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
Sigh....

I've just recently been participating here after years of lurking. I semi-retired earlier this year from doing design and engineering of tech systems in the private sector. While I've never "been in the business", I have worked with audio/video dealers and integrators for several years from around the world, and I have a personal obsession with music systems. I'm also the person clients call when things don't work, so I've had my share of experience with audio.

With this said, I want to say something that I hope is taken the right way....

I hear a lot of people in the music/audio business complain about how things have changed, and that there doesn't seem to be a business model that works, but at the same time, I see very few companies and people in the business doing anything about it. Take for example the previous posts. It's easy to reinforce why things are the way they are, but where are the ideas and solutions for moving forward?

People are listening to music more than ever, and iPods and the computer/Internet account for a lot of listening, especial among modern music listeners. All of us here know that the iPod with the "cheap white ear buds" sounds horrible, but the iPod is not the problem. Anyone that has ever heard an iPod using Lossless or uncompressed files streamed digital into a good system will confirm that it can sound wonderful.

With the failure of the cheap ear buds, and low quality speakers systems that are in the market, there is OPPORTUNITY. There is also OPPROTUNITY to educate about why lossless and uncompressed files are better, and demonstrate it. If people are walking around with their cherished iPods, then show them how to make them sound better, and in return you will gain a customer and future relationship.

The reason I bring this up is because most of my clients ask for iTunes and iPod integration, and I myself, really like my iTunes and iPod, but when I ask dealers/integrators to provide a solution, most just roll their eyes and start telling me that iTunes and the iPod doesn't make a good source. BS! This is the type of arrogance and attitude that disconnects dealers from customers. So what if not everyone owns a large vinyl collection, has a turntable, likes the glow of tubes, etc....that doesn't make them less of a music listener. In fact, most the people I know who invest in music systems, are very passionate music listeners, and they not only invest in one room of their home, but several. I'm not just talking about the "rich". I help average people all the time design music systems for their homes, and the reason I'm helping them, is because the dealers in their area won't do it. They don't want to take on smaller projects that are simple.

If you ask an audiophile what time it is, they tell you how to build a watch. Most people don't care about building a watch. They just want the time. Most music listeners don't care about system building and tweaks. They just want music. The just want a quality experience that is simple and reliable. I can tell you, after years of recommending "high end" systems (I despise the term "high end") to my clients, I've learned that the "higher end" the system, the more service and support will be required. It's like selling a hot rod to a soccer mom. Soccer moms don't want hot rods, they want mini vans. A lot of "high end" dealers are so caught up in the technical aspects, that they totally turn off, and away, average everyday music listeners. There will always be some of us geeks and tweaks, but we need to understand that the rest of the world does not care. They want something that is high quality, very simple, consistently relaible AND comes with a person that will service and support them long term.

Audiogon is mostly for us geeks and tweaks. It's a place we can come to learn (and for some, argue) about the technical aspects of music systems, but that's not what most people want. If the industry wants to really shift into a more mainstream and profittable position, then it needs to let go of some attitude and open up to new ways of helping people listen to music....because helping people listen to music is a valuable service.

(No audiophiles, soccer moms, geeks, tweaks and rich people were harmed during the making of this post.)
Swan: good points, and I think many of us travel lighter than we used to. I'm heartened by the level of performance now available from portable digital sources and small speakers, and shudder to think of moving thousands of books and LPs again. Sheesh.

Tvad: largely agreed, although I'm not sure audio has been "primary entertainment" at any time in the last 50 years. Perhaps when Little Orphan Annie and Jack Benny were on the radio....

Loomis: once again, you are CORRECT, sir! It is disheartening to see how big-rig hi-fis have gone from Playboy to Geek Squad in a 30- or 40-year span. Yes, a trade group is needed; however, I personally have watched four or five different audio/high end groups crash and burn due to the same bugaboo: money. Nobody in the industry has enough to support a trade group, except those few mega-companies that don't see any benefit in belonging to a trade group. John Marks even used the analogy of the American Dairy Organization, defining it with his favorite legalese term, "fungible". Anyway, we're trying to get folks together and talk. That's a start.

Ballan: couldn't agree more, and I will come back to your comments as time permits. Sorry to run....

Thanks to you all for your insightful comments.
Agree Ballan.... and Active Speakers will become the new "integrated". The phono input option superseded by the optional built in DAC.

Everybody and their sister has sources, be it an ipod, iphone, computer, TV, ....

Convenience is key, just add quality and...

p.s. Make the dang thing wireless = instant zillionaire.
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If this makes you wealthy... I like pie. ;>)
@Springnr: Active speakers with a DAC, and wireless integration. That's not a difficult thing, not difficult at all. I like cake....warm, moist cake. ;)
as much a cultural evolution away from 'sitting in front of a stereo and listening' as an economic crisis. 'the times they are a changin'.....not enough money..not enough time.