"The mark up on a lot of high end audio gear is absolutely shocking."
Just looking for clarification Macdadtexas...I don't know what most people consider 'shocking' profits.
Are you of the impression that audio dealers making high margins or is it the audio manufacturers themselves who make 'shocking' margins on products. (You may have meant low, shocking can qo either way of course). I am guessing high, but clarification would be good, I think.
Great comments, good to see you alive and well Grant.
Larry |
To put margins in perspective...I am told by a friend who has sold furniture for many years, that the wholesale to retail in furniture is, one third of the retail price. So a $1000. retail item costs the dealer about $300. He also said that this varries quite a bit, but that is the general rule. That would be not exactly but about the inverse of Audio pricing, which for many years had a markup of 40%, or $1000. had dealer cost of $600. That was for typical gear, amps, receivers and such. Some speakers had a markup of 50%, but that usually carried minimum annual purchase requirements.
Having been there, as a dealer, I am sure that, making $400. on an item that you pay $2600 for (as suggested above) would make for a much worse survival rate than we're now seeing.
The dealer cost mentioned above from, apparently someone who visited CES and was given dealer costs, may have represented a new company trying to make an entry into the market, or perhaps, maybe with with slower business, this may portend a shift in dealer cost to retail, with the hopes of helping dealers to stay in the game.
Without going crazy here, lets do the math for a dealer making the suggested margin.
Let's say that the dealer does $50K in a month, with a cost of almost 86%. That would mean that he/she makes a gross margin of $7000. If its a single store operation, mom and pop, and he rents space in a strip mall or small building, and pays $2500. rent, $400. for electricity, has a vehicle for $400. per month, insurance for $200 per month, one college kid as an assistant, for $10 per hour ($1600. per month), his personal profit before taxes is $1900. for his efforts which if they represent only a 40 hour week,(not likely) he's making less than $12.00 per hour.
This won't work. So let's double the profit to 28% and he's making $3800. per month or $24. per hour, or a little over $900 per week.
Depending on the part of the country one lives this can be a hard wage to live on.
Obviously these prices of doing business are silly and don't really reflect a true picture, but I think it shows that the 40% starting figure is a more realistic picture. It also shows why I asked the guy who stiffed me, saving the $53.00 why it was so upsetting.
Now these guys have to contend with the internet, AND 'no taxes', which in most states is at least 6% of the gross price which most people consider to be a worthwhile inducement to buy over the net. Wow...that's a tough living.
Now, further, let's assume the best...he sails along and does $50K every month until "Back to school" and the first thing that goes from the budget is 'luxury goods', toys like this. He does half. The expenses remain constant, but his profit goes in the toilet.
Herein lies the plight of the small audio retailer. I know, I was there. It really is a tough business.
This is not meant to piss any one off. It's simply a sophomoric look at the Audio business world.
Ironically, most manufacturers want VOLUME, and give preferred pricing to the stores who can to large volumes. This creates an adversarial relationship between the small dealers who can't, and the larger who can. I have heard horror stories from small dealers recently, that some large city dealers can call XYZ factory and 'make an offer' on a bulk purchase. For example, "I'll buy $50K of product, but give you $40K. The manufacturer sees the $40K of instant sales, and give in. The big dealer then has a 20% price reduction which he can pass on to the customer on an internet sale, and still make his normal margin, (not exactly correct, but its easy to see this scenario). Mom and pop, lose the sale to a NYC or Chicago dealer because the customer gets a 20% discount, AND saves 6% sales tax. Viscious circle huh?
Then mom and pop dealer's customer comes in a month later and 'fesses up' that he bought over the net and saved a ton, and frankly who can blame him?
All this from a simple, are you supporting local stores.
It's almost enough to make us think that perhaps all sales should be factory direct, except for one thing...no demos.
Any thoughts?
Larry |
Guys (girls),
I had resisted being on Audiogon for quite a while because it seemed that no matter what the subject there was always someone willing to be a jerk, intentionally starting a fight. Really, it was never ending trash talking, more like an 8th grade gym class.
Now, as of my last couple of interchanges, the whole group seems committed to discussing and showing thier points in an adult and civilized tone; what a breath fresh air.
I don't know how A'gon changed the discussion culture, or if you're all just a higher level group of people that I've met in the past, but this, to me is what Audiogon intended with their forum part of their site.
Thanks for GREAT and INTELLIGENT point, counterpoint...lets keep it going, it's great to get perspectives from everyone.
Best,
Larry |
Blindjim,
What an interesting perspective...a man of great intelligence.
Any product presented, meeting all the base requirements of a given market or human need have what is known as 'utility'. Utility, (going back in to distant memeory of Econ101), is explained as follows.
"A glass of water to a man floating in a crystal clear lake, has 'no value.' Yet the same glass of water is of infinite value to a man dying of thirst in a desert."
Ahhh...enter want v. need. (sounds like a Supreme court decision, no?)
We, all of us here 'want' the latest toy with the cool looking knobs and such, (oh hell admit it). I remember a great writer for one of the Paper Mags, saying one time that one of his guilty pleaures was looking at his system in the dark. (I'm thinking he was auditioning the latest tube system from Mssrs conrad and johnson). He stated categorically, that anyone who denies having done that is flat out lying.
So enter the hobbyiest notions of this 'pricing' discussion, with our interpretatins of 'fair and reasonable.'
How do we determine fair and and reasonable, and need versus want?
Abstract: "Hey Jack, I'm going to compress carbon under hundreds of thousands of pounds of pressure for several million years then present you with the results for your birthday. Want a 1 pound or 2 pound one of those?'
Jack not knowing of which he speaks says 'no thanks'.
Then, show his wife a picture of the result, under halogen lights and get HER answer.
In an audiophiles mind, that compressed carbon has 'infinite' value when we see it. (Think Farrah Fawcett's 1980's poster).
Since money is an elastic for us all, we, like Blindjims example pay whatever when we are flush. As the money contracts, we start to hedge, self mitigating our desire for said product. Then comes the chiseling of price.
Actually, it's none of our business what it costs to make a jar of Peter Pan Peanut Butter, or a gallon of milk from Deans. We only know we need them and buy them because they're food. Imagine going in a grocery and saying, "Hey would you take .59c for that jar instead of $2.59, I saw one on PeanutgoN for .45c. The can was still sealed and it had an acceptable expriation date (see warranty).
We ONLY bitch about pricing because this is a luxury commodity, and we ONLY bitch and care about margins because this is a luxury commodity.
I have sold to enough extremely wealthy folks to know this one thing. "They don't ask what the margin is." They want it to work, follow up, good service.
I'll never forget proposing the most expensive audio system I had ever fashioned together, to a neuro surgeon. I gave he and his wife three options, good, better and best, fearing the price, and thinking that I might scare him off. They studied the proposals for a while as I sweated. Then after what seemed an eternity, he asked, "If I buy this...(wait...wait...wait...) will it be better than Dr. XYX's system ?" (his best friend) exhale!
Jim Thiel and I were having dinner one night, and after a few glasses of vino, I said, "You know, I'd still sell audio if I were ridiculously wealthy." He looked at me for the longest time, then said, "Yeah...but then, you probably wouldn't be very good at it."
It's the same as, "If you had a billion dollars, would you own a Ferrari?" Answer, "Naaaa, I don't like them." RIGHT! Give that man the $1B then visit him later and check out his garage.
"Fair pricing" is only fair or unfair in our personal lexicons, and as I can only hope to gleen from our 'margin and pricing discussions here, are fair only, if WE can afford it. Let's be real here and realize that the business model I showed in an earlier post would not suit very many of you out there. Who would own a business, work countless hours per day and worry 24/7, lie awake at night staring at the ceiling, and WISH to make $3800. per month?
Some genius will shout back, "Well, uhhh, if they don't like it, let them get another job, noone's forcing them." True, but then, we have, no distribution, no demos, no 'used gear'.
I would submit that "Fair pricing" is fair if it is balanced with competition within it's market and performance. Beyond that, some of it seems tend to make pricing fair or unfair if 'we can afford it.'
If the prices as we know them now at the Local Audio Stores were truly unfair, (too much margin, specifically as we almost,repeat, almost have to consider that that manufacturers pricing because of competitive forces has to be at least reasonable), why is it so hard for those B&M dealers to stay in business?
Do I want a bargain? Sure, but the best price is not always the best deal.
Thoughts? |
Tvad says:
"Teaching, or demonstrating value takes longer than paying at the checkout stand, and many buyers simply don't have the patience to take the time to understand what they may gain by utilizing a dealer who provides them with extra service and perks...the elusive value."
You really nailed it. Why, in our ADHD society do we fail to 'take the time' to understand that by gaining a partner (read really good dealer) do we chase the price and not the product. Are we audio nuts all dillitantes or are the sales people that inept?
Someone, Jeff (forget his last name) recanted a story here on A'gon about the best sales experience he had ever had, talking about how he paid 'full retail' and was glad to do it, because of the sales experience.
Really, if it took an extraordinary experience for him to feel that paying full retail was something special, I guess that shows that very few of the sales people out there are doing an adequate job of defining and extending the lines between price and value. That was the nature of my soliloqy on the diamond in my last post.
People buy intangibles, but usually need tangible reasons to do so. One tangible in the buyers mind, would be the 'value received' either in the form of the product or the service rendered by the dealer. When he or she gets both, the 'perceived value' escallates exponentially--therefore talk of pricing would usually evaporate quickly.
I remember right here on audiogon, people paying full retail and waiting for MONTHS and MONTHS to buy preamps and amps from Mick, in Australia. I personally don't recall anyone (they may have) talking about a discount or a special inducement from him to purchase. It was all about their perceived value of the product. That whole scenario seems to be at odds with the discussion here, or does it actually confirm some of the comments?
People felt that they were getting the best price, because Mick was selling 'direct', no middle man, therefore they could perceive a value greater than those run through distribution. So the question now becomes, how many of those people who purchased, actually heard the product personally? How many realized a demo? Would they have paid restocking or a higher price to confirm the sonic qualities of the product?
Levelling the playing field with factory direct and distributed products has always been a knotty question. If it were simple to factory direct, why wouldn't everyone do it? Ford Motor...eliminate the dealer, just call 1-800-MUSTANG and get one?
The nature of audio is such that the vast majority must have a demo, they must experience the magic.
Many years ago in Nashville, TN. I demonstrated the Pipedreams Loudspeakers to a man who actually owned several auto dealerships, and was by any standards very wealthy. He only came in to the store because he was friends with the owner of the Pipedreams (Nearfield Acoustics) Company. After an hour of playing music, (Prayer with Andre and Celine or Brightman and Josh, he left the store with tears in his eyes, REALLY, saying that I had made him 'uncomfortable'. Well...I was stunned...I didn't get it.
A week later he came in with his wife and bought the speakers, for $30K full price. His wife called me aside and thanked me. I blinked, "For what, maam." (again confused).
"You changed my husband..., he was this, macho dude afraid of his emotions, and his experience led us to countless hours of talks he and I, Thanks."
I was really moved by that. I still to this day, shake my head.
"Music hath charm."
So, Grant, given the experience that most of us have had in audio stores, I don't blame ANYONE for being focused on price, because it's not very often that sales people out there do the job well enough to mitigate the price objection.
Least you think I am making a blanket, 'know it all' statement, I will tell you that, I made a living 'shopping and training audio sales people all over the country.' I know how elitist and condescending many in the audio stores act, therefore, chase the customers to price rather than value.
The answer to this whole thread is: what, people?
Larry
PS Good one Grant! |
Brimac et al,
Great post, and well thought out.
"Seems to me you could do a whole lot better selling services a la carte to shoppers who need them. Bundling the service with the product is a solution for some, but it's patently obvious that, for the majority, they would prefer a choice."
Yes, as stated previously, money IS an object, and since this is a luxury item, pricing would seem to take precidence. I don't blame anyone who looks for a great value, bargain. The issue at hand could also be that, people trade, seek new gear for what reasons? Are they unhappy because of what they perceive to be inferior performance? I asked the question about us being dillatantes, which TVAD answered honestly, 'yes'. I know I am, and have been since the middle '70's.
The flaw, if we can call it that, in the industry is, that MOST of the customers ARE hobbyists, therefore look to trade up, across, down etc perpetually. It's FUN to open a box with our latest toy inside.
Someone said to a friend of mine, "If you're in this business to sell to hobbyists, you will lose your *ss." You need to sell to 'customers' who want luxury goods.
The only problem there is, that those customers seem to be a small percentage of the market, which perpetuates the price/margin debate.
I only asked this because I wonder what everyone thinks. I don't have a store, so I am, while not ambivalent, not affected. I do empathise and sypathise with BM dealers these days.
Thanks for a great answer.
Larry |
Gawdbless,
Years ago, THIEL sold more dollar volume, in their top end models than their lesser priced units. I know this seems to be a given to some, but since the price then was, (some 18 years ago) about ten times the retail to retail, they, at least found it surprising that they sold as many of the upper priced units as they did.
So, while this doesn't answer the question, I would say that Vandersteen will sell 'quite a few', pair during the life of the product.
If he's anything like JT, he's doing it because he loves it anyway, and enjoyed the challenge of making something special.
They are pretty cool looking aren't they?
Larry |
Blindjim,
Several years ago, when I WAS involved in retail, I put a $30K pair of speakers, as LR, a $9K center voice, and a pair of $18K rear speakers in a home theater set up. The amps were excellent quality too, with the total system coming in at WAY more than $150K.
The system that Rich was using for his debut of the 7's was, I believe in the $300K range.
One of the ezines reporting on this said so anyway.
As to how many pair, I wondered that about the Alexandras. Their Asian market is most likely much larger than the US market. It really is a pride of ownership mindset, with regard to owning expensive audio in the PAC rim. I would think that Vandersteen will sell several pairs there. Now, I also believe that the Alexandras as well as the 7's will only be made to order, with no stocking. Could be wrong on that, but letting $100K on the Wilsons, or even the $40K for the Vantersteens sit is suicide for a manufacturer.
Larry |
Blindjim,
First, my perspective, so you'll know how flawed my interpretation is...and subjective.
I have heard everything from Wilson's best at $130K, to MBL's best, at I think, $119K, to the other mega priced speakers. When I heard these, on one occassion, I was at a dealer, (Wilson's), but heard them (his current best at the times) on numerous occassions, at the CES too. The MBL's only at the CES.
First, just comparing these megas,(I am sure others will pick from thousands of other megas) these two are very different speakers from one another, certainly design wise, as well as performance wise. To my ears, the each do different things well. The Wilsons are more dynamic, and have an obvious bass extention edge, both in terms of slam and frequency response. Yet, to my ears on the occassions that I have heard them, the Wilsons just don't seem to disappear completely. I asked my two cohorts and they both made that statement without prompting,(industry types) that they were not as transparent in terms of dissappearing as we might have thoughtthey would be. But you asked how megas differs from $10 to $40K speakers.
So, how are both different from the $10K--$40K speakers, of course leaving out diminishing returns because that should NOT be considered IMHO, because that brings in too many other thoughts, but we can discuss that off the site. They have more resolution at almost all levels of SPL, better micro dynamics, image density, front to back imaging, width of soundstage, (though the cabinet locations were, at least to my ears, again obvious on the Wilsons). Keep in mind that they are mind boggling good, by any standard, just this one issue of, I guess cabinet noise clues (?), and EVERYONE can have different thoughts, and I am sure they will. Maybe my samplings were both limited.
Down to earthly pricing,(ha)Let's compare them first to the THIEL CS5i, which I owned for several years, which cost about $12K in 1989 dollars. The Wilsons as you might expect have more resolution, so the clues as to 'where' things seem to happen in the sound stage become more well defined. Imagine a photo that is crystal clear, versus a polaroid. Though not a great example, telling nonetheless, the lesser speakers offer less resolution of the overall sound--same thing, different sense (hearing vs sight). The overall sense of realism is greater with the mega speakers, in terms of "Am I really there?" Real music, acoustic music for sure, to me, as an event, is sort of'unspectacular', its just, well, real music. Noone goes into a hotel lobby and hears a piano coming from the bar and says, "Oh my God, a real piano!" They can tell though, if they're careful listeners that it is a real piano and not a recording, because of the subtle, (think low level res) clues that they pick up on. So, with the Wilsons, those subtle clues are more abundant, therefore they sound more,'real'. This inspires a memory, which is, back during that era, I talked to JT about the 5's and told him that I thought that the CS5's had MUCH greater 'image density' than any of his previous models, and assumed it was because each driver was working more easily thoughout its frequency askance.
In the '90's I came to be very close to the Nearfield Acoustics, which cost up to $90K in those dollars. They too, (regardless of varying opinions) offered incredible dynamics and image density. (The largest had, I think 24, drivers operating from 65hz to 3Khz. Then 48 domes operating to above 35Khz. Then two 'depth charges' for subs, 2x18' subs times two. Whoa, bass extension.
People have faulted them for comb filter effects, (cancellations due to proximity)as well as various other perceived faults, but they did some things VERY well, and offered that incredible density, I mentioned. This is, to my ears absent in virtually all driver based speakers, with limited drivers. MORE IS BETTER?
God, I am going on like an idiot. Well, the differences, to me, is frequency extremes, (mostly bass) dynamic range, image density, soundstage, (width and depth). With these qualities comes greater tonal purity, at least on the better Mega priced speakers.
Like most engineering issues, there's nothing like throwing money into a solution. More, of course if done thoughtfull,should be better and better costs more.
Jim, I should have given you a three word answer, "Sense of realism."
Sorry to prattle....
Larry |
