To put margins in perspective...I am told by a friend who has sold furniture for many years, that the wholesale to retail in furniture is, one third of the retail price. So a $1000. retail item costs the dealer about $300. He also said that this varries quite a bit, but that is the general rule. That would be not exactly but about the inverse of Audio pricing, which for many years had a markup of 40%, or $1000. had dealer cost of $600. That was for typical gear, amps, receivers and such. Some speakers had a markup of 50%, but that usually carried minimum annual purchase requirements.
Having been there, as a dealer, I am sure that, making $400. on an item that you pay $2600 for (as suggested above) would make for a much worse survival rate than we're now seeing.
The dealer cost mentioned above from, apparently someone who visited CES and was given dealer costs, may have represented a new company trying to make an entry into the market, or perhaps, maybe with with slower business, this may portend a shift in dealer cost to retail, with the hopes of helping dealers to stay in the game.
Without going crazy here, lets do the math for a dealer making the suggested margin.
Let's say that the dealer does $50K in a month, with a cost of almost 86%. That would mean that he/she makes a gross margin of $7000. If its a single store operation, mom and pop, and he rents space in a strip mall or small building, and pays $2500. rent, $400. for electricity, has a vehicle for $400. per month, insurance for $200 per month, one college kid as an assistant, for $10 per hour ($1600. per month), his personal profit before taxes is $1900. for his efforts which if they represent only a 40 hour week,(not likely) he's making less than $12.00 per hour.
This won't work. So let's double the profit to 28% and he's making $3800. per month or $24. per hour, or a little over $900 per week.
Depending on the part of the country one lives this can be a hard wage to live on.
Obviously these prices of doing business are silly and don't really reflect a true picture, but I think it shows that the 40% starting figure is a more realistic picture. It also shows why I asked the guy who stiffed me, saving the $53.00 why it was so upsetting.
Now these guys have to contend with the internet, AND 'no taxes', which in most states is at least 6% of the gross price which most people consider to be a worthwhile inducement to buy over the net. Wow...that's a tough living.
Now, further, let's assume the best...he sails along and does $50K every month until "Back to school" and the first thing that goes from the budget is 'luxury goods', toys like this. He does half. The expenses remain constant, but his profit goes in the toilet.
Herein lies the plight of the small audio retailer. I know, I was there. It really is a tough business.
This is not meant to piss any one off. It's simply a sophomoric look at the Audio business world.
Ironically, most manufacturers want VOLUME, and give preferred pricing to the stores who can to large volumes. This creates an adversarial relationship between the small dealers who can't, and the larger who can. I have heard horror stories from small dealers recently, that some large city dealers can call XYZ factory and 'make an offer' on a bulk purchase. For example, "I'll buy $50K of product, but give you $40K. The manufacturer sees the $40K of instant sales, and give in. The big dealer then has a 20% price reduction which he can pass on to the customer on an internet sale, and still make his normal margin, (not exactly correct, but its easy to see this scenario). Mom and pop, lose the sale to a NYC or Chicago dealer because the customer gets a 20% discount, AND saves 6% sales tax. Viscious circle huh?
Then mom and pop dealer's customer comes in a month later and 'fesses up' that he bought over the net and saved a ton, and frankly who can blame him?
All this from a simple, are you supporting local stores.
It's almost enough to make us think that perhaps all sales should be factory direct, except for one thing...no demos.
Any thoughts?
Larry
