[Waker]

This is an eye-opening topic.  I have appreciated advice and support over the years from my high-end retailer here in Minneapolis, but the prices are formidable.  I have always heard that the general rule in high-end audio is a 100% dealer markup from the manufacturers wholesale price to the retailer.  The margins are much, much less at mass consumer outlets such as Best Buy, who have > 90% of the market, but more competition.  In contrast, my high-end dealer here has exclusive rights to sell new Audio Research gear, made right here in the Twin Cities, and also Magnepan speakers, also made here in the TC.  If you want anything new made by these companies, and you are buying in Minnesota, you must go to this store.  They also carry Bryston, and I bought mine there.  The value I have found from this retailer is that they seem to feature best-in-class product lines at differing price points.   But their advice has been their most valuable service, in that, the owner has listened to everything out there, and he and his helpers knew that Bryston amps and Magnepan speakers have a special affinity, which is what I settled on, and I am pleased. 
But the retail prices are what we have always balked at.  The traditional doubling of the manufacturers price is just price gouging by today's competitive standards.  I can well understand if the manufacturer doubles his cost, because he has a much higher startup burden and continuing overhead, but this retailer arrangement? This is what should go extinct.  I would like to see a more factory-direct approach from high-end companies, where they still make what they are due, but the consumer gets more value.  At the least, the high-end stores need to face reality and offer real-world prices to real people who suffer for their passion.                   

[macrojack]

I have been out of retail a long time but traditionally and typically 40 points is the normal profit margin. That is to say, at full list price, the dealer makes a 40% profit. When I was selling we would maintain a gross profit of 32 to 35 per cent after discounts. The salesman gets a percentage of the profit as commission. There are plenty of other expenses such as high rent in a neighborhood where you feel O.K. about spending that kind of money.

I agree that, in good years, the dealer makes a killing but that is predicated on a pretty good volume which they haven't seen in a long time. Before the economy crashed most B&M stores were already feeling the pinch. What is happening now will be fatal to most of them.

Interestingly the industry has come full circle in a sense. It started as hobbyists created things for themselves and funded their hobby by selling some of their creations to others. Out of this grew the conies that we know as giants. Nowadays many inventive types are going to the drawing board to provide themselves with items that they cannot afford to buy. In the process, some of them are creating products that prove to be standouts in the price/performance area.

High end audio is destined to remain a cottage industry despite itself. As the big guys collapse or sell out to Best Buy, the underground outfits like Red Wine and Modwright and Zu are holding their own because they don't have a momentum to maintain. Free enterprise.

[James Tanner]

Hi Waker,

Some great points, and I know the quality dealer (Mark) you are referring to.  From a manufacturers perspective it has always been a double edge sword in that on one hand you want to bring your products to market in the most cost effective way possible for your customer but the marketing models available have traditionally been very limited and traditional. Maybe the internet is changing all that to a degree?

The specialty retailer has been and continues to be the only cost effective option most specialty manufacturers have. Even when you go direct the marketing costs are still formidable because you now have to advertise and promote directly to the customer with the associated costs involved in that model. Unless you're a Bose with unlimited promotional funds it's a tough go to get your products in front of a large enough market to reach the critical sales mass you need to survive. Any high-end specialty company I can think of that in the past has tried to go direct to the end users has not lasted very long or had to morph into a specialty dealer model. 

By the way 50% is way above what Bryston has as a suggest list to dealer cost ratio.  Believe me most companies I know in the specialty audio business are in no way getting rich in this business. In fact most people involved are involved because they have a passion for what they do and enjoy the work and certainly are not receiving bloated financial rewards.  In fact, what I see happening, and it is alarming, is the disappearance and erosion of people in the industry that really do care about what they sell and about helping the customer to make informed decisions. Maybe as others have said the hi-end audio customer and the retailers that service them are simply dying off?

Definitely food for thought and it is a subject that is certainly being discussed within our industry with the horrific downturns there have been in the economy.

james

[danman]

Well said James. The dealer where I live is very passionate and actually does quite well because he is the only one that actually repairs what he sells in store as they are all technicians. However, he does not sell Bryston! Too bad! I bought Bryston because I love the sound and quality as well as your exceptional service and hospitality. He does sell YBA which I owned previously but always found them dry sounding for my tastes.

He has sold me everything else I own and I can tell you that I find it really important the one on one service that he gives me. I recently had a slight popping sound from one of my new panels on my Martin Logan Quests and he contacted the distributor who in turn contacted Martin Logan. They sent me brand new panels without question! I even got to keep the old ones as they did not even ask for a return! Best Buy and Future Shop would never do this! I mean, were talking 1800$ here!

I only hope that these types of dealers and companies like Bryston can keep up this service because in today's mass market crap, we have forgotton about the consumer and I believe that is what got us into this world mess in the first place!

[Curly Woods]

This is an eye-opening topic.  I have appreciated advice and support over the years from my high-end retailer here in Minneapolis, but the prices are formidable.  I have always heard that the general rule in high-end audio is a 100% dealer markup from the manufacturers wholesale price to the retailer.  The margins are much, much less at mass consumer outlets such as Best Buy, who have > 90% of the market, but more competition.  In contrast, my high-end dealer here has exclusive rights to sell new Audio Research gear, made right here in the Twin Cities, and also Magnepan speakers, also made here in the TC.  If you want anything new made by these companies, and you are buying in Minnesota, you must go to this store.  They also carry Bryston, and I bought mine there.  The value I have found from this retailer is that they seem to feature best-in-class product lines at differing price points.   But their advice has been their most valuable service, in that, the owner has listened to everything out there, and he and his helpers knew that Bryston amps and Magnepan speakers have a special affinity, which is what I settled on, and I am pleased. 
But the retail prices are what we have always balked at.  The traditional doubling of the manufacturers price is just price gouging by today's competitive standards.  I can well understand if the manufacturer doubles his cost, because he has a much higher startup burden and continuing overhead, but this retailer arrangement? This is what should go extinct.  I would like to see a more factory-direct approach from high-end companies, where they still make what they are due, but the consumer gets more value.  At the least, the high-end stores need to face reality and offer real-world prices to real people who suffer for their passion.                   

  Audio markup has always been 40% at full list.  That may sound like a big markup but what you don't see is the extraordinary cost of advertising and of retail floor space, the wages to the salespeople, the taxes that the business has to pay on his inventory at the end of each year, the utilities, the insurance, the expenses are on going.  It takes a considerable amount of full priced sales each month to keep an audio store in business.  It is not easy.  That is why more and more are going away, mid-fi and high end dealers.  The only stuff that is still selling is the ultra-uber expensive gear.  Every thing else is is in the same boat, no consumers.  Have a look around at all of the hobby stores.  Boat, motorcycle, etc are all on the verge of going under. 

  B&M stores and the lack of them are what is killing hi-fi.  People can no longer walk in and listen to an assortment of speakers, equipment, etc so people have stopped buying along with the lack of expendable incomes.  Without B&M stores all hobby businesses will not survive as few buyers will buy without listening and seeing what they are buying sight unseen, especially when we are talking about thousands of dollars.

[Waker]

Thanks to all who have experience for correcting my misperception on retail markups.  I believed this because a friend tried to manufacture and sell acoustic treatments to some stores here, and the pricing formula was double and double again by the time it got on the showroom wall.  The product ended up not selling because of its price, despite my friend having had a marketing consultant.       

[Curly Woods]

Thanks to all who have experience for correcting my misperception on retail markups.  I believed this because a friend tried to manufacture and sell acoustic treatments to some stores here, and the pricing formula was double and double again by the time it got on the showroom wall.  The product ended up not selling because of its price, despite my friend having had a marketing consultant.     

Accessory items do indeed often exceed the typical mark-up of the equipment.  That is a different story. 

[Waker]

OK, thanks for that, Mike.  Now, please explain this:  That same friend also stated there is a particular departure from standard arithmetic practiced only in retail, in that, if something is marked up 50%, it really means a doubling of an amount, meaning that a price of $100 marked up 50% is actually $200 instead of $150.  I said I had never heard of such an arrangement, but he insisted he had always heard that from retailers he had known.  I am dubious of his perception of this, which would also mean that something that is 50% off should be free.  I forgot to mention this to him at the time, and I would not bring it up again now, for he basically lost a lot in trying to develop his acoustic product business.     

[gerald porzio]

Cables,accessories & tweaks aside, most equipment lines are 40% & were 35 yrs. ago.

[Curly Woods]

OK, thanks for that, Mike.  Now, please explain this:  That same friend also stated there is a particular departure from standard arithmetic practiced only in retail, in that, if something is marked up 50%, it really means a doubling of an amount, meaning that a price of $100 marked up 50% is actually $200 instead of $150.  I said I had never heard of such an arrangement, but he insisted he had always heard that from retailers he had known.  I am dubious of his perception of this, which would also mean that something that is 50% off should be free.  I forgot to mention this to him at the time, and I would not bring it up again now, for he basically lost a lot in trying to develop his acoustic product business.   

Yes the 50% is the retailers margins of the sale (1/2 of the sales price).  You are correct that it is half of what we think of normally.  It is a retail thing.  I guess I had not thought of it in years as being wrong

[mclsound]

"A ridiculous price deserves a ridiculous response"  Lets face it,this is not the time to take advantage of people...unfortunately SOME retailers are funny...LOOK on audiogon or canuck audio for example,dealers are everywhere, and there prices show it,for example,there was a guy who was selling a 14bsst for $3500 and a dealer was selling for $4500,who are you going to buy from?..AND taxes well thats another story...all these manufactures with their $30,000 amps and 1yr warranty are going to put their retailers out of business..
john

[Curly Woods]

"A ridiculous price deserves a ridiculous response"  Lets face it,this is not the time to take advantage of people...unfortunately SOME retailers are funny...LOOK on audiogon or canuck audio for example,dealers are everywhere, and there prices show it,for example,there was a guy who was selling a 14bsst for $3500 and a dealer was selling for $4500,who are you going to buy from?..AND taxes well thats another story...all these manufactures with their $30,000 amps and 1yr warranty are going to put their retailers out of business..
john

I am sorry but I missed the intent of your post.  What are you trying to say?

[macrojack]

Retailers don't talk about mark-up from their wholesale price (which is referred to as cost). The focus for them is on their take which they call points. A 40 point line is one in where a $1000 item costs them $600. The $400 they have to negotiate with is 40% of the original list.

One of the reasons that high end audio pricing has crept into the stratosphere over the years is the fact that the number of customers for this stuff stopped growing at least 15 years ago. Since the number of sales has been static for so long, the only way to increase revenues is to increase the size of sales to the same number of customers. That means trying to convince us to spend ever more for ever better(?) equipment. Now that the number of customers is actually shrinking, we see a phenomenon where mass market and computer audio have captured the low end of the market and the high end has mover out of reach, if not out of sight, of us former consumers.

The good news is that there is a growing glut of used equipment out there and some of us will capture real giveaway deals from widows.

[mclsound]

"A ridiculous price deserves a ridiculous response"  Lets face it,this is not the time to take advantage of people...unfortunately SOME retailers are funny...LOOK on audiogon or canuck audio for example,dealers are everywhere, and there prices show it,for example,there was a guy who was selling a 14bsst for $3500 and a dealer was selling for $4500,who are you going to buy from?..AND taxes well thats another story...all these manufactures with their $30,000 amps and 1yr warranty are going to put their retailers out of business..
john

I am sorry but I missed the intent of your post.  What are you trying to say?

I am saying that retailers are a middle man are going to be slowly dying out,but the ones with passion will stay...a audiophile knows the difference between a salesman and a guy with passion...like macrojack said...lot out there for the audiophile and little fore that money hungry sales guy...and if you need reviews....GOOGLE IT

[macrojack]

mclsound -

It won't matter how much passion a retailer has if he has no cash flow. Even a gourmet chef can starve.

Friends and I have joked that we are fast approaching a situation where there will be one manufacturer for every audiophile in the U.S.

[Laundrew]

"A ridiculous price deserves a ridiculous response"  Lets face it,this is not the time to take advantage of people...unfortunately SOME retailers are funny...LOOK on audiogon or canuck audio for example,dealers are everywhere, and there prices show it,for example,there was a guy who was selling a 14bsst for $3500 and a dealer was selling for $4500,who are you going to buy from?..AND taxes well thats another story...all these manufactures with their $30,000 amps and 1yr warranty are going to put their retailers out of business..
john

A one year warranty, they are not very confident in their products reliability, are they

[Curly Woods]

It is all about making money.  If a small individual guy is not selling enough equipment to make his bills, he will not be around long.  The markup is there to provide the retailer a profit margin,  Audio has the lowest profit margin in any industry.  I want a company to be around to help me out too.  In any business you get to select two of the following three as you will never get all three:  Price, Service, Quality.  Something has to give somewhere. 

  The best small individual dealers will not knock off 20% of their profit and stay in this business for long, unless it is a part time gig for them.  They will not likely sell enough gear in the course of a month to even feed themselves, let alone make it worth their efforts after they pay all of the associated costs to remain in business and try to make a living doing it by cutting their prices to the bone.  The other problem is that not everything each manufacturer makes is great.  The retailer is still expected to purchase a certain number of these items as conditions of their dealership agreements.  The dealer is forced to eat these items and then sit on that money for sometimes extraordinary lengths of time.  These items mean that he can not afford to bring in other lines or pieces as he/she has capital tied up in a dog.

  The opening order to get into a better quality audio line like Bryston is not cheap either as they will likely expect you, as a dealer, to show good faith by purchasing a large inventory to begin your dealership.  Not many people that are not serious about making money would do this as it is a very large BILL!  That is to just get one line of equipment.  Now add a speaker company, a source component line, cabling, and at a minimum we are looking at probably $50K in a just a limited lineup to show a customer, if not considerably more.  There are so many pitfalls that the average consumer does not recognize in any business venture that makes it even harder for a dealer to stay in business. 

  Unless manufacturers sell directly to the individuals, there will always be middlemen.

[Laundrew]

"A ridiculous price deserves a ridiculous response"  Lets face it,this is not the time to take advantage of people...unfortunately SOME retailers are funny...LOOK on audiogon or canuck audio for example,dealers are everywhere, and there prices show it,for example,there was a guy who was selling a 14bsst for $3500 and a dealer was selling for $4500,who are you going to buy from?..AND taxes well thats another story...all these manufactures with their $30,000 amps and 1yr warranty are going to put their retailers out of business..
john

A one year warranty, they are not very confident in their products reliability, are they

We all know that Bryston has a twenty year, transferable warranty on their amplifiers and I believe that SimAudio has a 10 year warranty but is not transferable. Do other audio manufacturers have warranties of 10 years or more? 

[srb]

Some dealers do little to nothing to insure they stay in business.
 
One local dealer sends out a generic postcard to existing customers twice a year for a sale event.  They do little advertising to attract new customers, and assume by simply being there, that new customers will come and existing ones will return.
 
Another dealer did regular advertising in a cost-effective music and entertainment weekly newsapaper. He also would send out a short hand written thank-you note after a purchase, as well as a Holiday card with a few hand written words and signature.  He took the extra caring steps and it paid off in return business.  There were always people milling around his store, while the other dealer's store looked like a graveyard.
 
As far as discounts, those dealers who refuse to budge even 5% off of retail often end up losing the sale.  Sure, the dealer won't stay in business with hefty discounts on each sale, but sometimes a slightly less profitable sale is better for the bottom line than no sale.
 
Having a passion for your chosen industry doesn't automatically mean that one has business and marketing acumen.  Times are tough for retailers, but those that embrace the customer with a personal touch and learn something about sales and marketing will fare better.
 
Steve

[Curly Woods]

Some dealers do little to nothing to insure they stay in business.
 
One local dealer sends out a generic postcard to existing customers twice a year for a sale event.  They do little advertising to attract new customers, and assume by simply being there, that new customers will come and existing ones will return.
 
Another dealer did regular advertising in a cost-effective music and entertainment weekly newsapaper. He also would send out a short hand written thank-you note after a purchase, as well as a Holiday card with a few hand written words and signature.  He took the extra caring steps and it paid off in return business.  There were always people milling around his store, while the other dealer's store looked like a graveyard.
 
As far as discounts, those dealers who refuse to budge even 5% off of retail often end up losing the sale.  Sure, the dealer won't stay in business with hefty discounts on each sale, but sometimes a slightly less profitable sale is better for the bottom line than no sale.
 
Having a passion for your chosen industry doesn't automatically mean that one has business and marketing acumen.  Times are tough for retailers, but those that embrace the customer with a personal touch and learn something about sales and marketing will fare better.
 
Steve

Steve all good points that you have made.  I would hope that at the end of the day, it is about customer care, as much as it is about the purchase price.  A retailer has to feel that he is at least making a living for all his efforts or else they will get burned out and go away.  The dealer is responsible to making a shopping experience a satisfying one for the customer as well.  Not every dealer will have the moxy to reach his customers and retain them.  Personalized services as you have described really show that they do care about the buyer after the sale.