How difficult is it to start a hi end audio store?

[bonzo]

When I go to top shows I can't believe the gear. You never see it come anywhere near where I live. No one has the money. London must fair quite a bit better but how good are the London stores Kedar?

Not really, only KJ West One in London and Midland Audio in Birmingham have some multiple brands stuff like Logans, Wilson's Focals, with Krell, AR, etc. All other dealers are specialized in one or two products that they stock, some used stuff, and the rest they have ties with but don't own, operating from him. The ones that work the best are the lower end home cinema guys who sell the Pioneer processors with basic KEF and B&W floorstanders.

 

[Gordon Gray]

So, in your case, the "spot for high end stores" is to be available for you to audition the product but not to sell it to you at retail price. Now take your situation and multiply it a million times. Do you start to see the problem? Even if you have a few customers that come to you and are willing to pay full price, it will never be enough to support your overhead and inventory costs because the majority of your potential market wants a better deal than you can afford to offer, and they can find those deals pretty easily over the Internet.

Joey,

Rich does raise a very valid point. Many folks, I suspect, use mom and pop stores to audition and then buy on the net or on audiogon.

As an audiophile and assuming you did open up a store, isn't the "Joey V" type person the very type of person you would hope to attract to your future store? How do you persuade them to do that?

GG

PS: And the folks who are willing to pay full or close to "list price" either have alot of money and / or expect stellar personal service such as "free personal auditions" of gear in their system or feel they can call you any time on any day to help them out with a problem. I witnessed both types in my four years of owning my own audio / video business.

Here's one great example. I installed an expensive TV and related audio gear in the house of a well known local. His health was deteriorating and required in home assistance and eventually started to have dementia symptoms.

I prepared a very detailed "how to" manual explaining operational details. Step by step / button by button. This was prior to the introduction of "universal remotes".

Received calls on a weekly basis from the folks watching over this person on "how to" operate the electronics I installed.

About six months after the install, I received a call from this gentlemen, who happened to be a big Indy 500 race fan.

He called twice, a week apart, asking "what channel is the Indy 500 on?"

Gordon

 

[amey01]

You may go to a dealer to audition them, but you have already said you can't afford the full retail and plan to find a well-priced used pair.

I firmly agree that retail is not a good industry to be in moving forward. Kind of like the record companies - all forms of retail are being made redundant by direct sales channels.

But to put this statement into perspective - the second-hand market has always been around.

 

[Joey_V]

Joey,

Rich does raise a very valid point. Many folks, I suspect, use mom and pop stores to audition and then buy on the net or on audiogon.

As an audiophile and assuming you did open up a store, isn't the "Joey V" type person the very type of person you would hope to attract to your future store? How do you persuade them to do that?

GG

PS: And the folks who are willing to pay full or close to "list price" either have alot of money and / or expect stellar personal service such as "free personal auditions" of gear in their system or feel they can call you any time on any day to help them out with a problem. I witnessed both types in my four years of owning my own audio / video business.

Here's one great example. I installed an expensive TV and related audio gear in the house of a well known local. His health was deteriorating and required in home assistance and eventually started to have dementia symptoms.

I prepared a very detailed "how to" manual explaining operational details. Step by step / button by button. This was prior to the introduction of "universal remotes".

Received calls on a weekly basis from the folks watching over this person on "how to" operate the electronics I installed.

About six months after the install, I received a call from this gentlemen, who happened to be a big Indy 500 race fan.

He called twice, a week apart, asking "what channel is the Indy 500 on?"

Gordon

Let's take your current situation and use it to illustrate my point. You want the Strads. You may go to a dealer to audition them, but you have already said you can't afford the full retail and plan to find a well-priced used pair. So, in your case, the "spot for high end stores" is to be available for you to audition the product but not to sell it to you at retail price. Now take your situation and multiply it a million times. Do you start to see the problem? Even if you have a few customers that come to you and are willing to pay full price, it will never be enough to support your overhead and inventory costs because the majority of your potential market wants a better deal than you can afford to offer, and they can find those deals pretty easily over the Internet.

Ah.. there's the rub.

The "local dealer" I have is actually a non-brick and mortar dealer. He runs it from an office without inventory. There is no local Strad to audition, but he's an authorized dealer for SF nonetheless. If he had the Strads in stock and if he had an office and a brick and mortar store where I can step into and listen and kick the can, I would probably buy the Strads from him at 35K.

Put it this way, there is a local AD with Bowers and Wilkins. He has the 800 Diamonds in stock and he demos it. I found a BW 800 Diamond on audiogon for 14K. He sells it for the customary 10% discount so I'm looking at $21600. Guess where I was about to buy the BW 800 Diamond? The dealer. even at a premium because I have been going to his store to listen and to audition. I have some loyalty to him (actually as we speak, he has my Cary SLP 05 preamp at his store because I was trying to audition it through his 800 diamonds and his Rockports).

Bottomline, the SF dealer does not have a showroom so I do not feel any loyalty to buying the SF Strad locally. The BW dealer has the 800 Diamonds on hand and has a demo room showcasing it, and I would gladly buy the 800 Diamonds from him without an issue.

You see, the AD system works. I don't like being the guy who auditions and then buys online. Atleast, as much as possible.

 

[Joey_V]

Let's take your current situation and use it to illustrate my point. You want the Strads. You may go to a dealer to audition them, but you have already said you can't afford the full retail and plan to find a well-priced used pair.

Just want to point out Rich, it's not that I can't afford the pair, it's that I see no advantage to buying it from an AD who doesn't have a brick and mortar store/demo room. If I can't audition the pair locally, then there's absolutely no difference between calling him up and having him order me a new pair from Italy vs going on audiogon and finding a good used pair at a discount.

Had he had a full resale room, I'd have purchased the SF Strads brand new a long time ago.

 

[Rich]

Just want to point out Rich, it's not that I can't afford the pair, it's that I see no advantage to buying it from an AD who doesn't have a brick and mortar store/demo room. If I can't audition the pair locally, then there's absolutely no difference between calling him up and having him order me a new pair from Italy vs going on audiogon and finding a good used pair at a discount.

Had he had a full resale room, I'd have purchased the SF Strads brand new a long time ago.

Given that you already know you want the Strads, why does it matter whether you can audition them? Are you saying that keeping expensive inventory in stock on the off-chance someone might want an audition is the only reason to give them loyalty? Sounds like he is offering a good price and in-home setup? What about other aspects of dealer customer service?

Here is the point I am trying to make: Your requirement of an audition room in order to give loyalty to a dealer is somewhat fickle. Of all the services a dealer may offer, that particular one is a deal-breaker for you. And I imagine that the average wealthy high end customer is a heck of a lot more fickle than you. All kinds of potential deal-breakers for the hapless dealer. And most probably not as loyal as you say you would be to buying new from the dealer vs. used for a significant savings. The question you have to ask yourself is how is such a dealer going to make a profit with crazy high overhead and literally hundreds of thousands of dollars worth of inventory in stock, combined with a relatively small and fickle customer base and crushing competition from the used market and from unscrupulous Internet dealers?

Ultimately, it's a nice dream to open a dealership. But the realities of the market say that someone's chances of success are minuscule.

 

[Joey_V]

Hey Rich,

Not saying that the dealer has to have the Strads in stock but at least have a demo store in place so I can come in and try things out, be exposed to new things and perhaps even hear gear that I had previously not considered or better yet hear something that may be better to my ears than the Strads.

He is just a front office and that's it. He can get you gear but I can do that as well. He offers nothing in terms of auditioning and so his business is based off of me doing my research on my own (reading and auditioning) and then going to him when I'm ready to buy. I don't see that as any different from just buying from online forums or the 'gon.

But I hear you, people are fickle in this market and perhaps even moreso than me. People would like the brick and mortar store but have the prices and selection of audiogon. It's tough to serve all the desires in one place, impossible even. And I agree that makes opening a hi end store very dangerous.

That said, someone has to do it and if we don't, this whole audio store concept is going to die.

Given that you already know you want the Strads, why does it matter whether you can audition them? Are you saying that keeping expensive inventory in stock on the off-chance someone might want an audition is the only reason to give them loyalty? Sounds like he is offering a good price and in-home setup? What about other aspects of dealer customer service?

Here is the point I am trying to make: Your requirement of an audition room in order to give loyalty to a dealer is somewhat fickle. Of all the services a dealer may offer, that particular one is a deal-breaker for you. And I imagine that the average wealthy high end customer is a heck of a lot more fickle than you. All kinds of potential deal-breakers for the hapless dealer. And most probably not as loyal as you say you would be to buying new from the dealer vs. used for a significant savings. The question you have to ask yourself is how is such a dealer going to make a profit with crazy high overhead and literally hundreds of thousands of dollars worth of inventory in stock, combined with a relatively small and fickle customer base and crushing competition from the used market and from unscrupulous Internet dealers?

Ultimately, it's a nice dream to open a dealership. But the realities of the market say that someone's chances of success are minuscule.

 

[Joey_V]

No worries though, this is all speculation. Chances of this happening is probably 2% anyway. If I win the lottery then for sure, I'll build a Mecca for audio and you all can come and play.

 

[MiTT]

The problem with the business model, as Rich already pointed out, is that Inventory = Cashflow. Unless you translate that into multiple turns (at a respectable profit), then your business will self destruct. It's a LOT easier to sell 100 mid-fi recievers at $400 to a less informed or demanding audience than it is to sell a single set of $40K speakers to a devout enthusiast, and the inventory you turn as you sell 8-10 a month funds the procurement of the following months sales.

I recently went to visit the YG Acoustics factory and was asking about why they don't have a dealer in Denver and this was exactly the reason why. Even if a dealer is able to realize only 30%-35% margin on the sale of a botique product, that's a significant amount of cash to have tied up waiting for a customer to come in and snag a megabuck component.

I think we'll continue to see less brick & mortar unless they are absolutly tied to installation and service, and more marketing at trade shows backed by distributor networks or direct sales.

 

[Joey_V]

The problem with the business model, as Rich already pointed out, is that Inventory = Cashflow. Unless you translate that into multiple turns (at a respectable profit), then your business will self destruct. It's a LOT easier to sell 100 mid-fi recievers at $400 to a less informed or demanding audience than it is to sell a single set of $40K speakers to a devout enthusiast, and the inventory you turn as you sell 8-10 a month funds the procurement of the following months sales.

I recently went to visit the YG Acoustics factory and was asking about why they don't have a dealer in Denver and this was exactly the reason why. Even if a dealer is able to realize only 30%-35% margin on the sale of a botique product, that's a significant amount of cash to have tied up waiting for a customer to come in and snag a megabuck component.

I think we'll continue to see less brick & mortar unless they are absolutly tied to installation and service, and more marketing at trade shows backed by distributor networks or direct sales.

well thats sad...

 

[InterMechanico]

I think that the only model that will work, going forward, is one that has the manufacturer carrying the overhead costs of demo models. That will free up the dealer to do what they know best, rather than trying to squeak out another 20k for this model or that to sit in their showroom. The costs are lowest at the manufacturers level, and I'm certain the larger manufacturers would have no difficulty managing the extra cost in getting their products to market.

 

[Joey_V]

I think that the only model that will work, going forward, is one that has the manufacturer carrying the overhead costs of demo models. That will free up the dealer to do what they know best, rather than trying to squeak out another 20k for this model or that to sit in their showroom. The costs are lowest at the manufacturers level, and I'm certain the larger manufacturers would have no difficulty managing the extra cost in getting their products to market.

Yes, that would be great. Or at least maybe even subsidize a portion of it. Say for a pair of Wilson speakers, retail 30. Dealer pays 7.5, wilson eats the other 7.5 (considering it costs 15 invoice).

 

[InterMechanico]

Sure, that would work. Many of my suppliers work on this basis. An added benefit is that the manufacturer no longer has to store so much stock, because it is located at the dealer showrooms.

 

[Joey_V]

All I need are 3 demo rooms and catch all room/foyer. 3 demo rooms will demo low end, mid end, then hi end gear. The foyer will act as a storage section for unused speakers, but should also have a small system playing of those who just walked in.

 

[MiTT]

Sure, that would work. Many of my suppliers work on this basis. An added benefit is that the manufacturer no longer has to store so much stock, because it is located at the dealer showrooms.

Again, it would depend on the actual operating costs associated. Consignment inventory sitting in a distribution center or with a dealer is still inventory, and somebody has to bear the cost of ownership. My business has converted much of our inventory to consignment, but it comes with associated costs such as reduced payment terms to the supplier (net 60 vs. net 90 say), and aging credits - that is to say that we hold that inventory in consignment for 90 days, but at the end of that period we own it outright regardless of usage and must pay for it at that time. The only incentive to us (and by extension our customers), is that it should effectively reduce lead times, because I have the material on hand. It's a gamble I take in my MTO business because I am constantly analyzing my Backlog, Sales and Costs.

If you are talking about selling mid-fi components in a retail environment, it will still be much easier to cycle or turn that inventory, but if you are talking about botique brands they will either not consider consigned inventory, because they are just as strapped for cash as the store operator would be, or if they are a publicly held company that deals in higher volume, they have a responsibility regarding that cash to their shareholders who are expecting it to yield dividends. Inventory is nothing more than stagnant cash that doesn't earn anyone anything. You have to sell it off at a profit to make money regardless of whether it is at the Maufacturer, Distributor or Seller level.

 

[Joey_V]

Again, it would depend on the actual operating costs associated. Consignment inventory sitting in a distribution center or with a dealer is still inventory, and somebody has to bear the cost of ownership. My business has converted much of our inventory to consignment, but it comes with associated costs such as reduced payment terms to the supplier (net 60 vs. net 90 say), and aging credits - that is to say that we hold that inventory in consignment for 90 days, but at the end of that period we own it outright regardless of usage and must pay for it at that time. The only incentive to us (and by extension our customers), is that it should effectively reduce lead times, because I have the material on hand. It's a gamble I take in my MTO business because I am constantly analyzing my Backlog, Sales and Costs.

Again, if you are talking about mid-fi components in Joey's case, it will still be much easier to cycle or turn that inventory, but if you are talking about botique brands they will either not consider consigned inventory, because they are just as strapped for cash as the store operator would be, or if they are a publicly held company that deals in higher volume, they have a responsibility regarding that cash to their shareholders who are expecting it to yield dividends. Inventory is nothing more than stagnant cash that doesn't earn anyone anything. You have to sell it off at a profit to make money regardless of whether it is at the Maufacturer, Distributor or Seller level.

I think that basically what this boils down to is that this business model will not make anyone rich... but that if we were to do it, it's because you want to rather than because you think that you're going to make money hand over fist off a hi end audio store.

Maybe I should just open up at my house and have 3 demo rooms there and I can justify having inventory around the house. I know of a dealer whose shop is their house. I won't have to pay for overhead for the space. Problem is foot traffic. But again, foot traffic is not the traffic you're aiming for in a high end audio store.

 

[amey01]

All I need are 3 demo rooms and catch all room/foyer. 3 demo rooms will demo low end, mid end, then hi end gear. The foyer will act as a storage section for unused speakers, but should also have a small system playing of those who just walked in.

Really? So how would you cater for a high-end customer that walks in while a "Joey" is tying up your high-end room for the whole day?

 

[Gordon Gray]

The "ultimate" in house showroom retailer.

IMHO Bill Parrish / GTT Audio.

Built a 5,000 sq. ft. addition to his residence to make it happen.

 

[greg2putt]

Concierge Audio. Create a premier dual review room in high-end local (e.g. near NYC, SF, Vegas, LA) with a prescreened invitation only qualified customer list. Set up private showings and arrange for premier companies to deliver/ setup demo system for 30 days. Have 4 events per year, require membership fee, lease to buy gear, set-up uninstall services mandatory - subscription services (pay $5000 upfront and $3000 month for minimum 12 months with wear and tear if/when deinstalled- if rent for 24 months own it, but out of pocket cost to deinstalled and start another subscription. Go to Ferrari, Porsche dealers to get customer list or have invitation package available for self selection by their customers. Finding customers looking to spend more than $100,000 for a system requires very special sales tactics. Other options, rent house at The Masters, Wimbledon, Super Bowl, Cardiologist convention for invitation only audiophile 'parties'. Serve refined refreshments and sometimes animal spirits among men may yield competitive subscription purchasing. Sorry women, largest market segment is men.


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[Joey_V]

Concierge Audio. Create a premier dual review room in high-end local (e.g. near NYC, SF, Vegas, LA) with a prescreened invitation only qualified customer list. Set up private showings and arrange for premier companies to deliver/ setup demo system for 30 days. Have 4 events per year, require membership fee, lease to buy gear, set-up uninstall services mandatory - subscription services (pay $5000 upfront and $3000 month for minimum 12 months with wear and tear if/when deinstalled- if rent for 24 months own it, but out of pocket cost to deinstalled and start another subscription. Go to Ferrari, Porsche dealers to get customer list or have invitation package available for self selection by their customers. Finding customers looking to spend more than $100,000 for a system requires very special sales tactics. Other options, rent house at The Masters, Wimbledon, Super Bowl, Cardiologist convention for invitation only audiophile 'parties'. Serve refined refreshments and sometimes animal spirits among men may yield competitive subscription purchasing. Sorry women, largest market segment is men.


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That's a very interesting idea... I wonder if people are open to renting gear rather than buying it. I know people have a very revolving door policy when it comes to audio gear, but I think part of what makes owning a piece of gear cool is the knowledge that you worked hard to buy it and acquire it. But I know there is a high end watch rental company out there, but I've never been a fan (even though I have 5 watches) just because I like owning rather than renting, so even though I am the ideal type of demographic - they were not able to acquire me as a customer.

Really? So how would you cater for a high-end customer that walks in while a "Joey" is tying up your high-end room for the whole day?

OOOOH... that's going to be a dilly of a pickle.

The "ultimate" in house showroom retailer.

IMHO Bill Parrish / GTT Audio.

Built a 5,000 sq. ft. addition to his residence to make it happen.

There's this guy on audio aficionado, Ivan, he runs an audio dealer system through his homes. He has a pair of TAD Ref 1 and SF Aida and SF Strads and a big Mac system in his one house. Anyone who wants a demo, goes to his house and he sells through that. But I'm sure he also gets a lift in sales because he runs the entire forum website.