Guitars Inc describes itself as the only luthier of electric and acoustic guitars, ukuleles and other stringed instruments that is responsible for the entire process from start to finish.

“They’re entirely made in North America. We start with a log and we finish on stage,” says president Robert Godin.

“We cut and dry the wood ourselves, design the instruments, and market the instruments. We do everything. We do all the steps.”

And now the Montreal, Quebec-based company has added another responsibility to its duties: direct distributor.

Ten years ago, the instrument maker opened a distribution centre in the Netherlands to serve the European market. This January Godin closed the warehouse and committed to a new business model: shipping guitars directly to retailers via airfreight. It was a shift forced on the 41-year-old business by changing consumer behavior and the need for instant gratification, driven by the Internet.

“Musicians shop online. They read about each instrument. They know the models and the artists using them,” says Godin.

“People aren’t patient. The new consumer wants everything now. They see something and it’s now. You can’t catch your breath as a manufacturer. It’s an extremely different world than before.”

To keep customers happy, Godin Guitars has had to adapt its Internet sites.

“Before, we had pictures of instruments. Now we have video on each. But I think generally if you’re in business you have to improve your Internet presentation. Musicians want to hear and see what the instrument looks like with person holding it. And immediately when you show them that you see the results. When you show them image and sound people start to dream about it.”

Admittedly consumer behavior is only part of the reason for the new distribution model. The other part of the equation is Godin’s product offering. The company has six brands of stringed instruments: Godin; Simon & Patrick; Seagull; Norman; Art & Lutherie; and La Patrie, and produces a total of more than 350 individual models.

“Since we have so many models, it’s impossible for a store to carry everything, every model, every colour,” says Godin.

“We had to carry around 4,000 guitars in stock all the time, and you never knew which one was going to sell faster than the other. It was so unpredictable; you were always out of stock anyway. And you’d have items in stock at the factory, not at the warehouse. But by the time you fill 1,000 guitars in a container, and ship them, it takes a month, and then to redistribute them in each country, it takes time.”

Knowing there had to be a better way to handle the distribution end of the business, Godin started looking for alternatives.

“We started to investigate. We saw Apple computers as an example that was shipping individual computers directly from the factory in China. I said ‘we’re going to have to go that way’, and a couple of years ago I started investigating the major companies to see who could accommodate us. DHL won the battle.”

Once the decision was made to work with DHL and attempt to move the distribution network to an airfreight model, the company had to make physical and cultural changes to its processes.

On the physical side, Godin had to perform some IT work to ensure the company’s computers were able to interface with DHL’s systems. And it had to alter the way it packaged its guitars for shipment.

“Guitars are perfect for air freight. They’e not heavy. They’re the perfect size,” he explains. “We needed better packaging because they’re going to be shipped individually. They’re going to be banged around everywhere. It’s easy to drop them, so you need a drop test at six feet, for example, because with airfreight they’re going to moved by conveyors a lot more and the instrument could be dropped a few feet.”

Changing the packaging required a small investment.

“We thought it would be a lot more expensive. So we put some people on it and found some new equipment, new foam, better boxes, and found they’re not much more expensive. But they are more efficient.

Godin says that after improving the packaging, the company’s damage during shipment rate is very low. “At the moment we have less damage than we had before.”

From the cultural side, it took a bit of persuasion to convince the company’s worldwide retailers to try out the new system.

“The music stores were skeptical we could do that. And we didn’t even say how much time it was going to take—which was three days—we just said it was going to be very fast, but then they saw the results.

“One dealer in Paris sent us an order Thursday morning (which was late Thursday afternoon for him) and we had the guitar in stock, so we put in on the DHL truck that afternoon and he received it Saturday morning. He couldn’t believe it so he called us asking: ‘How can you do that?'”

Besides Europe, Godin has taken the same approach with other regions in the world. Shipments of top-end models to Australia, New Zealand and Israel are being handled by air. Additionally, retailers in Dubai are also taking advantage of the shipping method to place weekly orders for ouds, lute-like instruments used in traditional Arabian music.

“It’s really something for those countries. They couldn’t afford to take a container. It was a difficult situation for them. Now they can buy four guitars.”

The instruments Godin Guitars manufacturers in its six factories typically sell for between $300 and $3,000, and while Godin admits it is easier to justify the costs of airfreight on the more expensive instruments, overall costs haven’t been a limiting burden for retailers.

“Guitars have gone up five percent on average, but the dealers understand they don’t have to pay the inland shipping charges anymore, like from Holland to France. Now it’s all direct and included. So that makes it okay for them.

“When we ship a guitar it includes transport and brokerage and everything, and when the dealer receives the guitar in three days, he knows exactly how much it costs. There is no surprise.”

Implementing the new system took six months (to test the process and clear out the excess inventory in the warehouse). After the trial period Godin says it was time to close the European distribution centre. And while the manufacturer is very happy so far, the new model has already started causing changes for the 700 employees working for Godin in Canada and the US.

“Now this new opportunity is not cheaper for us. But we offer what the competition can’t offer,” says Godin, explaining that customers who previously ordered three times a year now order every month or every two weeks. Next year, he predicts orders will come in every week from those same clients.

While it could be presumed that closing a warehouse should result in savings, that’s probably not going to be the case for Godin Guitars. As well, changing the business model has created more work—and more complex work—for the staff.

“If anybody tells you it’s easy, no, there’s nothing easy in life. Before we could say we’ll ship 1,000 guitars to Europe, 1,000 to Japan. Now we have to manage and guess ourselves what will sell and build it without the orders, because we receive orders every day. And people pick from the inventory we have,” he says.

“There is more handling, more people. We needed a lot more people internally.”

Godin admits that doing business in this manner isn’t cheap, but he thinks the benefits will be worth the price.

“It costs more but I think it will generate more business. I think we’re going to catch up on volume of sales, better representation, and customer satisfaction.”