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Question
Thirty-three years, on and off in hifi retail. How would you, or could you, sum it up in one phrase?
Answer
In every opportunity – danger and in every danger, opportunity. Will that do?
Question
What is the biggest danger facing the high-end sector?
Answer
In a word, hype. In another word, the bullshit. Another word ignorance. Anyone looking in on our tiny and dwindling high-end world would think we are nuts. Not nuts because of the prices. But nuts because of the nonsense published occasionally in some magazines about some products. The most powerful example of this in recent memory being the evangelical nonsense spouted by Roy Gregory in Hi-Fi+ re Nordost. Just take a look at eBay for the vast amount of Nordost for sale. If it were that good, then why are so many ditching their purchases?
Nordost shouldn't be viewed as an industry scapegoat though. But they are, I feel, appropriately illustrative. As for the hype and the bullshit, well no wonder the public are so sceptical. And as for ignorance, well just take a look at the blatant nonsense spouted on some forums by self-appointed experts who behave like some audiophile mujahadin whereby anyone who isn't a true believer in this or that is a Kafir, to be ridiculed and despised.
Question
Hi. A well known valve supplier and I have discussed putting (a new valve amplifier line) into production. Given your experiences with valve amplification would you be interested in selling same amps?
Answer
Note: This answer was written in mid 2009 and should be read in that context.
Well, I think it fair to say and with some regret too that currently the economic situation facing the UK audiophile industry in general and audiophile start-ups in particular is grim. I can’t see any point beating around the bush re this – especially if you are thinking of making a financial investment. My reasons for this gloomy, but I hope not permanent observation are as follows:
1. There’s the current credit crunch situation which it seems is very much beyond anyone’s control. The point here is that while there are entire sections of the UK which are to all intents and purposes recession-resistant (rich or filthy rich) this doesn’t automatically mean that they are prepared currently – if they ever were – to indulge in audiophile expenditure. They have the wherewithal but not necessarily the motivation.
2. Next, the market for valve amps in the UK is small. Yes, there is a renaissance – but it must be seen against the background of a small population, or low base if you prefer. Most of the ‘open points’ in the price bands are already well served, possibly to saturation point. At the highest price bands, Audio Research still dominates. In the mid price band, Manley Labs (my own personal favourite) are poised to make an impact (albeit in a small market sector) and Conrad Johnson are still producing fine equipment too. Esoteric Audio Research produce outstanding gear and have a cult following. At the entry level, PrimaLuna is the one to watch. Even though I don’t sell their equipment, I very much respect it. Frankly, their sound quality versus their price is setting the bar very high for others.
Thus in a non expanding (possibly contracting) sector in a definitely contacting market, finding an ‘open point’ will be very challenging.
3. Some high street audiophile retailers are, if rumours are correct, in a desperate state (unless they own their building’s freehold) because of rising overheads. Thus getting them to invest in demo stock e.g. handing over the little money they have, will be tough. I hope this might change, but there seems little prospect of that currently.
4. Trying to get magazine editors and reviewers to want to review equipment from new companies is always difficult, even when times are good. Even if you do achieve this though, the results even for a great review can be very disappointing to the uninitiated. By this I mean I know of many makers who have received outstand reviews in the past year and the phone has not rung even once for them, let alone their retailers. All that effort for nothing.
5. Magazine advertising currently (with a few very rare exceptions) does not offer any worthwhile return on investment. This might change, but with escalating display advert prices, declining circulations, market saturation and buyer cynicism at an all time high regarding the well worn phrases, clichés, hype and unverifiable blandishments in ads, it’s a non-starter.
Thus my conclusion is that unless you are embarking on this venture purely and simply for fun and at the same time acknowledging the probability of making a thumping loss for the first year, don’t do it. Really.
Finally (well, almost), think of the venture from the ‘civilian’s’ standpoint. The depreciation on state-of-the-art valve gear from well known brands is around 50% in the first 12 months of ownership. Thus a civilian with say £1,200 to spend can (a) buy an outstanding piece of kit which just a year previously retailed at say £2,400 – or (b) a piece without a pedigree or any form of track record for say £1,200. In my experience, buyers who were rarely brand risk-takers in the past are now even less inclined to accept a brand risk.
Their rationale is simple. If they buy a known brand for say £1,200 where someone else has suffered the depreciation, they could use it for a few months and probably get around £1,000 back. A depreciation of just 16.6%. If on the other hand the buy a product without a brand history and they want to move it on, they might find they can’t – at any price.
I really wish I could have offered encouragement. I really do. But I feel obligated to state matters as I see them based on observation and experience. What I can tell you though is that to date, the industry ‘bad times’ have never lasted for ever – and neither have the ‘good’ times. It’s a cycle. Thus at some point in the not too distant future, perhaps only 18 months away if some reports are to be believed, it might be prudent for you to test the market.
Question
What’s ya best price for one of them PS Audio Power Point Premier thingies – dude?
Answer
Resisting the temptation to point out that it was not a Microsoft product and was in fact Power Plant, not Point, I stated that it was the RRP. £1,799. Just like it is for everyone else. Naturally he wanted a discount.
My response, as is usual, was as follows.
"Okay, I hear what you say. So you want to negotiate. Fair enough. It’s a transaction that to be successful, requires both of us to move away from our current positions – and be happy to do so. So . . . what part of my service (30 days sale or return, loan unit if yours proves defective, guaranteed 85% trade-in in year #1 if an improved unit is introduced, carriage free in the UK) would you like to give up in order for me to move away from my RRP?"
His response was interesting. He said . . .
“Err, not sure. I’ll ring you back”
Question
The Manley Stingray looks fabulous does it sound as good as it looks? In the past you have queried the difference in US and UK prices and I notice the Stingray is nearly £500 dearer in the UK than the states, but what happens the other way round when a British manufacturer sells to the States does it cost them more than us?
Answer
As is usual with these things, one quite naturally compares the retail price of an item between the two countries. Here’s how it works behind the scenes. I’m not including the greedy UK importers in this example though.
The US maker supplies the US retailer directly i.e. no distributor. So let’s say that $1,000 is the US retail price and let’s say (for illustrative example) the maker supplies it at 80% so that the seller makes (say) 20% profit. Usually higher, but in this example it’s not really the point and so if I may I’ll stick with 20%.
Generally the US maker still wants to receive $800 irrespective of who he/she supplies to – even abroad. Maybe, just maybe they’ll reduce $800 by 10%. So this means that the trade price to the UK importer is now the US retail price x 80% x 90%. So let’s assume the American retail price is $1,000. Thus using the above, the trade price to the UK importer is (before bulk discounts) $1000 x 80% x 90% = $720. Given today’s currency exchange rate, this is a UK importer buy-in price of £358.94.
On top of this the UK importer will incur carriage at say £90 plus 2.5% import duty (£8.97). Thus before he has made a profit, his costs are £358.94 + £90 + £8.97 = £457.91.
To keep like for like, again in this illustrative example, we’ll say the importer wants to add a profit for himself of 20%. Thus the trade price to the retailer is now £549.49. Clearly the UK retailer will want at least 20% (Usually higher, but in this example it’s not really the point and so if I may I’ll stick with 20%) and he/she has to charge VAT @ 17.5%. This means £549.49 becomes £659.38. Add VAT and this becomes £774.78 inc vat.
Using the identical exchange rate as was used earlier, then this equates to $1,554.47. This is 55% more than the US retailer $ retail price. Discounts to the customer erode this of course.
If you take into account that 20% is the bare minimum to make it worthwhile for the importer and the UK retailer, it is frankly amazing that the system works at all.
There is of course flexibility / elasticity to ensure it does work. For example, the prudent US maker might well reduce the trade price to lower than the above example. Moreover carefully application of freight consolidation and shipping by sea might substantially reduce the freight costs, and so on.
Anyway, I hope this has enlightened you a bit.
As for how it works when UK makers supply to the US, I have no real idea. Sorry.
Question
Howard; what criteria is a potential importer judged on before given sole (or any) import rights? Is reputation not factored in at all?
Answer
Generally speaking, and more frequent than you’d imagine . . .
First, if they are willing to pay in advance. Then . . . are they prepared to purchase in bulk? Then . . . are they prepared to fund all the advertising, marketing and promotion?
Then . . . they make it clear that they don’t want bright ideas, or any ideas at all from the importer and certainly none from the UK retailers. Market feedback from the UK is in their view irrelevant and therefore unwelcome. UK retailers are I guess in many cases looked at with distain, if not outright contempt. As with so many of these things, the US way is (they state or imply) the best. They do it bigger and better - always - and of course as we have come to expect, they are infallible. The default position regarding product unreliability is that it’s the customer ’screwing up’.
Moreover, if you really want to succeed as an importer, it seems to me that you must be prepared - on demand - to demonstrate how grateful you are in that they are even prepared to built 230v versions. Usually this requires no more than a deferential bow, or not complaining that you have only received a partial shipment even though as the importer you paid up front weeks back.
Te reward of course is that as the importer, you are under no obligation (moral, ethical or financial) to reduce your already massive profit when the exchange rate swings in the UK’s favour.
Having sat in on a few of these, please note that quality of service to the end user and their indirect customer (the hapless and usually spineless UK retailer) does not, despite the weasel words to the contrary, usually figure in their thinking. US makers, the ones that have survived and thrived are in the main run by sharp-suited management accountants. Their rationale is simple in that if ‘it’ can’t be measured, or they think ‘it’ is irrelevant (where ‘it’ is customer satisfaction in the UK) then it has no value. None at all. Money is the only thing that really counts. “Shift the damn product buddy - or we’ll find someone else that will. Got it?”
That last question is I know from direct personal experience over many years not, repeat not, an invitation to answer. Most US audiophile companies do not understand irony - so they hate it. If they do understand irony, they still hate it - only even more!
You don’t engage in a dialogue with these guys. You withstand their monologue.
The majority of the rest is just wise-arse speak and nothing more. With the Japanese makers, or some of them at least, if you ask a question they don’t like (which is pretty much anything other than “Can I order more, more MORE) they often claim not to understand English (really, I have had this) or they claim “difficulty due to cultural issues Howard san.“