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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
macrojack
1,303 posts
 
Springnr has brought a question to my mind and perhaps each of us should ask himself the answer. When I respond to the question posed in the title of this thread, am I addressing the high end hobby at my house or the overall health of the high end audio business model?

I'll go first. The hobby at my house has lapsed to a great extent in recent years but still gets daily use. I still enjoy my system but I haven't had the motivation to pursue perpetual improvement. Some of the reason for this is the difficulty that can arise from trying to resell. It makes me more cautious about acquisition in the first place. Likewise, I feel I have reached a level of sophistication in my system where improvement would require a much larger outlay than I am willing to commit. So I say, good enough is good enough.

Concerning the high end audio business, I can only say that we got what we asked for. I buy used on the internet, I buy insider deals from friends in the business and I swing a trade here and there. I don't buy in stores and I found that I always lost money buying factory direct. No one will pay me as much for my used piece as they can buy a new one for, naturally. Notice that I don't buy anything from stores. They made their bed long ago as far as I'm concerned. They told me over and over again in no uncertain terms that I needed them more than they needed me. I got the message. Too many times I was treated like a know nothing by a know too little intellectual shrimp who thought that he was an expert by dint of having been hired. The arrogance and ignorance factors disqualified retail dealers for me back when I subscribed to Audio Mart. How long ago was that?

So, as far as I'm concerned, we did this to ourselves by creating an adversarial environment and pretending it was the gentlemen's club.
Greed and opportunism have been basic to this hobby from the outset in the late 1970s In the 80s the prices climbed, the margins stayed intact, and the entrepreneurs noticed. Soon the sizzle took over and the steak was stolen. Now that the dizzy pursuit has paused due to money shortages, we are bemoaning the collapse of a house of cards.
They were bound to come down though the first time the boat rocked.

The desperation of high end audio has no effect on my life whatsoever and the guys who chased me out of those stores back when have long since moved on to selling cemetery plots, life insurance or used trucks.

So there you have it. High end audio will survive but the sharks will likely be starved out of it.
audiogon_bill OP
155 posts
 
Spring: That's an interesting take on the situation. I can't decide if it's optimistic or pessimistic!

Mac: If I hadn't heard a zillion stories just like yours, I'd be tempted to think you were a disgruntled crackpot. It saddens me that so many have been turned off by rude, patronizing, condescending or otherwise nasty dealers. It further saddens me that many think all dealers are that way. As I've said repeatedly, good dealers are irreplaceable. As we've seen, bad dealers are readily replaceable.

Thanks to you both for your provocative comments.
macrojack
1,303 posts
 
Bill - When I was a kid there were exotic car dealers, Ferrari, etc., here and there in unlikely small towns. Eventually, as the economics changed and common folk became excluded from participation, such dealerships became limited to concentrated and/or wealthy locations. Now the exist in only a few of our largest cities.
Something similar is happening in audio. I read about audiophiles all the time who lament the fact that there are no dealers at all near where they live. Others complain that the inventories are just too limited if they do have a store within a fur piece of home. I see this situation worsening.

I also think that is why the audio shows like RMAF are popular. Not only is it like Sturgis for audiophiles, it is also the best opportunity most of us are going to get all year to see a wide selection in one place. It doesn't hurt either that the vendors are friendly and welcoming to all. Throw in some beer and you're looking at audio's best hope of pulling through. The dealers are not irreplaceable in my mind. I replaced them back when Carter was President.
rok2id's avatar
rok2id
7,817 posts
 
one other factor: with the exception of classical music, what music is there worth spending a fortune on gear to hear. Other than classical music, all the CDs i buy are by artist long dead or disbanded. what we have is a perfect storm. everything is coming together to kill so-called high-end audio. in the auto industry FIAT and VW bailed out the fancy super car makers because they had the money. maybe we should sthrow our support to the 'mid-fi' people so they can save us all. Hold your noses and buy that Harman kardon!! lol
mrtennis
3,295 posts
 
a manufacturer with one or two employees, who stocks no inventory and fills orders as they occur, and who has another source of income can remain viable indefinitely.
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