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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
baranyi's avatar
baranyi
719 posts
 
Most of the comments that precede this have be quite informative.
1. The economics of the industry are adverse to growth. I will attend the RMAF next month and hopefully meet many of you reading this thread. When I see staggering cost of most of the components being sold today, there is no doubt that my hobby has lost touch with the audio enthusiast. The typical pair of monoblock amps start at 20K and the average pair of speakers are about the same. The price/value of the gear has absurdly decreased. The smaller pool of buyers have forced manufacturers to increase pricing to stay in business. This is a business model destined for failure.

2. The internet has changed the audio landscape forever.
It would be hard to avoid the fact that Audiogon (or websites like it) have taken advantage of the technology. This has made life more difficult for retailers. It is amazing to me that virtually (pun intended) all the audio equipment purchases that I have made since finding this website have been internet based. I have made the decision that it is better to make a mistake from a sonic perspective on an internet based purchase and have a ready market of buyers for that same item lined-up on the website. Many have come to the same conclusion. Many (not all!)of the home based dealers are audio enthusiasts who want to buy equipment at wholesale for themselves and their friends. There are obviously many notable exceptions but many home based dealers are enthusiasts clothed as dealers.
The problem with all of this is that without real dealers the industry will have trouble attracting new flesh to the hobby.

3. The audio magazines have also played a part in this shift. Becoming an organ of their advertisers, these magazines have lost credibility with their readership. I am much more likely to consider the opinion of a known Audiogon member than the magazines. This again shifts me to the internet as a clearinghouse of information. The magazines as well as the industry have lost relevance except on Acura car commercials.

4. Chinese gear has shown us how poor the price/value of the gear we buy. I don't want to get into a political debate especially when many known companies have shifted at least a portion of their manufacturing overseas.

5. Are the components today really much better than those of the 80's and 90's? They are certainly different but are they more satisfying? To me this is one of the major points of discussion. Audio for the most part is a quite mature industry. I have not really seen any major break-through that has made me want to run out and buy newer equipment. The Ipod was certainly a watershed for portable music. I have not seen anything in audio nearly as significant. When I went to my first RMAF 3 years ago, I bought my first $150 GPS to get around. My thought during the entire show was that this GPS was far more interesting than anything that I saw at the show (yet I am going again!) We are dusting off analog turntables and reel to reel machines from 30 years ago because of the incredible sonics of these relics.

5. Ipod, economy. The posts above handled these topics.
audiogon_bill OP
155 posts
 

Ballan: your point about the preciousness of music and the need for noble action is spot-on. One of the things that continues to bemuse and baffle me is how something as fundamentally wonderful as the love of music can degenerate into the back-biting, name-calling and flame-throwing that often plagues the audiophile world. Somebody figure THAT one out, willya?

3way: the bang for buck offered by a lot of what audiophiles would think of as "entry level" gear is pretty astonishing, these days. Think of Virtue, Peachtree, a lot of headphones, Music Hall 'tables.... A lot of high end gear handles certain elements of music well, but often neglects the sense of life than most jamboxes can produce. Another mystery to decode.

I agree also that small, skunkwork-y companies may lead the way with human engineering; certainly pre-Meridian Sooloos pioneered that, and look at the things being designed by Holm Acoustics.

Baranyi: you bring up too many good points to explore in depth here, but I will say that I agree that cost: benefit analysis of most gear is worrisome, and that the net and iPod have indeed changed the audio world forever. The trick will be for brick and mortar dealers to learn how to utilize the net to their advantage rather than simply being overwhelmed or defeated by it. Simple to say; tough to execute.

Regarding world-changing technologies like GPS: fascinating, both technologically and socially (Big Brother overtones and all), but it took billions if not trillions of dollars to get to the point where that technology is available for $150. Governments and venture capitalists aren't lining up to pour money into the audio biz. --or if they are, I need to write a business plan!

Thanks to all for your interesting comments.
mrtennis
3,295 posts
 
no one has dispusted my premise that consumers can learn and provide service for themselves that dealers allegedly supply.

i doubt that the "high end" industry would cease to esist if there were no dealers. small enterprising manufacturers offering quality products who are willing to interface with consumers can be a substitute for an audio retailer. this would entail more "research" nad factual information acquired by buyers.

the big problem with dealers is that the risk of buying a component is not ameliorated by auditioning it in a system which is not congruent with one's home stereo.

if a dealer is willing to "lend" a component for a home audition, that would be a major effort and positive step.

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.

of course this brings up the issue of retail price.

i prefer not to go to deeply into the pros and cons of discounts.

i will make this statement. a dealer should be able to structure his business to offer some discount and still be a viable operation.

i think manufacturers are a more reliable source for info about their products than dealers.
samuel
266 posts
 
Mr Tennis?

>>>the problem with high end audio is high end audio. consumers are becoming smarter and manufacturers' cling to their outdated economic models<<<

No one is "clinging" to anything, that is an inauspicious way to start off. There are still many exceptional regional dealers that provide extraordinary service, knowledge and support. For hi-end speaker and electronics purchases it is still the very safest and best value way to go--through a carefully selected dealer that has a great reputation, and there are many. When dealers go away, so will a great many of the truly worthwhile brands. Sure there are some bad dealers, there are bad people in every profession, even on-line :o)

>>>"audio components are a commodity just like anything else. people can learn how to set up a stereo system properly without some so-called expert telling them how to do it."<<

That is just plain wrong.

Nobody needs to be 'told what to do' but a 35 year, 25 year expert on system set-up TT set-up,speaker-set up can be invaluable and provide after-purchase support, a helpful ear and counsel that far outweighs what you pay in retail--and by a mile.

The fact that people in these forums still think the HE dealers (as a group) are out there charging too much for their time and service have not paid many visits to good retailers. The idea that dealers and manufacturers are getting rich at consumer expense is entirely fanciful. Many of the great dealers are shirt-off-the-back types and it is frustrating to see so many sincere businesses lumped into your strangled one-way opinion.

Sure, there are some few manufacturers that over-charge, inflate margins too high and laugh about it, but those days are over and manufacturers that do business this way are in trouble--and pretty easy to spot.

And the independents? The sell directs? Those are not always the righteous do gooders and the customers friend as you seem to imply. It's like saying that all magazines that do not accept ads are virtuous and honest, when my experience has been that they can be worse than any ad-magazine, whether net or print could ever be.

In this business, corruption is a private enterprise. Meaning, no supposed direct, or via-dealer manufacturer is any more or less likely to over-charge the consumer. Do you think direct-sale manufacturers don't charge for time, service, exchanges, returns, call backs, two-hour system conversations etc? --Yeah, the ones not in business. An entire additional sales-staff would be required unless the business is tiny, and lets not get me started with what could be wrong there..... And what to do with overseas accounts? Direct there too? Or are dealers ok for that? This would dry up sales, good companies would fold and you would have your dream. DIY speakers at wholesale prices, amps from companies named Dr.Feelgood and wire from someone's closet. Yep, commodity heaven...

>>>some manufacturers are smart. selling direct on the internet. i suspect that is the ultimate solution for the industry--fair prices, fewer dealers and cooperative manufacturers.<<<

Obviously, your experience with the business side of HE is limited or you would not write that. Without face to face regional outreach,seminars, gatherings, events, Aduiophile Society meetings, the local shop that loans cables, amps or CD players; The great retailer that became a friend and got so many into the pleasurable hobby;--- the HE business would not exist today.

If all the great local dealers go away, the Goodwins, Optimal Enchantments, Definitives, Audio Advice and dozens of others, then this truly will become a hobby of commodity. Enjoy your new Bose-wave system or buy direct from a manufacturer that does times tables with his fingers to come up with a retail price. There are some good direct companies, and some not so good and some that take your money and sell you home-depot projects with little jimmy's peanut-butter on the front panel, for a screaming bargain..

Yeah, get rid of all the dealers and all will be well...

:o)

Grant
Shunyata
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.
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