Alternatives to Brick and Mortar


I didn't want to further derail @millercarbon's Tekton Moab thread, but I think it is a worthwhile topic to discuss how to find speakers that meet our listening tastes, aesthetic tastes, budget, room, etc. Brick and mortar retail is dying because it's becoming very difficult to operate profitably. 

Full disclosure - I own and operate an e-commerce cycling business. For ten years, I also had a brick and mortar operation (multiple locations). The economics are a bit different than audio since our average sale was only in the very low three figures, but it's not that different. We still had bicycles that we sold for over $10K, but the cost of those sales was quite high. Over the ten years we had the stores (which were 4-5 times the national average in size and revenue), we made a profit from the stores in three of those years. Fortunately, our e-commerce business was much more profitable and allowed us to cover those losses. 

Brick and mortar is becoming more expensive due to higher lease rates, higher payroll costs, and competition with other sales channels. To keep a brick-and-mortar sales channel viable, the manufacturer has to offer the dealer a fairly sizable margin (generally 35% to 60%) and have enough sales velocity that the store can cover their expenses. It's pretty rare these days that there are products that fly off the shelves at a specialty audio retailer. 

Our handling costs are a lot lower in our e-commerce operation, but even in this business, the only products we're willing to carry that have less than 40% margins are products we can get 8 turns or more on. This means that the manufacturer has to have plenty of back stock and be able to replenish our inventory quickly, and also means that the product has to have high and consistent sell-through so we can accurately predict our inventory requirements.

For a specialty audio dealer, there are very few products that have high volume. If you think about how much time you've taken up of a dealer, products you've brought home to listen to, etc., versus the products you've actually purchased, it's an awful lot of cost that has to be absorbed by the dealer. I've read countless posts on this forum and others of people that have brought multiple products home from the dealer (or from an e-commerce vendor) only to return it. This costs the dealer (whether brick-and-mortar or e-commerce) a lot. A lot of this returned product has to be sold as open-box or b-stock at considerably less profit, let alone the shipping cost that is often absorbed by the dealer. To stay in business, they have to make enough profit on the product they actually sell to cover their expenses.

For an audio manufacturer, they have to consider the cost vs the value added by having a brick and mortar channel. More and more are deciding they can offer more value to the consumer by keeping the dealer margin in their own coffers. 

My career has resulted in my living in a number of different areas in the country since I've been an audiophile, so I've probably shopped at 25-30 different stores. Very few of these have had listening rooms that did the products justice. In many cases, the rooms were crammed with 5 to 20 different speakers. Even in the shops that catered to high-end budgets, the speakers were not optimally set up. This isn't surprising since the dealer is trying to sell a lot of different models. 

In the more affluent markets, dealers are willing to provide home auditions which helps a lot, but this is expensive for the dealer and they have to count on a reasonable conversion rate. Too many consumers are willing to take advantage of dealers that offer this. I've seen posts from consumers that literally try a dozen or more speakers, or other components. How do they expect the dealer network to survive. 

So what's the alternative? I think for the manufacturer, the best alternative is to do what companies like PS Audio offer. They have a very nice showroom at their facility if you are willing to make the effort. They offer easy returns if you want to purchase a product and aren't happy. And they participate in many audio shows where you can compare their products against many others. By selling direct, they save the considerable dealer margin can cover a lot of customer service costs, including dealing with higher returns and supporting more audio shows.

Sorry for the long post. I look forward to hearing your thoughts and ideas. 
128x128jaytor

Showing 3 responses by audiokinesis

Thanks for responding, @jaytor

I agree with your observation that "home audition can be a reasonable approach if the shipping costs are a fairly small part of the cost of the product..."   

Pure Audio Project has an interesting approach to lessening the sting for customers. If I understand correctly, they take a deposit and ship speakers for audition at their cost, then charge a flat rate of $200 for return shipping if the customer doesn’t buy them, and return the deposit (assuming the conditions are met). I presume that the cost of all that shipping makes its way into the purchase price, but from the perspective of the customer, $200 out-of-pocket risked in exchange for two weeks in-home audition of a five-to-ten-grand ballpark pair of speakers may be pretty good deal.

Duke
@jaytor wrote: "I’d like to have the opportunity to hear products in a well designed listening environment and most of the dealers in my area, for one reason or another, don’t seem to have been able to pull this off, and many of the products I’d like to hear aren’t available for demonstration near me.

"So what are the alternatives?"

One possible alternative might be, for manufacturers to streamline "audition in your own home".

There are obviously a lot of details to be worked out in finding the "sweet spot" where this is attractive to both customer and manufacturer. For instance, how are the shipping costs distributed, and how are the risks borne?

Jaytor, you are arguably in a unique position - you can see clearly from the perspective of the customer, as well as from the perspective of the businessman. Do you think "audition in your own home" could realistically be viable from both perspectives?

Duke  
small manufacturer
@jayton wrote: "I like the idea of local audio clubs hosting vendors."

I think that would be great fun for the audio club members, but not a viable sales model. They would love to have you come and show off your stuff and listen to them talk about their stuff.

Audio clubs tend to have a group-think thing going on, which is dominated by the alphas in the club. And the alphas will see a manufacturer showing up and professing expertise as an outsider directly challenging their status. So the alphas have an incentive to find fault with what you are doing.

In my opinion.

Duke