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Positive Feedback ISSUE 5
february/march 2003


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Auroville 10
by Srajan Ebaen

A decade plus ago, AIDS was the plague. Pundits predicted it would wipe out entire continents and decimate mankind by ? in a Nostradamus-theme End Times disaster. Now it seems hardly newsworthy. Problem solved? Excuse my very serious doubts. Granted, those doubts are speculative only—I haven't done any research to know for sure. But should AIDS parallel the plague of Internet sales eating away at the fabric of traditional audio salon retail, the terrible four-letter'd disease hasn't gone away. It's merely stopped being news to go underground and continue inflicting its damage without notice.

Ditto for not hearing much about the breakdown of High-End audio retail in this country. Is it back to business as usual? Far from it. But dwelling on the situation is bad for our press. Its health is directly proportional to the perceived health of the industry it reports on. Note the qualifier. Perceived. The worse reality becomes, the greater the need for the party to continue as though things were just dandy. At least in the public eye, this party must go on. Nobody attends or spends on mere leftovers, remember?

If proliferating Internet sales and the new crop of web-based importers are the enemy; and if said enemy has the nerve not to buy his way into the press with big glossy ads—well, why grant him ink to beat a dead horse even flatter into the ground than it already is? Nothing about this is nefarious. It's business, pure, simple and scary. If it were yours, you'd react similarly nervous and at a loss for a workable strategy to combat this growing threat. That of course doesn't make the Internet go away. Nor the fact that coping with it successfully is still in its infancy.

More and more, manufacturers are questioning the inherent value of old-fashioned dealers. Many of their retail partners no longer educate to pass the spark. It's become about moving boxes. This leaves out much specialty product. After all, it requires careful setup. Demonstrate its superiority and telegraph to the listener why it's worth the added tariff. But certainly, giving good demo requires skilled ears. It requires care, passion and enthusiasm—to not only notice what can be improved but to spend the time to do so. It requires loving music, to have plenty of it and variance on hand to customize a demo to the requirements of each visitor.

But educating prospective customers takes time and doesn't always generate the immediate sale. It's also risky. Once you open ears to the glories of truly maximized systems, you may lose control. Your customers may grow more sophisticated than you. They may spot weaknesses in your demo, recognize system incompatibilities, demand home loaners, put you in your place. Damn those punters, why can't they plague the competitor down the street?

So why even go there? Just take their credit cards and write up another name brand purchase. Next! Selling mediocrity to undemanding clients is far easier and faster than selling excellence to demanding "pricks". Actually, if you turned a neophyte into an expert, he'll be beholden to you forever—but explain that long-term concept to somebody infected with the box-moving virus. To him, demanding customers will always be pricks, not opportunities one happily embraces and carefully cultivates.

You can appreciate what comes next. By turning away from what traditionally distinguished the specialty retailer from the box mover—know-how, better product, awesome demos, service, service, service—he's destroyed his identity and value. He's no longer special. He's just another inventory clerk. Why not shop him on price now? The sole point of distinction—of the experience and transaction—has degraded into how little you paid for it.

Now that we've arrived at the mighty buck that rules this land (hail, hail) who better to squeeze than a web-based guy? He's got no overhead except the rent his wife covers with her day job. Or better yet, find an enthusiast importer who doesn't even do audio for a primary living. He could have negotiated a special distributor margin below dealer cost. He's got little in the product, little to make to survive ‘cept augment his main gig with some discretionary income. Why not gauge him until he yells uncle? Should we allow him a 10% profit based on whatever we assume his landed cost was?

Can't find such a gent? There are ways, you know. If one were really tricky, one wouldn't even have to find an authorized seller. What if one compelled a slippery weasel to contact an authorized retail buddy in Europe? At a fraction over cost, our rodent could have the product shipped over from the old country. Shouldn't he be content to make 10% on a $20,000 item—for doing nothing but make a phone call?

Meanwhile, the authorized US dealer who demoed this product to you is ready to dispatch a hit man to your partner in crime. You don't give a shit. You got what you wanted. Neither do you stop long enough to overhear the bitter complaints that now exchange, between the importer, the displaying original dealer and the European manufacturer. None of them can figure out through what dastardly loophole this gray-market product could have entered the country.

Ah, isn't shopping fun?

When manufacturers or importers sell their products directly to the consumer—and some do, to clients who don't enjoy a local dealer—their closure ratio, at full retail, goes through the roof. They know their products. The customer can tell this difference. The expert knows how to demonstrate to best effect. The customer can hear the difference. He's happy to pay for a product that performs like a champ. He's mature enough to appreciate that such expert service doesn't come free. He's experienced enough to realize the inherent value in this service. And he's smart enough to understand that if he desires its ongoing benefit, he can't rob the provider of such services of a fairly earned livelihood.

So these manufacturers know - not only how to sell their products but that it sells, period. All it takes is know-how and caring.

Now they consider their retail partners, how the success rate of turning prospective customers into satisfied owners has become a hungry ghost of their own experience. They consider further how each time they do an in-store demo—to practically hand these dealers fully primed and qualified customers excited and properly educated about the product—the follow-up business is inexplicably, inexcusably poor, utterly non-existent even.

Can you blame manufacturers for beginning to consider dealers as the enemy? Without such under-performers but space-taker-uppers, manufacturers could service these dealer territories themselves—and with far better results and margins.

The traditional math for allowing the dealer the far greater profit per transaction? ‘Twas based on the services the dealer provided. He promoted the product. He made a name for it to build brand equity. He actively solicited sales. He learned what to partner with it for superior results. He serviced the product. He provided pre/post sale support, what in insider lingo is called handholding.

All these were worthwhile services the manufacturer couldn't or didn't want to shoulder. But now? 

Consider the present situation. Sales have gotten devalued, focused on price over service and quality. Thus, all the really good reasons to put on dealers in the first place are dying on the vine. In many cases, only bad reasons remain: You have to shake dealers down to get paid; you must offer special buy-ins, year-end rebates, ad coops and floor plans that dilute your profitability. And even if you did all that bending over backwards while grabbing your ankles, you still couldn't be certain that your so-called retail partners weren't pushing your competitor's product while trash-talking yours.

Is it surprising that the breed of the traditional specialty dealer who was special seems bound for extinction?

Now in this spotted and rancid cloth a new wrinkle appears—the solitary home-based importer with first-class European lines that, just five years ago, would have insisted on traditional dealer representation. Since then, the Internet has become the great equalizer. US customers can access Euro retail prices, use any number of on-line up-to-date currency converters and compare. Traditional importers were expected to set up a dealer network (or rep group that would service and build such a dealer network); create service stations; do advertising; and sponsor domestic tradeshows.

They clearly required a certain margin to fulfill such expectations and make a decent profit at the end of the day. Equally clearly, this margin now had to be added into the final US retail. Due to the Internet's equalizing function, many foreign manufacturers today expect to have their Euro retails matched to US pricing to promote foreign sales.

Obviously this derails the traditional importer/distributor model. Why should US dealers accept to have import operating margins subtracted from their own to adjust final pricing to that of the country of origin? Because the product is so uniquely different and desirable that it sells itself, sales making up in raw numbers what they'd lose in per-unit profit? Ha, dream on. In today's market of oversaturated products and diminishing store density, dealers are free to pick the product with the most equitable combination of performance, desirability, support and profit. There is no product that sells itself!

So a new model is arising—the Internet importer who sells from his home, direct without dealers. He enjoys an unfair pricing advantage, especially if he represents true first-tier European product with which equivalent domestic product sold through traditional brick'n'mortar dealers couldn't possibly compete dollar-for-dollar.

The flip side? This type of model eliminates the brand-equity support traditional importers such as Sumiko, Globe Audio Marketing or May Audio provide for their vendors. Now Mercedes Benz type audio product—traditionally benefiting from high-class ad campaigns, trade show presence hosted by the importer, high-profile print reviews from magazines insisting on x-number of dealers—now such product is promoted on websites like audiogoN as its primary point-of-contact. These new representatives sell on price to protect their single advantage. Hence the former brand equity benefits, in this country, with this approach, are abandoned. Factory-fresh Mercedes Benz is sold on a dark parking lot after hours by a used car salesman. Sweaty wads of cash are exchanged for a crumpled-up invoice without an address on it.

As a consumer interested in high-quality gear at rock-bottom prices, this may not matter. That the intrinsic resale value—and thus investment—of such product is undermined may not, either. That this predatory shopping mentality has already destroyed High-End as we knew it? Who cares, you got a killer deal (that killed something else in the process).

How will manufacturers cope with this irreparably altered but not yet reforested landscape? Will we see more Bose, B&O and Sony-type factory outlets? Variants thereof, a model of which perhaps could be the recently opened Avantgarde Music & Cinema loft store in NYC that isn't owned by the manufacturer but dedicated to its products exclusively? More Red Rose Music type endeavors that are owned by the main vendor? Will certain brands be sold through a limited number of home-based establishments that specialize in them exclusively as a small nationwide network into which customers are flown to their nearest destination? Will manufacturers follow irrepressible Tyll Hertsens' World of Headphones model and take their show on the road in a series of small consumer shows, in certain major city hotels?

Plenty o' questions without a single answer. Pour quoi? None of the manufacturers I talk with regularly has the answers either. But this type of question is exactly what keeps cropping up, all in a pseudo-visionary attempt to respond to the Internet in a realistic, it-won't-go-away fashion. Make no mistake—High-End audio as we knew it, as it existed when TAS and Stereophile were born, no longer exists. It isn't dead yet, exactly—but whether and how it'll resurface, adapt or reinvent itself nobody knows yet. What's clear as daylight? That if it's a number's game of which us consumers—compared to manufacturers and press—make up the by far greatest percentage, it's the shoppers who will determine its fate. Should you assume the burden of this responsibility rather than shrug it off, you may feel compelled to consider how your every audio action impacts this fate.

Visit Srajan at his website