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After rocky recession, PRS Guitars is back in black

Rock 'n' roll won't save your soul, and it probably won't save the economy. But it offers a glimpse of the off-again, on-again recovery and at least one bright spot in Maryland manufacturing.

Thanks to its own moxie, a rebound from last year's economic crash and what's maybe a glimmer of permanent economic recovery, Paul Reed Smith Guitars has seen recent sales volume get louder than a Carlos Santana solo.

"It's a knock-on-wood experience for me," says Jack Higginbotham, PRS president. "It went from being so tenuous. It went from a very difficult situation to one of the better situations in the history of the business — really fast."

Last year the business laid off close to 30 people — its first-ever layoffs. Sales had dropped by more than a third, and PRS was having trouble paying suppliers. Bills piling up in the company's accounts-payable department nearly tripled from late 2008 to the worst period of 2009.

"I can't even tell you how tight it was," Higginbotham says. "I remember standing in front of the employees, announcing the layoffs, which was awful. I know that's an everyday occurrence for a lot of companies, but we've never done it. Things like that are hard on us. It was extremely unpleasant."

Compounding the difficulty was a huge mortgage. Planning for rapid growth, PRS moved into a 120,000-square foot building last year, next door to its prior facility in Stevensville, on Kent Island. It nearly quintupled its space. The timing, coinciding with the worst recession since the 1930s, was perfectly terrible.

"All of the sudden the biggest curveball in the world at the worst time in the world comes at us," Higginbotham said. "We were thrown back on our heels."

So were thousands of other American companies caught unprepared. Many have done what PRS contemplated — dialed back, cut expenses to the core and tried to survive the drought on what Higginbotham called "life support." But PRS had another idea.

"We decided to go on offense," he said.

It might have seemed a long shot. Electric guitars and other musical instruments are not generally perceived as must-have items when unemployment is close to 10 percent.

"The industry really hit the skids in late 2008," said Brian Majeski, editor of The Music Trades and a longtime analyst of instrument manufacturing. "There was just a massive pullback in inventory." Now, "it seems like the business has shaken out a bit," he said, "but it's still down from where it was. It's very challenging."

Like car dealers and furniture retailers, music stores all but stopped ordering from manufacturers last year to pare inventories. Nobody was shopping. Inventories cost money. PRS, the No. 3 U.S. maker of electric guitars after Gibson and Fender, decided to try to get retailers ordering again by getting players back into the stores.

The company had always bought magazine ads. It had a website and a merchant-relation program. But now it tied them together, minting a new slogan (By Musicians With Passion for the Music You Make), introducing new guitars for its 25th anniversary, enhancing the website and having pieces of media and promotion work in harness with the others.

The firm's founder, Paul Reed Smith, other executives and sponsored musicians hosted guitar-playing clinics and other events at stores across the country. PRS technicians would adjust your axe's neck, bridge and string action for free if you brought it into the dealership. They had splashy store demos of the new guitars.

The campaign kicked off in earnest in March. The company saw results almost immediately, Higginbotham says, and they haven't stopped.

"What we're booking even this month compares to some of the best years we've ever booked in the history of this business," he said. "We have just knocked off five very solid sales months. And our backlog is very solid."

Paul Reed Smith has erased the 35 percent sales plunge, he said. It's hiring again, including several people who were laid off. It has more registrations for its "PRS Experience" retailer and customer convention next month than ever before.

At $3,000 for a typical Maryland-made guitar, PRS' instruments are not cheap. But Higginbotham rejects the idea that only rich folks are fueling the turnaround. Market research has shown that PRS players cover the income spectrum, he said. Nor are the $600, Korean-made PRS instruments accounting for most sales, he said.

Nor perhaps is the PRS encore just a matter of stores and wholesalers rebuilding inventory, which has largely been the macroeconomic story this year. Let's hope it's a combination of smart business and — just maybe — a sustainable economic turnaround.

"I have to assume and hope that's true," said Higginbotham. "If consumer confidence continues to climb at a rate where we've seen it trending over the last few months, I hope that we're on the front edge of what a lot of people are going to be seeing very soon. I don't think we're an anomaly."

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