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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
 
Paper: good idea, actually heard similar ideas floated. Problem is, as always, time and capital to get it going. Thanks for the thoughts.

Tennis: guess we'll have to wait and see. I wouldn't rule out the draw of hands-on product contact; been to an Apple store lately?

Sebrof: can't we have both? Back in the day when I bought and sold old radios, their elderly owners always made comments like, "it has such wonderful tone", not, "boy it was easy to use". Ease of use should be a minimum acceptable requirement for ALL products, in my admittedly-demanding view.

Geneo: Don't blame Apple. If anything, they've done more to facillitate the widespread enjoyment of music than any company since...who? The Victor Talking Machine Company?
I have two teenagers, understand the gap in understanding. I'm slowly and sneakily getting them interested in the 'pod through the Big Rig (such as it is).

I've met Victor Tiscareno, head of audio at Apple; he's a very bright guy, with a background in the high end. He GETS it. The fact that Apple doesn't see the possibilities in more-upscale audio isn't his fault; it may, however, show a lack of insight on the part of the traditional audio industry.

Mywife: Judging by what I hear from dealers, right now the deal is everything.

Sherpa: Mostly, we're ancient, and that's a big part of the problem. I'm 54, but have two teenagers, as mentioned above. Daughter HAS Beats, and just got the new iPod Touch. Agree completely with your viewpoint. Y'all/we-all are indeed out of touch.

Ballan: "Audiophiles don't make things simple" is a classic of understatement! Thanks for that.

Thanks to all of you for sharing your insights and concerns. Keep 'em coming!
macrojack
1,303 posts
 
High end audio is hanging on by its fingernails. Momentum and the tenacity of old coots is all that keeps it going at all. Many of our manufacturers will be following Richard Brown, Terry Cain and Jim Theil within the next decade and our consumer ranks will dwindle along a parallel with them.

I know this is bleak sounding and I'm sure I'll be accused of pessimism but ordinary life expectancy statistics bear me out. As much as we don't want to accept the fact, we aren't young anymore and we are not being replaced by the same ambition, opportunity and excitement that buoyed us through our heyday.

In the 1970s it was fashionable to own a stereo system and the typical middle class household went shopping and bought one. In the go-go 80s, under Reagan and the penny stock surge, high end audio came into being as a separate category. Yuppies arrived on the scene and Krell and BMW became symmetrical status symbols. This trend continued as those of us who really did enjoy the music acquired wealth and applied it to our hobby.

Nowadays, prices have soared due to the need of manufacturers to fish deeper in the same pool with every new model. And many customers have dropped out. We are putting our kids through college or fighting to keep our home or paying 2-3 times as much as we used to for health insurance, or have no health insurance with which to fend off the ravages of couch potato lifestyle. Many of us are broke or have chosen to distribute our shrinking disposable income differently or not at all. Eventually, you come to realize that there are things in your world that matter more than replacing that preamp you've had for 16 months just because something else has bought itself a better review.

It won't be long before most of us read the handwriting on the wall and stop pretending that the good times are coming back. They aren't.

High end audio is one of a few industries that hasn't been completely subsumed by corporate tsunami of the 21st century. Stay tuned.

As an aside that lends perspective to the times we live in, I'm watching the Fourmile Canyon fire in Colorado carefully. I lived there from 1986 to 1997 and my boys were born in our cabin there. Many of my former neighbors are still there and they have been evacuated. I've seen a few of them interviewed on television. They are shaken and they are anxious about whether or not their home is still standing. And they're worried about losing their photos and artifacts and heirlooms. Nobody seems too worried about their bicycles, stereo systems, big screens, RVs, etc. They are grateful that, while 170 homes have burned to the ground and 3500 people were forced to evacuate, there are no serious injuries, no fatalities and no one missing.

Maybe the biggest threat to the high end audio industry in 2010 is the re-ordering of our priorities.
johnk's avatar
johnk
1,975 posts
 
I see a future where larger manufacture are near nonexistent that only small factory direct will have a chance to survive. If one can not go into a holding pattern to wait this out. They will go under.
audiogon_bill OP
155 posts
 
Macro: Certainly, reality has a way of messing up our plans. There is truth in your point that "the stereo biz" is a product of baby boomers (or even earlier generations), and is indeed aging and dying off. Ironically, the general availability of music playback may have created a generation who takes it for granted; our job is to show them that music can sound better than the 'podders would believe possible. At least in my view.

John: Rather a bleak forecast, but there are many reasons why one could believe that's possible. Certainly, there will be major changes in the way business is done.

Thanks for your input, gents!
macrojack
1,303 posts
 
Johnk - I see our market turning inward with an emphasis on recycled treasures as widow upon widow cycles big rigs back into circulation. The few of us who are still buying will mine that resource. Many will do nothing because they cannot reclaim the funds they have in their current holdings.

Much of the most vaunted gear will go off shore where better economic policies have protected their consumers. Starting in January, we are doomed. Tea, anyone?
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