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
I suppose those that offer good service and value are most likely to survive as is generally the case. Its a lot harder to provide good value than it is to provide good sound when cost is not an issue. Natural selection?
Sherpa: We may both be a trifle naive, but we're thinking along parallel lines. More later.

Loomis: Not going to tell you again that you're correct, but yeah,you are. ;->

Git-tar: Interesting how the CEO of Hollywood Video is now the CEO of Ultimate, no?

Ferrari: we're be hearing from more in the industry in the next entry. I welcome any and all to comment on this thread, as well.

Hifi: Glad to hear it! Good for them!

Mac: way to win friends and influence people, big guy! Sadly, your comments are absolutely accurate. I only wish I'd coined the phrases, "a small band of delusional eccentrics", and "finitum is on the horizon". Great stuff!

Sbr, Mac: Yup, agreed. Now we're back to the question, "What do we do now?"

Thanks to you all for your provocative and insightful comments.
Folks,
I've read many valid observations. Trends. Economy. Market. etc.
A suggestion.
I remain convinced, that if a person is given a choice, the will gravitate to quality, high end sound. If this is true, then the manner in which the consumer becomes exposed to the possibilities of access and quality needs to addressed.
Since our hobby is one in which "hearing is believing", a new business model needs to be created so that a "brick and mortar" retail store is viable. A key historical model needs to change, and that is the independent retailer.
I might suggest the formation of a High End Association of manufacturers which might invest in superstores. I envision a retail store which has a wide variety of manufacturers with various rooms to audition, mixing and matching COMPETING components.
Inventories would remain at the manufacturers ordered and shipped, much like the current direct sellers do today.
By necessity, the marketing theme should be, getting the most out of your computer/digital libraries. Modern and hip.(Of course, once the customer is in the store, expose them to the magic of vinyl).
If they want to combine with video, send them to BestBuy for the low margin flat screen TV.
From what I understand high end retailers became forced to offer video and installation which actually proved profitable until the crash. In house set up should be a service rendered and charged. How many of us would relish a chance of having a audio expert confirm our setups?
Stores, by necessity, would need to be located in major markets. They might become a destination visit as Sound by Singer might have been. If successful, expand.
Most of us will never attend a HiFi show. This would bring the show us, or at least closer.
We need to tap that group of people that are listening to and enjoying music. Period.
Cost is shared among all of the manufacturers.
The manufactures will need to show some guts and confidence in their products.
The investment in the store will need to be categorized as an element of sales and marketing costs. This will be very difficult, given the lack of effort or resources of the past.
I'm sure this business model has a many holes which I'm too naive to consider.
The key is the INDUSTRY must take responsibility and initiative to keep our love of good sound alive. Unfortunately, egos run rampant in this hobby. Maybe survival will be a motivator.
Just a suggestion.
don't sell the consumer short. necessity is the mother of invention. people can figure out how to configure a stereo system without a dealer's advice.

what happened to experimentation ?

the only issue is who will sell the equipment ?

will it gravitate to direct sales from manufacturers whose overhead is low ?

will brick and mortar stores prosper, grow or diminish in number ?

I think over time brick and mortar stores will represent a smaller market share of audio produtcs, over time.

that is, it is my hypothesis that there will be more direct sales from manufacturers at the expense of audio stores.
"09-09-10: Papermill
Folks,
I remain convinced, that if a person is given a choice, the will gravitate to quality, high end sound."

I disagree. IMO, most people will gravitate to brands they know, ease of use, flashy bells and whistles every time. Sound is not at the top of the list. The choice for most consumers is between pretty good sound (big box stores) and really good sound (Hi end B&M). It's just not worth the effort to them.