From the rise of VHS over Betamax in the early 1980s through the 2008 United States real estate collapse, the specialty audio/video business didn't really know down times economically. Even when the country was in a flat or recessionary economy, we always had some new toy to buy to keep us above the fray, be it the Compact Disc, satellite TV, Dolby surround sound, DVD, or flat-panel HDTVs. People were beating down the doors of stereo stores to get the latest and greatest tech goodies for a full generation--until most people's homes lost upwards of half their value. Suddenly, the convenience and low cost of computer audio and download/streaming solutions started to make more and more sense. Boy did it take a toll on the distribution chain for specialty AV products.
Magnolia now represents the one all-powerful national pipeline for up-market AV products. They have representation in nearly every state and every important market in the nation. As a manufacturer, if you are in Magnolia, you are doing pretty well. Unfortunately, Magnolia can't sell every product, thus there are a lot of companies looking in from the outside. Gone are formerly meaningful national and regional chains like Circuit City, Tweeter, The Good Guys, Dow, Bryn Mawr Stereo, Myer Emco, HiFi House, and countless other standalone brick-and-mortar stores run by Baby Boomer proprietors who simply couldn't compete in the new marketplace. The new competition (led by new-school, uber-low-margin brands like Vizio) sells AV in places like Costco, Walmart, and Target with the same profit margins that a retailer would expect from a big box of Cheerios, not a $5,000 Ultra HD TV. The Internet offers new pipeline options, yet Amazon still dominates, as the site provides access to an increasingly powerful list of meaningful AV products for sale with free two-day shipping.
Downward pressure on the price of specialty AV products is stronger today than ever before, and that is nothing but good news for consumers, since the good stuff keeps getting less and less expensive. But it also means that those companies looking to sell premium products can't rely on the traditional pipelines anymore. Internet-direct is an increasingly popular model, as the retailer gets to keep more of the overall sale, thus justifying the marketing costs of higher-end AV gear.
Brick-and-mortar stores are still an important element of the distribution channel, as we still need those who are willing to do active, meaningful product demonstrations. The sad reality is that there just aren't that many good traditional stores left. As one manufacturer said at CES 2016, "There just isn't a Definitive Audio or Star Power in every city in the country."
Is there hope for the broken AV distribution pipeline? Of course there is. Specialty AV companies need to look well outside of the traditional spots to sell gear and work to open new dealers who have access to the right types of clients. For example, a speaker company that sells products made in fancy wood finishes might look to a few dozen high-end flooring shops that also sell fancy wood finishes for flooring. Help these stores put together a simple, high-end audio demo, then make a nice profit margin selling audio along with flooring.
Another pipeline might be the musical instrument market. Enthusiasts who buy vintage or custom instruments like Martin Guitars clearly love music and fine products. Have they ever heard/seen audiophile speakers that can be finished to match a Martin guitar? If not, what a wonderful place to do a brief demo.
In 2016, there are far too many audiophile brands, but far too little meaningful consumer demand. As someone who makes his living selling advertising, I would suggest that manufacturers need to put more effort into making people aware of their products. At the same time, high-end audio and video systems are sold on an experiential basis, and that experience needs to be made available to more people. Respectfully, the Internet can't easily offer such an experience. People need to have easy access to the best in AV equipment that perhaps expands beyond the impressive list of brands that Magnolia sells. Costco, Walmart, and Target simply sell commodity products on a price-only basis. They can't and don't sell experience, and that isn't what the higher-end brands in this business need.
Of course, there is a price in terms of time and money that goes into developing new channels, but I strongly believe the few high-end companies that figure it out are going to strike it rich while more and more well-known AV brands simply drift into obscurity and/or bankruptcy.
Where would you advise the high-end AV brands to sell their products going forward? Comment below.
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