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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
audiogon_bill OP
155 posts
 
Ballan: back to your long comment. I couldn't agree with you more about the opportunity presented by iPods, and your experience with pros re: iPod sounds sadly familiar. Once again, we have the True Believers wanting to deal only with other TB's, rather than doing what customers want and working to show them how it can be better.

Guys, this is why the audio biz is drying up. If somebody wants to use a 'pod, help them make it the best it can be--don't fight 'em. As General Douglas MacArthur said: "There is no security; there is only opportunity".

Spring: if you can make it wireless AND cordless: wow.
What's this about pie?!?

Ballan, again: can we keep the baked goods out of it, please? ;->

Jay: agreed. We forget how affluent the "golden years" of audio were, compared to now. Remember that a 45 was essentially the same price as an iTune cut...50 years ago.So, that 45 cost about $5 in 2010 money.

Ped: I have no idea what it's about, but I'll take a look. Having heard most of the signs of the "end times" being trumpeted for the last 50 years, I'm a little Apocalypsed out.

Rja: agreed. If it were only #1, then the industry would improve as the economy improves. Thanks to #2, that won't happen unless the industry changes, big time.

We're at a point where the industry has to examine what it's all about. When the bankrupt railroads were rejiggered into Amtrak, it was with the realization that they wern't in the railroad business, but the transportation business, with connections to other modes of transport (trucks, ships, etc.). Similarly: is the audio business just about selling big boxes for the home, or about enabling people to enjoy music, whenever, wherever?

It sounds pedantic and buzzwordy, but there's a huge difference.

Thanks to you all for your insightful comments.
mrtennis
3,295 posts
 
the problem with high end audio is high end audio. consumers are becoming smarter and manufacturers' cling to their outdated economic models. dealers are part of the problem. many consumers are as expert or more so than some dealers. hence many savy consumers are buying boxes and do not need the service that dealers offer or propose.

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.

some manufacturers are charging obscene prices but the value is not there.

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.
3wayxover
28 posts
 
Because the companies that make high end gear tend to be very small they are having a very diffult time adapting. This is a cottage industry run by fanatics, as a result there is lack of scale of economy and the target market is very narrow and getting smaller.

The blame for the shrinking high end market lays clearly on the industry itself. Technology has not adapted to fit the market place (no internet connectivity, the gear is still very large, etc.). Pricing has not kept up with the rest of the CE industry. While, TV, dvd, blue ray etc. prices have gone down, some high end speakers now cost more than a three bedroom house.

Nothing new, no consumer awareness, lack of pricing power/scale, and the average consumer do not recognize the benefit.
rok2id's avatar
rok2id
7,859 posts
 
THE POROBLEM IS THAT SO MUCH OF SO-CALLED HIGH END AUDIO IS A SCAM! SNAKE OIL! RIP-OFF! DISHONEST!! AND THE AMERICAN CONSUMER KNOWS IT. I LOVE MUSIC HAVE 700 LPs AND 2000 CDs AND THEY SOUND JUST WONDERFUL THRU MY HARMAN KARDON RECEIVER AND POLK LSI 15s. WHEN THE HIGH END IS DEAD THEN REAL AUDIO WILL PROSPER. YOU PEOPLE ARE YOUR OWN WORST ENEMY.
audiogon_bill OP
155 posts
 
Mr.: there's nothing better than a good dealer. I know guys who routinely do things that make Abe Lincoln's 10-mile walk to return a penny look like the act of a slacker. In an economy where price is crucial, dealers have to have products and service which will cause buyers to choose them. If it's only based on the best price on commonly-available goods, independent dealers will not survive. They can't.

There is a place in the business for direct sales to the end-user. There is a place for dealer-sold products. The two are not necessarily mutually exclusive.

3way: I partly agree with you. The "fanatics" often base their pricing on giving buddies such a deal, and while that's wonderful and generous, it is not a sustainable business practice. When a guy moves 3 or 4 pieces per month, his per-unit cost on parts is going to be astronomical compared to say, Sony.

Rok: Is it possible, in these days when virtually everyone is familiar with virtual etiquette, that you don't know that it's rude to shout? Please.

I'm glad you love music, I'm glad you're happy with your receiver, but it's not only offensive to categorize the entire industry as a scam, it's patently untrue.

I'm pretty sure that I speak for a majority of A'goners when I say that anytime I encounter the phrase "you people" in the middle of a rant (and a shouted rant, at that) I not only stop listening, I want to make the rant stop. By any means necessary.

I'm also puzzled: if you feel so strongly that all "US PEOPLE" are snake-oil artists, then why are you here?

Oy.

Thank you all for taking the time to comment.
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