Thanks for the heads up Jim. Just out of curiosity, have some of these parts jumped up in price suddenly? If so, do you have a rational as to why?
Thanks, Garth
Garth -
There are several factors. As Rocket alluded, the value of the dollar just isn't what it used to be. Since many of the parts we purchase are manufactured in other countries, prices vary with each order depending on the exchange rate at the time. Sometimes costs decrease, but on the whole, they have been rising over the past couple of years.
Another factor is the rise of China. The additional demand for raw materials has been responsible for increased manufacturing costs. These cost increases are passed on in the form of higher prices for manufactured goods.
It is not only parts costs that have gone up. The cost of finishing materials has gone up almost 50% over the last two years. That may not seem all that significant, but we go through thousands of dollars worth of finish (lacquer, thinner, etc.) each month.
Weather and natural disasters can also impact the cost of materials. The recent earthquake in Chile, for example, completely stopped the shipment of MDF and wood fiber used to make MDF. When the US started protecting the habitat of the spotted owl, the US began importing MDF and wood fiber from Chile. With Chile not in a position to supply the US market, MDF shortages began to appear. Of course, without MDF, we are completely out of business. So we had to scrounge and buy up all the MDF we could get our hands on. Again, with the supply down, even though we were purchasing skids of MDF rather than sheets, the prices per sheet were higher than ever before.
As you can see, there are more factors involved here than even we realized.
Last year, we built and shipped 35% more speakers than the prior year. But our profits actually declined slightly. Obviously, no business can survive with that formula. We resisted raising prices hoping that as the economy improved, costs would go down a bit. But that has not been the case and we simply can't continue absorbing additional costs.
That said, we have always placed great emphasis on delivering industry-leading value to our customers and this will not change. We are very confident that our speakers will continue to be among the very best values in the audio world.
- Jim
