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The Hub: Just how bad is it in high end audio?

A warning: those seeking heart-warming anecdotes and mindless cheer to accompany their morning coffee should perhaps save this piece for later in the day. Following our last Hub entry concerning the closing of high end audio's best-known dealer, Sound by Singer, we will take a look at the big picture in the audio industry... and it ain't pretty. Think bartender, not barista.

In past entries of The Hub, we've discussed the origins of the audio industry, some of its giants, and the glory days of the '50's through the '80's. Sad to say, these days are not those days.

Why is that? In addition to the societal factors that have diminished the importance of hi-fi, general economic trends have taken their toll on the high end.

Consider: Since the crash of the sub-prime mortgage market in 2007, 1 in 50 homes in America has gone into foreclosure. Blue chip companies like GM and Chrysler have gone into bankruptcy. Reports of major corporations slashing tens of thousands of jobs have become almost commonplace. Car sales are down to record low levels. Housing sales are almost nonexistent in many major markets. Is it any surprise that sales of big-ticket items like high end audio components are also way down?

The question is not IF sales of new audio gear are down, but HOW MUCH they're down. Oddly enough, coming up with an accurate assessment of the damage to the high end audio marketplace is surprisingly difficult.

At $175 billion/year, the consumer electronics industry constitutes one of the largest and most robust sectors of the economy, as seen in this Consumer Electronics Association press release. However, the CEA also reports that sales of component audio have dropped from $1.3 billion/year in the US five years ago to about $0.9 billion/year today. So: in the US, the audio industry makes up a mere one-half of one percent of the $175 billion consumer electronics marketplace. What the average audiophile would consider high end makes up a fraction of that fraction.

In addition to being just a small crumb from the crust of the consumer electronics pie, the scale of the high end is difficult to ascertain due to the nature of the companies in the industry. Quite a few high end manufacturers with a worldwide reputation and presence have fewer than a dozen employees. Some are larger than that, but many more are even smaller, 2- or 3-man operations. Nearly all audio manufacturers are privately held, and thus are not required to report their sales or staffing. Nearly all are small enough to escape the attention of the Bureau of Labor Statistics or the Bureau of the Census, which compile most of the data regarding American manufacturers.

What about audio retailers? As is true of manufacturers, most dealerships are small and privately owned. Knowing that Best Buy has an astonishing 180,000 employees and exceeds $49 billion in sales tells us less than nothing about Bob's Hi-Fi in Winnibigosh. There's almost no hard data available on independent audio dealers, but few say that they're doing well.

As we become inured to reports of disasters in the economy, individual happenings tend to be forgotten. To refresh our memories, here are some key events in the reshaping of the consumer electronics marketplace. Not all these companies were directly involved in audio, much less high end audio, but are still relevant to our discussion:

January, 2009:
Circuit City closes its remaining 567 stores. 34,000 employees lose their jobs.

January, 2009:
Bose lays off 1,000 employees, about 10% of its workforce.

April, 2009:
Ritz Camera closes 300 stores.

February, 2010:
55-year-old D.C.-area A/V chain MyerEmco closes all seven of its stores.

April, 2010:
D & M Holdings shuts down its Snell and Escient brands.

May, 2010:
Movie Gallery closes 1,906 Movie Gallery, Hollywood Video and Game Crazy stores. Over 19,000 jobs are lost.

June, 2010:
Ken Crane's, a 62-year-old California A/V chain, closes the six stores remaining of what had been a ten store chain. 75 workers lose jobs.

Clearly, times are tough. The best available data indicates sales in the audio industry have fallen off by at least one-third, over the past few years. Many working in the business feel the drop has been far greater than that. One manufacturer puts it very plainly: "a lot of the dealers and manufacturers are zombies. They're dead; they just don't know it yet."

A dealer with decades of experience puts it even more brutally: "The best we can hope for is death, for a lot of the manufacturers and dealers. Maybe then we could get some sensible people who don't hide their heads in the sand."

Our next entry of The Hub will review some of the changes audio dealers and manufacturers are making in order to survive in today's challenging marketplace. We will also talk with folks in the industry who see signs of a turnaround, and are working to bring in a new generation of audiophiles. The question we leave with this time is: "What do we do now?"
audiogon_bill
pure_brew
21 posts
 
You forgot to mention the closing of Tweeter,Etc. Just an FYI

"another words, customer comes in and says, i would like to borrow xyz preamp for n days. here is my credit card. if i decide not to buy it please nullify the transaction."

I read that and couldn't help but ponder that most people don't even know what a preamp is. Actually, most people don't know what the differences between a tuner, amp, integrated amp or a receiver is for that matter.

Some of the people that do know and care, continue the never ending quest for some sort of magical system synergy, only to find themselves with dissatisfaction, ready to toss it back on Agon for some other poor sucker to waste his/her money on. But at least here, there is a chance for people to purchase something better then what's on most shelves these days, for a fraction of the original cost.

If someone happens to wonder what "High-End" is all about, and possibly gain interest, then it would have to go something like this way: The consumer would have to find a dealer who has nicely assembled a system(s) that are comprised of components that work beautifully together- AND get a demonstration that actually sells the benefits of "High-End".

I'm sure most of us would like the bankroll to be able to drop whatever we like on the best available - 1 shot,done,enjoy.

This is all possible but increasingly unrealistic. How do you turn on new customers to something that is becoming less popular? Good Question. *How many people were the non-hobbyist consumers, for decent gear over the decades, able to get anything meaningful out of their systems other then be able to play loud and take up a ton of space? There have been tons of people that filled that part of the audio market, who really didn't know squat about anything, that just wanted a great music system.

*The Hifi card has already been played with this group, which just dumps it in the trash, yard sales it or what have you. Enter the compact systems, PC's, amazing video technology and now they have other things to spend money on. Add in the Teen-based phenomenon, and then we realize they must have iPods/phones, PC's and gaming systems to be cool.
audiogon_bill OP
155 posts
 
Tennis: I'm not disputing your premise. I will say that consumers, myself included, can learn a fair amount about a product. Is that knowledge equal to what a good dealer knows about a product through his relationship with and communication from a manufacturer? If it is, then you need to go to another dealer.

Margins are traditionally set up to allow the dealer a little wiggle-room, while maintaining adequate service and sales personnel and facilities.Even then, many folks complain that dealer mark-ups are too high. If a dealer heavily discounts every piece he sells, there's no way that he can maintain a high quality of service and still stay in business. Anyone who has ever run a business, and especially a retail business, knows that their customers are only aware of a fraction of the costs involved in running a business.

In my experience, most well-established dealers have some sort of try-at-home. The problem, of course, comes with guys who try to sample every audiophile flavor of the month using such programs.

Obviously, I believe that there is a place for internet sales of gear. I also believe that the service, advice and set-up provided by a good dealer is worth more than a simple box-handler.

I know and respect a number of dealers, both brick and mortar and inernet, who have more experience and insight than I will ever have the patience to accumulate. They are also able to do things of which I am physically or temperamentally incapable. Is not the workman worthy of his wage?

Grant: largely agreed. The value of a good dealer is generally worth whatever cost-differential there is in the initial purchase. As I said, there are good guys both b&m and virtual, and you're right, there are bad guys everywhere, too.

The point that becomes very clear in these discussions is that there is a widespread perception that anyone who charges enough to make his business sustainable, is a crook. In order for a dealer or manufacturer to survive, pricing has to be sufficient to cover worst-case scenaria: what happens if the economy suddenly tanks and my sales fall off 50% and half my dealers disappear? Don't laugh; that's the situation a lot of folks are in right this minute. Without reserves, those folks would simply be gone. POOF.

Does that mean all survivors are crooks? Of course not. I'm neither a socialist nor a corporation-coddler, but businesses in this country cannot win. No matter how great the product, service, price, whatever a business provides, a good chunk of humanity will find fault with their actions. I applaud the people who take risks, invent things, buy stocks of merchandise, deal with cranky customers every day. Y'all have more patience than I have.

Pure: Had I gone into Tweeter, that would have dragged in Sound Advice and all the other chains Tweeter absorbed. Point taken, but my piece was already pretty long.

I agree that our present structure tends to shut out non-tech-geek music lovers. In the past, that's where the dealer came in, to explain benefits, guide, and set up gear. As we have become more of an "in-group", the folks who just want to enjoy music in their home have suffered. And that's a shame.

Thanks to all for your comments.
Ag insider logo xs@2x
sherpa
23 posts
 
I've been proposing a not so unique idea to several of my audio buddies. Since most high-end audio companies are small independent shops, their ability to move their interests beyond the basic business struggles is almost non existent.

My suggestion is to create a high end audio association that represents the interests of this industry. I know that CEA and other associations are supposed to represent our interests but let's face it; we're a small group without much influence on key strategic industry issues.

My experience working on issues of this nature at a national level has shown me that you can improve the position of small cottage industries but you need a broader, more coherent voice to do it. I'd certainly help to set up an initiative of this nature.

The benefits of creating such an organization are many- influencing policy at several levels of industry and government, creating relationships with non traditional business partners that increase opportunities, resources, and exposure and helping with basic business essentials and benefit packages.

I know I’m making this sound all rosy. It’s not. There would be many, many tough issues to decide and not everyone’s needs could be met. But I see a big upside. Besides, what’s the biggest risk? It doesn’t work? That doesn’t seem like a risk to me given the state of the industry.

Go ahead and beat me up but I see something of vaule in this idea.
loomisjohnson
1,526 posts
 
on a certain level, it's hard to conjure up any sympathy for an industry which is so out of touch with customer needs and desires. mainstream manufacturers and retailers continue to foist big, complex, aesthetically unpleasing components on a buying public which overwhelmingly wants portability, ease of use and sleek design. it's sorta like how gm kept trotting out expensive, gas-guzzling trucks in the teeth of demand for small, fuel-efficient cars. whatever your opinion of bose products, at least they are oriented to consumers' tastes, and i suspect they and other design-oriented manufacturers will be among the few to survive the apocalypse.
guitarplayer
47 posts
 
And Ultimate Electronics before that.

Great thread. A huge paradigm shift is needed, or the blood letting will continue.

I know many dealers who are thriving. However, they have embraced new media and distribution, and provide systems centered around such.

Peace,

Lee
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