[Marbles]

Over the past 10 months or so I've spoken to many owners of direct to consumer audio companies.

Some are doing very well, some are not.

Before giving a deposit to a company for a product, I would use a little more due diligence than usual.

These are unusual times, but it looks to me like they will be rough economically for the USA for at least the next 18 months.

To clarify, many companies are doing well and you should in no way not do business with them.

Some are hurting and you might still want to do business with them, just know what the situation is before hand if possible.

There are several signs that a company is hurting, anyone want to take a shot at the list?

[TheChairGuy]

hmmm, okay Rob, I'll take a shot....is it a 'LIQUIDATION SALE'?    That would certainly be indicative to me that there is a problem.

I feel like I might be walking into a Marbles-joke....

Hey, btw Rob - I'm about to sell Ft. Wayne-based Do It Best Corp...so if I'm in town, we'll meet finally (hopefully) after 6 years.

If this is not a joke....we are indeed in a recession now (we had a topic on this a few months ago and I was not sure at that time).  However deep and serious it is, I cannot tell, but I have not experienced this dip since post 9/11/2001 or before that 1988-1991 or so.

John

[Marbles]

hmmm, okay Rob, I'll take a shot....is it a 'LIQUIDATION SALE'?    That would certainly be indicative to me that there is a problem.

I feel like I might be walking into a Marbles-joke....

Hey, btw Rob - I'm about to sell Ft. Wayne-based Do It Best Corp...so if I'm in town, we'll meet finally (hopefully) after 6 years.

If this is not a joke....we are indeed in a recession now (we had a topic on this a few months ago and I was not sure at that time).  However deep and serious it is, I cannot tell, but I have not experienced this dip since post 9/11/2001 or before that 1988-1991 or so.

John

PM heading your way...no jokes from me on this topic.

[Wind Chaser]

I haven't seen too many liquidation sales yet, so maybe things aren't that bad? In fact I've seen a number of smaller (obscure) companies raise their prices by as much as 15-20% in the last year.  It's hard to believe that in an overcrowded 2 channel market given the perceived current economic climate, that these players can afford to raise their prices so much.

[zybar]

I haven't seen too many liquidation sales yet, so maybe things aren't that bad? In fact I've seen a number of smaller (obscure) companies raise their prices by as much as 15-20% in the last year.  It's hard to believe that in an overcrowded 2 channel market given the perceived current economic climate, that these players can afford to raise their prices so much.

I think it is because the people who have the discretionary income to afford the high ticket items aren't impacted as much by all the economic troubles.

Let's face it, the well off, are still well off for the most part.    

It is the middle and lower income families who are getting killed by the prolonged economic downturn.

Where I have definitely seen an impact is on Audiogon.  Higher ticket items aren't selling anywhere near as well as this same time last year.

George

[TheChairGuy]

Price increases forced on everyone now, WC/John.

Steel prices in China went from $USD5500 tonne to 7400 tonne in the past 20 days (as of 4 days ago)...coupled with 5.2% currency loss USD/RMB since 1/1/2008 and large increases in all petrol products (rubber, nylon, plastic, etc) means the price increases have to be passed on.

You can only absorb so much as a manufacturer/vendor 

In 20 years post-college (1985), I've never seen this rampant inflation.  We've enjoyed 20 perfectly tame, inflation-free years. 

John

[Marbles]

Here's one, If they say they are having financial problems...

[Wind Chaser]

Steel has gone up big time, but speaker manufacturers can't cite that as reason to justify their price increases.  If it's a matter of the cost of wood, open up the borders again, Canada has a seemingly infinite supply of cheap softwood lumber.

[Kevin Haskins]

Steel has gone up big time, but speaker manufacturers can't cite that as reason to justify their price increases.  If it's a matter of the cost of wood, open up the borders again, Canada has a seemingly infinite supply of cheap softwood lumber.

Actually, steel drives the price of my transducers.   That and shipping are the two highest cost components of what goes into a large subwoofer driver.   

For an actual finished speaker, made in China, the cost of the wood is going up because it has to be shipped there.   Everything is tied to transportation and when the cost of energy goes up 25% then you can bet that that will ripple through every product produced, no matter whether the commodity cost is stable or not.   

[Kevin Haskins]

Here's one, If they say they are having financial problems...

Ha... that is the case for about 50% of the high-end audio market at ANY given time.   

I actually think the smaller companies, that are less heavily leveraged should do better.    Its like the guy who went out and bought the big house that he could barely afford.   When tough times come, he is no longer able to pay the mortgage.    The guy who lives in the trailer-home may not be the admiration of the neighborhood, but he probably could pay his mortgage with a paper route.   

The same thing with companies.   Those that are heavily leveraged and dependent upon monthly cash flow will suffer.   Those that can idle back, spend less on growth, can do fine in slow times.

[gedlee]

There is no question that audio in general is in a serious state.  I am very well connected to this industry - I've spent my life in it - and from all that I see all but the mass market convenince audio (Ipods, etc.) are not doing well.  People just don't listen to the larger audio systems any more.

[Marbles]

Dr. Geddes, Welcome to Audiocircle!

I look forward to hearing your speakers.

[kbuzz3]

I haven't seen too many liquidation sales yet, so maybe things aren't that bad? In fact I've seen a number of smaller (obscure) companies raise their prices by as much as 15-20% in the last year.  It's hard to believe that in an overcrowded 2 channel market given the perceived current economic climate, that these players can afford to raise their prices so much.

I think it is because the people who have the discretionary income to afford the high ticket items aren't impacted as much by all the economic troubles.

Let's face it, the well off, are still well off for the most part.    

It is the middle and lower income families who are getting killed by the prolonged economic downturn.

Where I have definitely seen an impact is on Audiogon.  Higher ticket items aren't selling anywhere near as well as this same time last year.

George

In my opinion, in nyc and most surrounding "good school system burbs" (not including parts of queens and brooklyn) there has been no drop off in the general economy at all.  I dont go to lyric HI FI for reasons which dont have to be regurgitated, but I wonder if they and sound by singer are hurting at all.

Im sure the rest of the country is feeling it though. NOt to get off topic but why is the populace not out with the pitchforks and torches on the 5 dollar gas issue? Have we become that cynical on our ability to address things both short and long term?  I mean its pretty obvious why gas prices-- and other things-- are up so high.  Are out energies so distracted by things like age of the candidates, their wives or flag pins?

[TONEPUB]

There is no question that audio in general is in a serious state.  I am very well connected to this industry - I've spent my life in it - and from all that I see all but the mass market convenince audio (Ipods, etc.) are not doing well.  People just don't listen to the larger audio systems any more.

I don't know that I'd go that far....

[Marbles]

A sign of problems could be If delivery dates slip.

Another sign could be if quality goes down.

[avahifi]

Looking back, in the Carter recession of the 1970s when gas prices made a horrific jump from 30 cents per gallon to 50 cents per gallon, and everybody stayed home in doom and gloom, our sales went way up!

Why, because when you are staying home and not spending your money on travel and gas eating big boats and motor homes, you need something at home to cheer you up and our audio components seems to fill that bill just fine.

Our business has not fallen off at all this year and I suspect it will not for the same reasons, and more.
Best regards,

Frank Van Alstine

[avahifi]

Regarding gasoline prices and gas mileage, everybody is looking at the issue ass backwards.

First of all gasoline prices are not terribly high in relation to the rest of the economy.  In the early 1960s I paid $1700 for a new VW, and $22000 for a nice new home.  Gas was about 40 cents a gallon.  Now that car would cost ten times as much and so would the house.  So gas at $4.00 a gallon should be no big surprise.  It is at the same price in relation to the economy as it was 50 years ago.  Big deal!

Second. "Miles per gallon" is a terrible way to look at gas mileage.  Miles per gallon is an exponential function, and everybody looks at it at as a linear function and that is completely misleading.  The correct measurement is "gallons per hundred miles".

An example.  How important is it to improve your mileage by 5 miles per gallon?

Well, if you are now getting 33 miles per gallon, you are using 3 gallons per hundred miles.  If you increase that by 5 miles per gallon, you now are now using 2.7 gallons per hundred miles.  A 0.3 gallon per hundred mile savings.  Big deal!

However, if you are driving a monster motor home that gets 5 miles per gallon and could increase that 5 miles per gallon to an overall 10 moiles per gallon, that would save you 10 gallons of gas every hundred miles, very significant.  Do the math.

The engineering efforts to save gas must first concentrate on the low end of the mileage scale where it is vastly more important.

Lowering national speed limits will save nearly nothing because the vast majority of use in in urban low speed traffic jams where the limits are already low.

However, lowering the national speed limit for over the road trucks would save them a ton of fuel and money and I don't understand why the trucker as still whizzing along at 70 when they would save so much just slowing down to 50 and saving 3 miles per gallon at the low end of the "gallons per hundred mile" zone.

Best regards,

Frank Van Alstine

[Charles Calkins]

Frank:
 Truckers gotta get up and go as fast as they can to get the load delivered. Why????  Because the majority of truckers get paid by the load not by the hour.


                                                                  Cheers
                                                                Charlie

[TheChairGuy]

There is a wonderful silver lining for strong companies in recessionary times.....if you maintain close to your total item sales in a time of rising costs, raise your costs in line with those higher prices passed to you and maintain the same margin....your business grows merely by dint of the inflationary price.

So, if you maintain a 30% gross when you were doing $1,000,000 yearly.....you end up earning more if you sell the same number of products at a higher average price and do, say, $1,200,000.

I just passed the 4% price increase from my factory on to my customers...my product will still sell as many as I had ongoing each month and year....and we'll do it at the same margins and at an average wholesale that is 4% higher now. POOF - more profits for me and us at year end. 

Recessions tend to be great shake-out times....folks tend to gravitate to established, known names that they 'trust' - the general doom and gloom that exists during recessionary periods doesn't encourage or reward risk takers. 

So the strong get stronger (those with low or no extended credit lines, those with low overheads, those that are familiar names and have industry credentials) and the weak get weaker and perish (high overheads relative to sales and profitability, overextended credit lines, precious little name recognition in a sea of competitors, etc).

I suspect Frank van Alstine is darn right for being giddy about the immediate future, despite the effect of recession nationwide in the US...but it may have more to do with his well-recognized hi-quality work in the industry for 40 years, low (relative) overheads and simple product line that is and will be the primary reasons for his success.....not merely because folks are sitting home and listening to their stereo anymore than they do in BOOM times 

John

[Bill Baker]

Being in business of any nature, one always worries about the economy. I have always worried about slow periods in the past but our sales have always balanced out in the end. What helps us is that we have a lower overhead due to our geographical area. I know of other smaller companies (some smaller than myself) that pay in rent/lease what I pay in total overhead a month.

 I also don't owe any money to banks or investors. Never taken out a loan for the company. Very low credit card balances which are used only for purchasing supplies and then paid every two weeks. All invoices to distributors and/or manufacturers are paid in advance or as soon as the invoice arrives. Basic cable at home and at the shop. No plasma TVs hanging on the wall or brand new cars in the driveway.

 Business for 2008 is still good and we have continued to see growth every year with this year being no exception. We have had "Clearance Sales" but these are not to be confused with a liquidation sale. We have cleared a lot of inventory out only to make room for new ventures. Those that worry too much become overly cautious and will not strive to move forward and therefore become stagnant which results in their demise. You always have to take a little risk in business but the difference is knowing where to draw the line and not bury yourself.

 Being smart and not trying to live above your means is what matters no matter what business you are in or what the state of the economy is.