Audio Dealer Business Model

LenWhite · Jun 22, 2011

The following is a summary of my letters to the editor published in Stereophile and TAS. I hope some of the influential people in the audio industry that read this board are already promoting a workable audio retail business model, or will sufficiently agree it needs changing and begin attempting to convince audio dealers before it's too late. I believe good audio dealers are the backbone of the audio industry and if they disappear high end audio as I know it today will also disappear. I don't wish that to happen anymore than great literature disappearing or being dumbed down.

The current economy has contracted and it’s going to be difficult for audio dealers to remain in business, although I continue reading of a significant volume of spending on cell phones, tablets, hdtv’s, blu-ray devices, and game boxes. But even before our economy tanked, audio dealers were not using the correct business model. They catered primarily to audiophiles who can afford high priced equipment. Their plan was to keep selling a stream of new gear to this small group of well healed clients through a constant supply of new “toys”, audio magazine ads, and reviews.

Meanwhile consumer electronic stores began marketing flashy new A/V equipment and soon most audio dealers began emphasizing A/V. I maintain the audio dealers should have marketed an alternative instead of trying to compete with mass market consumer electronics. A Florida corporation (Sound Advice) is a good example of a company marketing and demonstrating very good audio equipment in the 70’s and 80’s that started chasing consumer electronics which led to their demise.

They and many other audio dealers should have continued using marketing to demonstrate an alternative choice. A modest well designed and assembled audio system which can be integrated with and complimentary to video. Rear surrounds speakers and sub-woofers have limited utility because well structured movies emphasize good plots, human interaction, and music instead of continual gun fire, explosions, and planes flying over head. A sub-woofer is also difficult to properly integrate into a really good sounding audio system. Center speakers are not necessary for good dialog reproduction if the audio system is setup properly. In fact most people's use of center speakers in the horizontal plane is completely contrary to the alignment of stereo speakers. And all but the best A/V receivers significantly compromise stereo sound reproduction.

Audio dealers should change their business model to employ their love and knowledge of audio first and foremost by being instructive. Demonstrating an alternative to the consumer electronic stores by replacing A/V receivers and multi-channel amps with a good integrated amplifier; reallocating money used for surrounds and sub-woofers to solid floor standing speakers or monitors depending on the clients listening desires; demonstrating how proper system setup, room acoustics, power conditioning, synergistic cabling (power-ic-speaker), and resonance control can be implemented over time to considerably improve the listening experience. This approach will not only bring in new customers as the word spreads, but result in repeat business.

I believe a seriously good sounding audio system can be assembled for considerably less than $10K, perhaps $5K. Based on my reading it appears quite a few people are spending similar amounts on A/V systems that don’t provide anywhere near the same level of realistic sound. Does spending more than that amount on audio equipment bring improvements? You bet it does, but I understand everyone cannot afford or does not need this level of refinement. Unless you listen to music as a sole source of entertainment, money in excess of the minimum “audio-video” system can’t be justified. Even building toward increasingly high end audio achieves a disproportionate dollar improvement. But I’m delighted high end audio continues to push the technology envelope for those individuals who love to listen to music as often as possible in the comfort of their home, and have the disposable income in the quest of truly great sound.

If audio dealers embraced this new business paradigm as educators of well structured audio systems to produce palpable music and film sound tracks, perhaps newbie’s wouldn’t be so intimidated and confused, and bolting for the door.

amirm · Jun 22, 2011

Thanks for your thoughts

. I am unclear though about your proposal. Are you saying when someone walks in looking for a video surround system, they should be sold a stereo setup with two speakers instead?

LenWhite · Jun 22, 2011

amirm said:
Thanks for your thoughts . I am unclear though about your proposal. Are you saying when someone walks in looking for a video surround system, they should be sold a stereo setup with two speakers instead?

Amir,

Audio dealers should offer superior products and service than those sold by consumer electronic stores. Rather than directly competing with hdtv's, blu-ray, surrounds speakers, etc., offer a good sound audio alternative to A/V at the lower end. Audio dealers should have a really good sounding moderately priced audio system available in a good listening room to demonstrate. The target group should be people interested in watching movies with really good sound and are not aware of how well music can be reproduced.

Len

Bruce B · Jun 22, 2011

What consumers should do, and dealers as well, is to turn off the video in these theatres and show really how bad the sound is without the visual distraction!!

Alan Sircom · Jun 22, 2011

I don't think dealers are willfully suiciding their businesses. Some are doing well (a few extremely well, even in markets that are seen as burned out and driven only by iDevices). Some aren't. Many are trying everything they can to stop the rot. Some, regardless of doing everything right, will fail. Some, regardless of doing everything wrong, will succeed.

That's what the world of retail is like in 2011. Audio retail is, sadly, not immune to such forces.

Right now in many parts of the West, it's not that the newbie is running out of the store without buying anything, it's that they aren't walking into the store in the first place. This is happening across a lot of retail environments, especially in the consumer electronic retail space. That said, some audio retailers aren't exactly helping themselves - wishing it was 1985 again, treating potential clients like they were extras in a zombie movie and negative marketing are not robust business methodologies.

LenWhite · Jun 22, 2011

Alan Sircom said:
Right now in many parts of the West, it's not that the newbie is running out of the store without buying anything, it's that they aren't walking into the store in the first place. This is happening across a lot of retail environments, especially in the consumer electronic retail space. That said, some audio retailers aren't exactly helping themselves - wishing it was 1985 again, treating potential clients like they were extras in a zombie movie and negative marketing are not robust business methodologies.

Of course you are correct newbie's aren't walking into the store in the first place. That's why I suggested this business paradigm shift for audio dealers to actively market an alternative to A/V at the lower price points. Even in this incredibly bad economy music is a quieting and motivating force, and if newbie's can hear affordable goose bump examples of music at their local audio dealer and learn from them how to improve that experience over time, I have to believe some of them are willing to trade their mp3 music devices for the experience.

Matt193 · Jun 22, 2011

LenWhite said:
Of course you are correct newbie's aren't walking into the store in the first place. That's why I suggested this business paradigm shift for audio dealers to actively market an alternative to A/V at the lower price points. Even in this incredibly bad economy music is a quieting and motivating force, and if newbie's can hear affordable goose bump examples of music at their local audio dealer and learn from them how to improve that experience over time, I have to believe some of them are willing to trade their mp3 music devices for the experience.

Yes! This is what needs to be done. When I was searching for my first system and didn't want (couldn't) spend thousands of dollars on a system, most hifi B&M shops couldn't show me ANY affordable products that they stocked. I basically had three choices: Big box stores like Best Buy, internet direct companies, or used equipment. I ended up driving 6.5 hours to Saturday Audio in Chicago just to listen to speakers that were in my price range. At that store I felt like a valued customer. The salesman spent lots of time with me demoing speakers and AVRs and answering all of my stupid "noob" questions. The information I took away from that demo was invaluable to me.

Everyone has to start somewhere and with people's budgets stretched thin these days the retailers are going to have to lure in and hook people with good sounding affordable equipment. The upgrade bug will bite, most likely sooner than later, and I think if the customer has had a good experience with a particular store they will always come back.

Alan Sircom · Jun 22, 2011

LenWhite said:
Of course you are correct newbie's aren't walking into the store in the first place. That's why I suggested this business paradigm shift for audio dealers to actively market an alternative to A/V at the lower price points. Even in this incredibly bad economy music is a quieting and motivating force, and if newbie's can hear affordable goose bump examples of music at their local audio dealer and learn from them how to improve that experience over time, I have to believe some of them are willing to trade their mp3 music devices for the experience.

Yes, but if they aren't walking into the store under any circumstance, no amount of smart sales technique is going to work. You have to have someone to sell 'to' before you can begin to sell things. And right now, that isn't happening in enough numbers for anything, unless it's got an Apple logo.

This creates a vicious circle. If someone does walk into a store right now, many sales staff will simply take the person's order. Even if it isn't the right choice for them. Because they run scared (understandably so) of trying their luck and losing a sale. If someone walks in with a mind to buy a $1,000 AV system and walks out with a $2,000 audio system, the salesperson is a hero to the boss. In most stores, if the guy walks out with $2,000 worth of AV system, golf clubs, garden furniture or anything else, the boss still puts him in the hero category. But if the guy walks in with a mind to spend $1,000 on AV, gets played a stereo system and walks out confused and empty-handed... well, do that often enough and you are an ex-salesperson. And 'often enough' varies with the economic climate.

There will be some who do as you suggest. And there will be some who cast aside their MP3 player in the wake of such demonstrations. It's whether those people form a big enough group to form a new generation of audiophiles. I hope so, but given the execrable quality of many modern recordings (that are now mixed for iPhone headphone replay), and the fact that many of the target demographic consider even spending iTunes-sized money a waste and rely on freemium services like Spotify or illegal fileshares, we face a mighty struggle.

JackD201 · Jun 22, 2011

The biggest challenge of Brick and Mortar stores IMO is space. Physical space and the costs that come with it. We're a mix of retailer and distributor. Our more affordable lines are consigned to retailers in high traffic locations. Affordable usually equates to smaller footprints so this works out. We don't want to compete with our own dealers so we refer anybody that approaches us directly to the dealer closest to him. When it comes to the expensive stuff which requires more meticulous set up and much larger listening spaces, we do it from our homes. My 70sq/m listening room has it's thread here but there is also a 30sq/m dedicated Home Theater right above it which I really should take pics of.

Rent, or rather avoiding rent, is a huge part of keeping a business with so small a market viable. You just aren't going to get walk-ins for 5 figure products very often so there isn't much opportunity loss. In fact if they do walk in looking for our higher end products it is because they've sought the products out before hand. Taking rent out of the equation allows us to get very close to US street prices. Sometimes a bit more and sometimes a bit less but we're right in the ballpark. We definitely come in below internet store prices after all the haggling is done. If we had to pay rent, we would be forced to price at above US retail.

The other benefit is that since we also offer consultation services along with our acoustics, automation and interior design partners, clients get to experience ACTUAL domestic environments. My kids aged 11, 9 and 3 come in and out of the main listening room even during auditions. I never shoe them off. My kids love music so they often come in say hello and just hang around to listen. When the music is upbeat they dance. The only time I get worried is when they dance too close to the turntables.

Anyway kid's excess energy being what it is, they usually stay no more than a few minutes and by local custom they withdraw with the customary buss on the cheek to Dad's friend. Anyhow, I find being in an actual domestic listening space is beneficial because you know it is set up for daily use and not set up to impress. You get to have a drink in your hand, have snacks and really get to know your client and vice versa. Trust is a big thing in this or any other expensive pursuit. I can't run and hide. They know where I live! Hahahahaha!

I don't really have to do any sales talk I just play the requested tracks. That's another benefit. Most people don't bring much of their own software with them. In my home, I've got my entire collection of analog and digital at my finger tips. You can't have that in a store. As such auditions usually take a couple of hours some have gone much longer. In the end I believe any hobby isn't about the gear, it's the experience. That's very hard to impart in a commercial setting.

DaveyF · Jun 22, 2011

Jack, there's a problem with your post

. Your hi-end home store is a destination location

....meaning that the way people/customers get to you is due to the fact that they already know about you. How many complete newbies who have never heard about you, or are not referred to you, even know you exist?

The current issue for our hobby is the problem of attracting new interest in the hobby, enough so that a complete newbie will walk off the street into a high-end store and not walk by the high-end store. Alan Sircom's points are well taken, IMHO. Once inside the door, the trick is to get this same newbie to have enough interest in what he/she is witnessing to open up his or her pocket book. I personally believe that as long as the pricing structure that we are currently experiencing continues, then the man/woman off the streets is simply going to take a pass

OTOH, if that same man or better still woman, can witness something better than he/she has heard or seen before and that he/she can enjoy this new development for him/herself at home at a similar or lower price than the BIG BOX stores offer-- then the high-end dealer has a chance.

The public has to be made aware of an alternative to the Big Box store and to the numerous low-fi web stores that they are now cognizant of but not excited over. That is the BIG test for our hobby, IMHO.

amirm · Jun 22, 2011

I heard a specific suggestion regarding an affordable system. What should that package look like and how much should it cost? This is a serious question as I am happy to try the suggestion at our shop

.

Mike Lavigne · Jun 22, 2011

a few comments.

--mostly 2-channel audio state of the art moves too quickly for traditional brick and mortar environments. conventional high end manufacturers, with conventional distribution processes, typically are not on the 'real' cutting edge of performance. especially on the analog side of sources.
so brick and mortar ends up with mostly that 'a bit stale' product line-up. alternate approach marketing dominates with the latest gear.

--as a result of the above, brick and mortar must look for the 'big hit' of top end Home Theatre and home automation to pay the bills....while still keeping their hand in 2-channel as best they can.

--but.....there is hope for the high end hifi....but it's not where you might expect to find it. if you check out the whole Headphone 'scene', it is alive and kicking big time!!! many many young listeners, very conscious of high quality sound, and spending big bucks on very expensive headphones, amps and sources. and this culture gets together to enjoy the hobby frequently. i'll bet that there are many multiples more headphone fanatics than traditional audiophiles......and in total lots more dollars involved. and it's all 2-channel. if the high end press (including e-commerce high end) would give it more attention it would help to pull many of these young headphone fans into conventional 2-channel speaker systems as their life styles evolve. this year i bought some high end headphone gear and checked it out, as well as spent time on the various websites, then i went to a local headphone meet. the vibe reminded me of the music vibe i recall from the early 70's......music as an essential part of life and worth doing right. an enjoyment of the gear to some degree and appreciation of great sound.

--personally, i don't see the need for brick and mortar 2-channel dealers. commerce for stuff like that has evolved away from that. OTOH i would like to see more young people get into our hobby.

garylkoh · Jun 22, 2011

When I was a varsity student in the UK, the system that we all lusted after and could actually afford by living on bread and water for about 6 months was the Rega P2, Creek 4040, and Wharfdale Diamonds. I splurged and got the P3 (with the S-arm - this was before the RB300) and Mission 70's. Including cables (QED 79 strand), cartridge and stands it didn't break 400 Pounds.

What would it take for Madrona to have an entry-level sub-$2,000 goose bump-inducing system set up for permanent demo at UW (or closer to your home Digipen) to bring newbies to the hobby?

JackD201 · Jun 22, 2011

DaveyF said:
Jack, there's a problem with your post. Your hi-end home store is a destination location....meaning that the way people/customers get to you is due to the fact that they already know about you. How many complete newbies who have never heard about you, or are not referred to you, even know you exist?

The current issue for our hobby is the problem of attracting new interest in the hobby, enough so that a complete newbie will walk off the street into a high-end store and not walk by the high-end store. Alan Sircom's points are well taken, IMHO. Once inside the door, the trick is to get this same newbie to have enough interest in what he/she is witnessing to open up his or her pocket book. I personally believe that as long as the pricing structure that we are currently experiencing continues, then the man/woman off the streets is simply going to take a pass
OTOH, if that same man or better still woman, can witness something better than he/she has heard or seen before and that he/she can enjoy this new development for him/herself at home at a similar or lower price than the BIG BOX stores offer-- then the high-end dealer has a chance.

The public has to be made aware of an alternative to the Big Box store and to the numerous low-fi web stores that they are now cognizant of but not excited over. That is the BIG test for our hobby, IMHO.

Hahahaha! Yes it is. I guess what I am saying is that the more the store setting feels casual e.g. comfortable and without a salesperson shadowing you all the time, the client in my experience can put his head in music mode rather than money mode. It's an audition anyway. Listen first, talk price later.

It works for us because we are in a very small market and the market for expensive equipment is many times smaller yet. Not many folks here that have fallen over the deep end don't know we exist. I've been a "Super Moderator" in the local forum for longer than we've been into the business side of audio. I still answer many PMs a week from folks looking for rational advice. I've been featured in a national broadsheet about three times (regarding audio, outside of audio many times that), been interviewed with my partner regarding audio on tv. We were on air for about 40 minutes I think. Most recently the room and system were featured on the inaugural issue of the men's magazine, The Vault. Like I said our more affordable lines are with retail outlets. These outlets are distributors themselves. In another thread here I described how we all work together instead of against each other to help grow the industry. We all agree that the worst thing to do is to have people get turned off. When we don't have what the need or want, be it based on applications or sonics, we point them towards the others that might have what they'll like. They do the same for us. No money changes hands here. No commissions on referrals. It's just a straight up honor system.

Personally I think stores like Magnolia are a good way to introduce the general public to quality goods. Some will look for better performance while the majority won't. It's like a ziggurat in my mind. The fact that they've gone to Magnolia means that they've already been to the ordinary Best Buy and found things wanting. Those that find the geek squad wanting will seek out a local custom installer and so on and so forth. There's a filtration system that's happening. Then you hit the net and suddenly you get exposed to the dizzying array of options you never even thought existed. I mean how many 18 year olds who don't play electric guitar have actually seen a vacuum tube?

One thing that I think is irreversible is that the new route into high end audio will remain Home Theater. Nor do I think it should be reversible. HT is what's keeping the brick and mortar alive. Not many people these days just sit and listen attentively. It's also hard to justify spending a lot on a system geared for just one user. Many cross over from HT when they realize listening to 5 minutes or so of music again is easier than watching a 90min movie again. Good songs outnumber good movies.

How about a poll among those of us with families and dedicated listening rooms? How many of us here could have gotten away with dedicated rooms if we hadn't set up an HT for everybody else first? I'm raising both hands

amirm · Jun 23, 2011

garylkoh said:
What would it take for Madrona to have an entry-level sub-$2,000 goose bump-inducing system set up for permanent demo at UW (or closer to your home Digipen) to bring newbies to the hobby?

The equipment is the easy part. Not sure of the logistics to get it placed some place there. I will look into it. It is an intriguing idea!

mauidan · Jun 23, 2011

i have dedicated listening room because my wife wanted her living room back.

Haven't rented, purchased or been to the movies in over four years, so I hope we
don't need HT to save hi-end.

JackD201 · Jun 23, 2011

Isn't that the irony of living rooms? Wives just don't want us living in them!

LenWhite · Jun 23, 2011

amirm said:
I heard a specific suggestion regarding an affordable system. What should that package look like and how much should it cost? This is a serious question as I am happy to try the suggestion at our shop .

Amir,

With the product lines at your shop, can you offer a well setup great sounding stereo system in the $5,000 - $10,000 price range (the lower the cost without sacrificing sound the better)? The stereo should be setup in a good listening room with synergestic cabling coupling an integrated amplifier, floorstanding speaker or monitor, and CD player. I'm assuming the listening room would have the other components that significantly enhance a great audio system such as room acoustics and power conditioning. This system should also be setup using resonance control starting with a good rack although those components shouldn't have to be part of the base price.

Offer free listening sessions encouraging people to bring their software on the most popular social networks in your market area. Describe the listening system as an alternative to consumer electronics that will provide a papable sound experience and yet be compatible with watching movies with consumer blu-ray and hdtv's.

The actual listening sessions should emphasize how the system components were carefully setup in the listening room and how the characteristics of the listening room (room acoustics, power conditioning) and the resonance control devices enhance the experience. It should be made clear system setup in the listening room (symetrical) significantly affects the performance of the stereo system. These additional services should be offered at modest pricing. These listening sessions could be like a mini-CES type experience or even better if the instructive talks are good enough.

I'm not sure I've adequately explained this approach and I may have missed some components of the presentation sales process, but it's a start.

Len

JackD201 · Jun 23, 2011

Here's my pick from Amir's stable

Paradigm Titan Bookshelves, Sonos ZP120, any computer and any smartphone with Android or Mac iOS. Assuming the client has a computer and a smart phone we're looking at a sub $1,000 system that would make many folks happy. $2000 would cover a Win laptop and a smartphone.

LenWhite · Jun 23, 2011

JackD201 said:
Here's my pick from Amir's stable

Paradigm Titan Bookshelves, Sonos ZP120, any computer and any smartphone with Android or Mac iOS. Assuming the client has a computer and a smart phone we're looking at a sub $1,000 system that would make many folks happy. $2000 would cover a Win laptop and a smartphone.

Despite all the discussion the quantity of high resolution music (even RBCD quality) remains extremely small, far less than even SACD at this time.

For those assembling computer music server devices today, it's a daunting task to achieve playback on the level of a really good CD player given the computer software/hardware complexities and myriad of alternatives.

Further, I'm not sure how the audio industry plans on protecting copyrights, especially of high resolution music. Someone paying for the original download will be able to simply give away as many copies of essentially the master as they wish without consequence. Surely this will significantly reduce the revenue of recording artists and producers.

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