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In Reply to: RE: I think the picture is much bigger than that posted by AbeCollins on September 30, 2017 at 08:31:49
>> Rogue Audio, Schiit, Odyssey, Magnepan <<
Hi Abe,
Good questions. I know a little bit about Schiit, and they are very smart about keeping costs of everything very low. Direct sales only which has never worked for any other company before, but their price points are low enough that they seem to have made it work very well. Magnepan is interesting as they are basically made from just MDF and Mylar. So there's not a lot of the same costs that others are affected by.
Rogue Audio has been very good at offering high value products, but just recently introduced a pair of monoblocks for $15,000, so they are creeping up in price also. I don't know much about Odyssey so I can't comment on them except that Klaus Bunge is a very nice guy - I used to buy cones from him back when I was with Avalon.
There is one other factor and that is the dealer margins have gone up somewhat over the last few decades. Everything used to be 40 points except for small accessories (under $10) that were 50 points to make it worthwhile to ring up the sale. Then the cable companies came along and started offering outrageous margins - up to 70 points. After a while some of the electronics companies started increasing their dealer margins to 45 and even 50 points. That made it easier for the dealer to close a sale by offering a "discount" while still maintaining the profit margin needed to stay in business.
For a while McIntosh would offer 55 point margins on everything if you displayed their loudspeakers. I think this is when they were trying to boost their sales in order to sell the company. (Some call this "pump and dump".)
Another good example is Vandersteen. Richard is very smart and very frugal and dedicated to offering exceptional value. But if you remember the Model Two used to sell for $1200 for many years. Now they are roughly double that price. He is not ripping anybody off, it's just that the cost of both material and labor keep rising. I think the real problem is that the middle class is being squeezed out by Wall Street. Inflation is there but carefully hidden by the government. Productivity has risen by 40% since 1980, but wages have only risen less than 10%. All of the money goes to huge paychecks for CEOs of mega-corporations.
But the bottom line is that other than cable manufacturers, I don't know of any electronics manufacturers that are driving Ferraris or buying yachts or such. I'm sure you've heard the saying before, and it's true - "The way to make a small fortune in the audio business is to start with a large one." Just look at the recent demise of Classe as an example.
Follow Ups:
> I think the real problem is that the middle class is being squeezed out by
> Wall Street. Inflation is there but carefully hidden by the government.
> Productivity has risen by 40% since 1980, but wages have only risen less
> than 10%.
Amen to that sentiment, Charley, I wrote about the shrinking middle class
and its adverse effect on the audio industry back in 2011. See link below.
From that essay: "It was that middle class's combination of disposable
income and increased leisure time that fueled the growth of high-end audio."
John Atkinson
Editor, Stereophile
Hi John,
An excellent essay and very insightful. Unfortunately it seems that things have only gotten worse since then, with an ever-widening gap between the haves and the have-nots. I also don't see any easy answers. I think what Schiit Audio are doing is amazing, and filling in a gap. However I don't think that their direct-only model works well above a certain price point. Time will tell, as so far they are the only company selling direct only to have lasted more than a year or two.
Cheers,
Charles Hansen
Klaus Bunge at Odyssey only sells direct and he has been doing this for many years.
"I've always been mad, I know I've been mad, like the
most of us...very hard to explain why you're mad, even if you're not mad..."
Roger Waters
Yes, that's true. He doesn't have much market presence so it's easy to forget about him - my bad. But he only has to support one person. (I don't know who builds the actual equipment, but I think it may be sourced from Eastern Europe. I could be very, very wrong about this. The last time I heard one of his Odyssey power amps was over 25 years ago when I was at Avalon. It was about $1200 back then, I think - a great value for the money, but not the reference quality we were looking for as a loudspeaker designer/manufacturer.)
I can't imagine he sells more than a few dozen amps per year - but I could be way off - I really don't know. When I started Ayre I wanted to be able to reach as many people as possible. Doing so requires a real company with at least 10 to 20 employees so that we can sell many hundreds and sometimes thousands of product a year.
This is where Schiit Audio is doing a brilliant job. With a group of about 10 people they are selling many, many thousands - perhaps even over ten-thousand products per year. That was my dream with the Pono Player. They sold about 30,000 of those but failed to market it properly, as they only saw it as an adjunct to selling download files, which was their main focus. They could have been selling well over 100,000 per year if they had done it right and made a follow-up product or two.
Hope that helps,
Charles Hansen
All this talk about internet direct sellers and no mention of Emotiva?
Odyssey sells a lot of amps. The wait time is usually between 3-4 months and he is always backlogged. I believe it is a family operation plus 1 or 2 others. I had a Stratos Extreme with all the bells and whistles for $1750.00. I recently purchased a Conrad-Johnson Mf2550 250wpc power amp and although there is a difference, it isn't as much as I thought it would be at 3 times the price. One thing is theCJ amp will hold its value more than the Odyssey.
"I've always been mad, I know I've been mad, like the
most of us...very hard to explain why you're mad, even if you're not mad..."
Roger Waters
I owned a couple Odyssey stereo amps years ago. They were fine sounding amps but I quickly discovered that the Pass X150 and X150.5 were noticeably better. While not an indicator of sonic performance the materials used and construction quality of Pass was also higher. Same for my Ayre AX-7e integrated. Of course these cost more too!
Odyssey Stratos w/ Power Supply Cap Upgrade
Galvanized steel bottom plate, aluminum heat sink sides, held together with galvanized angle brackets. Single 400VA toroidal transformer, four main PS filter caps are on the PCB. Additional filter caps mounted to galvanized bottom plate a distance away from the main caps wired in parallel with cables.
Odyssey Stratos Extreme w/dual PS transformers & more caps
Second 400VA ps transformer on top of the first one wired in parallel, plus even more filter caps mounted to galvanized bottom plate along with some bypass caps.
In my experience, the more entry level models offer the biggest bang for the buck. The additional PS components added to the price for a barely perceptible sonic improvement. Many of these 'upgrades' are pretty much standard fare in other higher end amps in the form of larger ps transformer and more filtering to begin with along with nicer chassis.
Pass Labs X150.5
Thanks Charles.
Your comments on dealer margins kind of confirms why I was seeing huge discounts on certain brands. It became fairly well known that no one paid anywhere near MSRP for those particular brands and huge discounts were not only normal but expected. I think it also hurt brand value. It appears that some of these companies tried to fix that problem. Some started selling direct from their website along with maintaining their dealer network. Dealer discounts seemed to also tighten up.
I'm obviously not an industry insider, just an observer, and the two brands that come to mind are PS Audio and Cary. I'm sure there are others.... or maybe I'm just hallucinating. ;-)
P.S. Pass Labs is another one with huge MSRP but no one pays those prices, yet for some reason Pass has not hurt their brand. But again this is just based on gut feel with nothing to back it up. I'm not sure about Ayre. The Ayre brand doesn't seem to be over distributed but I'm just rambling. ;-)
> > Your comments on dealer margins kind of confirms why I was seeing huge discounts on certain brands. < <
Exactly. Twenty years ago there were at least two good dealers in every large city - one would sell Levinson and the other Krell (for solid-state) while one would sell Audio Research and the other Conrad-Johnson (for tubes). There were at least 100 qualified dealers across the country. Now there are less than half of that number.
When McIntosh was "pumping" their numbers and offering huge margins (55%), nearly all of the dealers jumped on board and McIntosh became over-distributed, often with two dealers in the same city. Then the dealers would start competing on price and offering large discounts to win the sale from the neighboring dealer. This situation is unsustainable but they were able to boost sales by at least 50% for long enough to increase the "value" of the company for it to be acquired at a higher price.
Cary appears to be direct-only at this point. I did a search on their website for dealers and could only find one. It was in the Chinatown section of Manhattan and the store website clearly catered to the Chinese customers. The main thing being sold were home appliances, and Cary was not even mentioned on the website - just "We are experts in home theater" or something similar.
I was curious about PS Audio and how they handled the inherent conflict between direct sales and dealer sales. I spoke to one dealer and his answer was "Not very well." I was left with the impression that most of their sales are direct, but have no idea if that is true or not.
I don't seem to see Pass Labs as a very big player in the market these days. Nelson only designs power amps, and his partner Wayne Colburn designs the preamps. They haven't had a source component for many years, and it has become harder and harder for dealers to sell mix-n-match setups. Therefore Pass simply cannot be the "focus" line for any dealer. Most dealers need to average about 35 to 38 points overall margin to stay in business. That means if the product line is 40 points it will mostly be sold at list price, with small discounts given for purchasing whole systems or for repeat customers.
That is why the cables with a 70 point margin became so popular - it was easy to offer a big discount when the customer was buying cables along with the component and still maintain a reasonable overall margin.
Hope this helps,
Charles Hansen
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