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Peavey Electronics reinventing, spending millions to stay in the lead

Ten years ago, who would have guessed that Apple Computers would one day leave Sony’s Walkman in the dust with the revolutionary iPods becoming the portable audio player of choice in the marketplace?

“Apple today is a totally different company than 10 years ago,” says Hartley Peavey, CEO of Peavey Electronics. “Ten years ago, who would have thought of Apple as the primary purveyor of recorded music? That is example of a company reinventing itself. Peavey is in that same mode. A lot of people don’t realize Peavey is a technology company. But we are. And we are constantly reinventing. Successful technology companies have to reinvent themselves every eight to 10 years.”

Many people might think of Peavey as that little company that makes guitars and amplifiers. Yes, they do that, but so much more. The company that does business in 136 countries has diversified into a major growth area in huge, audio Media Matrix systems like one Peavey is currently installing in an airport in Beijing, China. In addition to controlling announcements over the public address system, the Peavey system also controls the electronic signs that announce arrivals and departures.

Similar Peavey systems have been installed in some of the world’s other largest airports. The company that has a large research and development staff has earned more than 180 active patents. That is quite an accomplishment for a company whose founder started building guitars and amplifiers in the late 1950s because his father, who owned a music store, refused to buy them for him.

One-of-kind products

Peavey Electronics is also reinventing itself with the new Peavey Custom Shop, which allows musicians to personalize their guitars and amplifiers with any artwork they choose.

Because of inexpensive imports, it is difficult for Peavey to compete on the low end of the market. So instead of providing the cheapest guitar, the company is providing a custom-made artistic guitar that you can’t get anywhere else.

Peavey said the company is diversifying because of what he calls “the China effect” where the average unit selling price is in freefall. So instead of trying to sell at the cheapest price, he puts the company’s extensive research and development staff to good work developing custom musical equipment and the Media Matrix.

The Peavey Custom Shop, which is available online at www.PeaveyCustomShop.com, recently won Best In Show honors at the Summer NAMM, the International Music Products Association.

“With the Peavey Custom Shop, Peavey has taken our culture’s love of customization and adapted it to the guitar market,” said Zach Phillips, editor of Music Inc Magazine and a contributor to NAMM’s Best In Show panel. “This is no small feat, especially considering the depth of features that Peavey lets customers tweak when building their custom guitars. And the company has the corporate integrity to include its loyal musical-instrument retailers in the sale of these guitars by letting retailers fulfill orders. For me, it was an obvious Best In Show winner.”

The Peavey Custom Shop allows musicians to design custom musical instruments, allowing them to choose the exact colors they want from more than 16 million options, or upload any graphics to their guitar.

Peavey said they aren’t doing the Custom Shop and the Media Matrix system just for the sake of being different. It is a matter of using the extensive knowledge and capabilities of the company’s extensive research and development staff to the best effect.

“Most of our competitors have totally gone offshore,” Peavey said. “The way we are keeping jobs here is instead of trying to compete with the low end product, we try to go upscale. We are spending money like there is no tomorrow, because that is what you have to do to stay at the head of the pack. I don’t want to be in the commodity business. There is just not much profit there.”

Peavey Electronics has received accolades for its success in exporting products made in Mississippi to foreign countries. The company has received the prestigious E Star Award, which is the top honor the U.S. Commerce Department awards for excellence in exporting.

“Peavey is a company that does business in a lot of places,” Peavey said. “We proudly fly the E Star Award flag in front of our company in Meridian. We are one of the few companies in our industry and one of the few companies in Mississippi that have won that honor.”

The weaker dollar has helped many U.S. exports. Peavey is finding it a mixed blessing.

“Our sales into Canada and Mexico are probably going to increase,” Peavey said. “That looks like it is certainly happening in Canada. The bad news is the stuff we are bringing in from offshore is costing us more.”

The company is trying to expand its international business. But Peavey says the U.S. has gotten the raw end of the deal on some important trade treaties like NAFTA. Peavey supported NAFTA, which he expected to make it cheaper to sell his goods in Canada.

“No sooner had NAFTA passed than Canada slapped on a GST (Goods and Services Tax),” Peavey said. “Any reduction in the cost of goods in Canada was quickly erased by the GST. What Mexico did was even worse. Mexico slapped on a bunch of safety requirements that are totally ridiculous. The U.S. is getting the worst end of the deal in many of international trade agreements. NAFTA backfired on us.”

He is hoping, on balance, the low dollar will be a good thing regarding the company’s international sales in other nations. But that isn’t all they are relying on. For example, in order to sell the Media Matrix system to Beijing, it took extensive work at great expense to convert all their software into Chinese characters.

“Our competitors didn’t do that and that is one reason we got the nod,” Peavey said.

The company also has sought relationships with other companies to increase brand awareness. For example, the company worked with Orange County Choppers, a company that makes customized motorcycles and has the television program “American Chopper” on the TLC network. In two, one-hour television programs, Peavey designed a customer guitar for “American Chopper” and “American Chopper” designed a custom motorcycle for Peavey Electronics.

“There is no way a company like Peavey could afford that kind of advertising, two one-hour shows in 160 countries aired three times,” Peavey said. “We also have a relationship with Jack Daniel’s. We are the official supplier of Jack Daniel’s guitars both electric and acoustic.

“And we continue to expand our horizon, in product and services. Two weeks ago, we bought a European software company. We have never been in the music software business, but now we are. And two years ago, we bought a British company called Trace Elliot, Europe’s premier manufacturer of high-end bass guitar and acoustic guitar amplification.”

Peavey Electronics, which is one of the top 10 largest private businesses in Mississippi, has been under the same ownership and management for 42 years. Peavey said the advantage that gives the company is it has had more time to evolve than its competitors who have gone through multiple changes of ownership and management, sometimes five or six times.

“What happens is each time there is a change in ownership and management, a new learning curve begins,” Peavey said. “My advantage is I’ve been around for 42 years. I’ve seen the mistakes, not that I haven’t made a bunch myself. And I try not to make those same mistakes again myself.”

One thing that Peavey finds disappointing is that although he employs 900 people, most of them in Mississippi, his business ends up subsidizing incentives given to new industries to locate in the area.

“It is discouraging to me, as a Mississippi industry, to hear this industry company or that industry coming in and getting subsidies of $50 million and $100 million when local industry can’t get anything,” Peavey said. “I’m putting in a $5-million computer system right now to help deal with these international deals and I can get no assistance whatsoever. I have been doing what I have been doing for 42 years, so when my taxes go up to subsidize and/or bribe another corporation, including foreign corporations, to come to do business in these this state, it doesn’t leave a great taste in my mouth.

“Incentives are fine and dandy if everybody gets to sit down at the table. But when Mississippi taxpayers pay the cash for other companies to expand their business into Mississippi, I don’t understand why someone who has stood the test of time employing Mississippians over four decades isn’t eligible for incentives. We spend huge sums to purchase additional equipment to expand our business, and only get the right to pay use taxes on it. That doesn’t seem right.”

Peavey said his property taxes went up well over 9% last year, and he believes part of that was to give a new industry a building, property and $12 million in cash.

“When they are getting subsidies and have never hired one person, and I get nothing for actually employing Mississippians for four decades, it seems a little bit of a problem,” Peavey said. “But having said that, we are doing a lot of very exciting new things. I’ve never been one to sit back, whine and complain. I’m a very proactive, forward-thinking person. We are going into other areas frankly no one has ever gone into before. We have opened a research center in England. We have a factory in England, and opened a research center outside of Oxford to draw on the resources of that university.

“And here in the U.S. have endeavored to open the Peavey Custom Shop. We are the only company in world where you can take any picture you have and print it in high definition on the guitar and very soon on amplifiers, too! Custom Shop, we hope, will be a big growth sector for us.”

Contact MBJ contributing writer Becky Gillette at bgillette4@cox.net.


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