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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
 
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.
ballan
184 posts
 
@Audiogon_bill: I totally agree with dealer service and support. I too, know dealers that go above and beyond to do things that I know they are losing money on. I get disappointed when customers take advantage of a local dealer's time for demonstration, only to go buy from someone else. This is a big problem, and one that customers needs to take some responsibility for. It's just disrespectful to expect a dealer to invest in employees, facility and inventory while buying from someone else, for whatever reason.

I like your comments about the price of 45s vs. MP3s. It brings up something that I think gets overlooked. If you compare the price/performance of a music system in the 60s to today, I think you'll find that today's "consumer" products are much better. For example, I use my iPhone and Etymotic headset when working out and traveling. The sound quality that is produced it's light years ahead of anything available when I was a kid, not to mention that I have music with in my pocket that would take a suitcase of CDs (or a car load of records). This touches on Mrtennis's comments about products being a "commodity". It is true, but the "commodity" is much better than in the past.

I don't want to get off on another rant, so I want to finish by again offering an answer to Audiogon_bill's original question...."what do we do now?"

We, the manufactures, distributors, dealers and customers of this industry need to step up and define it for a new generation. We need to realize that people are the most important thing, and taking care of each other (personally and professionally) is always best for everyone. We need to focus on service and support, and be willing to educate music listeners (and each other) so we can keep evolving to meet new technologies and methods. We need to realize that "product and money" do not define who we are, and that when the day is through, we can all improve the lives we are blessed with.

Music is a precious thing. It's a form of communication and art that has been with us for longer than we can comprehend. Improving the experience and helping people listen, create and perform music should be a noble activity. The world needs more noble action, and we can step forward and define ourselves better.
3wayxover
28 posts
 
The point about the mass market stuff being pretty good is a massive point, which makes it difficult for the high end makers and dealers compete. A buddy of mine who is totally into music and movies has an Onkyo HT receiver from Costco, an old pair of budget Polks, and a Costco bought Sub, streaming itunes and he is very happy. (audio gear @$450.00) He and others have listened to high end gear but did not think it is worth the increased cost. The mass market gear's cost to benefit ratio is much more compelling than the high end stuff - unless you are part of shrinking market where serious audio is still valued, where we do not mind spending more $$ for the incremental added benefits.

Where do we go. As in the past, the high end industry takes what the mass makers create and they try to perfect it. The first cd players left lots to be desired, but companies like CAL, Wadia, etc. helped turned the cd player into something very enjoyable. Before that, Nakamichi, Revox, Tandberg, took the cassette player to a much higher level. The challange going forward - will there be a high end industry to enhance the technology going foward in an environment where technology is evolvoing faster than ever, the resources/expertise demands are increasing, and changing consumer/market trends (small is cool, CE price deflation, portablity, slick user interface, connectivity, etc.)
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.
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