I know there are rules about not posting full text of links on here, but it seems this link will expire in 7 days (unless you happen to subscribe to the Times). It's an interesting tale of George Lowden wanting to focus on making fine instruments, and Steve McIlwrath wanting to make money by cashing in on the Ovation/Yamaha/Takamine market. The percentage of guitar players in a family doesn't interest me as much as the traditional vs modern conflict going on.

Graham.

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Enterprise Network: Guitar maker changes tune
Avalon makes top-of-the-range instruments. Now it is trying to expand by moving into the middle market and sourcing its products from the Far East. Philip Smith reports

AVALON'S CHALLENGES

- To capture a share of the mid-price market

- To maintain its reputation despite producing lower quality products

- To make a profit for the first time in 14 years

ERIC CLAPTON and Van Morrison may love the guitars made by Avalon but the instruments are not making much music for the bank manager. The company makes no profit.

Its workshop at Newtownards near Belfast is inefficient, producing only 1,200 guitars a year when it should be making 5,000.

Those that it does make are so expensive that when managing director Steve McIlwrath wanted to give his niece a guitar, he had to buy another company's product.

Avalon has been operating in an exclusive but tiny niche. The global guitar market is worth £3.3 billion, but the company manages sales of only £1m a year.

"What we have been producing over the past 14 years has been targeted at the top 5% of the market," says McIlwrath. Now he wants Avalon to grow by expanding from the premium sector into the mid-priced guitar market.

"We particularly need to crack the American market," he says. It is easy to see why. Nearly half of American households have at least one serious guitar player, compared with 10% in the UK.

But before Avalon can sell mid-priced guitars, it must increase production and complete a rebranding project. The name Avalon is fairly new. Until earlier this year the company — and the guitars — were known as Lowden. It was Lowden guitars that Clapton and Van Morrison bought.

The business started in 1973 when George Lowden, a self-taught guitar maker, began to sell his handcrafted instruments. The company stumbled along until 1989 when it was about to collapse, but then a consortium that included McIlwrath stepped in.

"In those days we were wet behind the ears," he says. Not only was he inexperienced in the manufacture of musical instruments, he was not even working on the same continent. Though McIlwrath was part-owner of the firm, he lived in Singapore and worked as managing director of Waterford Wedgwood, selling china and crystal.

The Northern Ireland-based directors of the Lowden Guitar Company were responsible for hands-on management. But the company was crippled by under- investment and its tiny market share was shrinking. For the second time the company seemed as if it was about to sound its final notes.

But some of the old players thought there was still life in the business. A second consortium — still including McIlwrath and Lowden — was formed in 1998. McIlwrath knew he had to take a more active role. He returned to his native Northern Ireland to take control.

"It was clear the company had some serious flaws and weaknesses because of a lack of investment," he says. While other guitar makers were forging ahead with modern production methods — such as laser cutting — Lowden had stuck to its old-fashioned handsaws. It was unproductive and unprofitable.

"People have a romantic illusion that someone carving a guitar neck by hand is going to produce a better instrument than a machine," says McIlwrath. "That simply isn't true.

"We won't go down the road to complete automation, but limited automation will improve efficiency and enable us to trade profitably. That is crucial. In 14 years this company has never made a profit."

The need for automation did not strike a chord with all members of the new consortium. McIlwrath and Lowden could not agree. One of them had to leave, and Lowden, the original company's founder, resigned as a director in 2000.

With the internal battles finally over, McIlwrath could start to make the changes he saw as vital.

"This factory is capable of producing 5,000 guitars a year," he says. "Our processes and working practices were holding us back. Martin — a leading American guitar company — makes as many guitars in a month as we make in a year." Improved manufacturing efficiency was crucial.

There had been another fundamental point of difference between McIlwrath and Lowden. While McIlwrath wanted to compete in the larger and more lucrative mid-priced guitar market, Lowden didn't. They both knew expanding in this way required far greater production capacity than the Newtownards site could ever cope with — and far lower overheads. McIlwrath believed production would have to be outsourced to the Far East and eastern Europe. He could not make these changes until Lowden had left.

The company now has its UK workshop where 26 craftsmen and six other staff make top-of-the-range, hand-made guitars that sell for anything between £2,000 for a stock item to £10,000 for a bespoke instrument. Production of the mid-priced instruments has been outsourced to companies in South Korea and the Czech Republic. These imported factory versions are made with laminates instead of solid wood and prices start at £400.

"We provide the designs and the quality, they provide the guitars," says McIlwrath. "We're also getting ready to launch a range of classical guitars next January that will be produced in Spain."

Further expansion will come when a Japanese factory starts making a specialist jazz guitar, which will retail at more than £2,000. A less expensive brand will be made in China. It will be launched in January 2005.

This rapid expansion is being funded from a sale and lease-back of Avalon's 7,000 sq ft premises. This was the best way of raising funds. There was no scope for cutting the company's costs — wages, raw materials and marketing take equal shares in the £1m outgoings that Avalon's Northern Ireland operation faces every year.

Wages are already at or below the market rate. But since the pool of experienced guitar makers is limited, staff costs could rise. "Young people don't consider working here as a career choice," says McIlwrath. "To overcome this problem we work with a college in Bangor — holding guitar-making courses run by one of our senior craftsmen and scouting for young talent."

Avalon uses timber such as ebony, mahogany, rosewood and walnut, and the cost of such raw materials is outside its control. But marketing has a vital role to play if the company is to expand, especially in America, which accounts for most of the world guitar market.

Avalon has a network of distributors in more than 20 countries, but shies away from using them in America, where it has its own trading subsidiary.

"We don't sell through distributors in the US. That way we can keep hold of most of the profit margin," says McIlwrath.

However, there is a lot of work to do because the company sells to only 120 of America's 6,000 guitar retailers. There are hundreds of other little guitar companies with a tiny share of the market, and six dominant brands. McIlwrath wants to take Avalon from the former group to the latter — but it's too early to know if the twice-reborn guitar manufacturer has hit the right note at the third attempt.
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