Retail Buying - Reality Check

High end audio is composed primarily of garage size ventures, plus a few handfuls of medium sized companies.

The typical product made by a high end company sells a few hundred units per year. A runaway success is something that sells over a thousand units a year, worldwide.

Lets say the product price is $8000, 400 units are sold, and the manufacturer gets %40 at wholesale. This means the manufacturer gets $1.2 million, to pay all his materials costs, factory and fabrication, salaries, shipping, and a marketing rep. That leaves $1.92 million at full MSRP to be split among his 20 or so worldwide dealerships, or about $100,000 profit per dealership - again, to pay salaries and overhead.

My figures are undoubtedly wrong in particulars, but where in this tiny, eclectic, highly specialized market do you see room for agressive negotiation and competition? If there is much of it, high end can only be seriously hurt, and the mass market will happily move in.

If independent dealerships were to disappear, I suspect high end audio would die at the same time.

This is somewhat relative...remember when dealer demos were 25% off? Well...those times are long gone. In today's market place...demos prices are well below that...often less than 10%...the point being...with competitive hand made cheap labour from around the world...companies simply dont have the margins they used to have...very simply:the competition is fierce...and yes this does not apply to every product in every market...but by and large...these are not mass market products...with a product such as NAD...dealers have more room to work with than say a company like MEadowlark(these are just examples)...and yes a premium still exists...but remember... a local dealer is not only where you find certain brands...but where you can A/B brands...and walk out with a product that day...convenience comes with a price...

Flex, In response to your question

"where in this tiny,eclectic, highly specialized market do you see room for agressive negotiation and competition"?

Consider this:

1. The paradigm for really successful internet business has already been established:

If you visit the web site strikingitrich.com you will find a discussion of the top ten websites that have made web entrepreneurs rich beyond their wildest dreams. Audiogon has hit upon their underlying recipe with a vengeance - provide customers with reliable information, LOTS of it for free, with no obligation to buy, find a way for the customer's opinion to REALLY matter (this breeds trust), then provide CHOICE, along with a sense that the customer is getting the maximum for his dollar. If you visit any of these websites, you will see how much Audiogon has in common with them.

2. The internet brings new customers AND new money to bear. Instead of setting up a zero sum game between audio manufacturers (e.g.will I buy B&Ws or Avalons), the internet sets up a zero sum game with other luxury items (will I buy high end audio or a Jacuzzi?).

Exclusive dealerships are not configured to take proper advantage of the paradigm for expanded customer base and $$$ that the internet offers. I contend that this new money is real - look at the number of posts here where people want to talk to savvy experienced buyers/listeners and then start building new systems.

If there is one thing that we have learned from the past few years on the internet, it is that some things can be sold this way, some cannot. Remember the dot com bubble?

Audio on the internet is a by-product of the established 2-channel dealer-based market, and dealers can use it to their advantage by setting up a good brick-and-mortar based website. However, high end audio *systems* cannot exist on the exclusive basis of internet distribution. Word of mouth is nowhere near good enough to convince an entire new generation of buyers to get into something they've never heard. I would think this is completely self-evident. There is no sensible internet-based business model for high end systems.

Dealerships offer numerous advantages: a place to audition combinations of equipment that you want to hear together ( I have traveled 2000 miles in order to hear specific equipment together in one place), warranty and repair service (often free even beyond the warranty), trade-ins/ups, advice (find the right people and its good), good contact with the manufacturer (often), and increasingly excellent sound rooms for listening, with experience on sound room building and optimization.

You can get pieces of this information, in greater depth, from entrepeneurs and internet forums, and that is good. Education serves everyone's best interests, though much of what is in forums is just opinion.

As far as jacuzzis vs. audio, Judit you're in the wrong forum.

I am awed by the innate insights of Zaikesman into the depths of my psyche. I no longer feel the need to pay my analyst to help me figure out why I like cigars - I'm sure he already knows.

I laugh at the suggestion of insincere, gratuitous ratinalizations. Tell me forum - I don't know this- Is burn in BS or not? The only place I ever heard about this concept is on this site. ">>>>XXXX brand sounded so much better after burn in." Do I believe it? I don't know. I haven't ever bought any equipment that offered burn in as a concept. But, I do know a lot of people on this site swear buy it. I tend think it may be a bit of fine hair splitting - but I don't know. Does it matter in this context? Of course not.

Zaikesman - Have you ever bought a new car on the internet? With your ethics and integrity I'm sure you didn't test drive it at a dealer before you did. You just bought it via the web because you read some neat review from car buffs on Cardiogon.com. And your E&I must also cause you to only buy used equipment on the web that you have never heard or that you heard at a friend's house. Because if you heard it at a store and spent time with the dealer, you would you been wasting his time and I know you're not that kind of person. You know the difference in price between buying a new car at a dealer and buying one through the web or some purchasing company is only a thousand or so dollars. The pricing differential between the web and these stores was many times more than that- new to new, apples to apples. I didn't even consider used as an alterative until they sent me into sticker shock. Is a saleperson's time spent with me (3-4 hours total at the very most - I spent somewhere near that much time on each individual item I bought here on Audiogon.) worth $30,000 on a $85,000 purchase? If you think so Zaikesman, then you're either more naive or disengenuos then me. I would love to quote a price on my products that was based on huge profits to me, but I've come to learn that real prospects are tough to come buy and I'd reather give them a great price and leave a few $$ of my profit on the table so they don't go looking somewhere else.

Did I mislead the stores into believing I'd be delighted to full MSRP. No. I told them up front that I was new to the hobby, talking to a few places and ready to do something.

I asked this question not to brag or seek penance, but to stretch me to consider perspectives other than my own. As I said in earlier posts, I appreciate the thoughtful responses, even the ones that sought more information as to my motives. Personal attacks, on the other hand without recognotion of today's global marketplace, sound like the sour grapes from an out of touch MSRP salesman to me.

Learning about a new expensive hobby is just that - A learning experience. I don't have many and I don't do new ones very often. Thanks for the continuing education one and all - even Zaikesman.