It's no secret the profit margins that specialty AV dealers work on can be as high as 50 percent for some product categories like speakers and accessories. For video, margins are far less and sometimes below 10 percent these days in a warehouse club- and big box store-driven marketplace. In order to keep the doors open, the air conditioning on and the floor stocked with even a modest sample of products - a specialty dealer needs to make 25 to 35 percent margins selling products. Many retailers such as Best Buy struggle with their overhead versus, say, a Costco - even Blue Shirts cost money that Costco doesn't spend in a sales transaction. Specialty retailers often have ordering people, managers, and repair techs and mostly because of scale simply cannot run with the same efficiencies that nationwide chains benefit from. That doesn't mean that they are worthless as some readers on the Internet suggest that they are. Without specialty AV dealers - there are no in-store demos - and while the in-home demo from Internet dealers can definitely be compelling, it's not the same as being able to go into a good retailer and play with the top performing goodies. Both have their place in determining value in the buying decision.
Many specialty retailers also do themselves no favors with their behavior and business model. Few on the Internet can fault specialty dealers who morph into custom installers. Custom guys don't have to floor very much product other than the "just in time" inventory that they use on the jobs being installed at the time. With sources like AVAD, the HTSA and now even Amazon.com shipping direct to retailers at cost - they don't even really need to be authorized dealers for many of the products they sell. Custom installers can do retail sales but they often don't really care, as the transactions are very expensive and often lead to consumers buying used from the Internet or out of state to save sales tax. Custom installers scale their businesses back to core, high profit installation-based sales for people who don't have the savvy of the Internet buyer and it does their profit margins just fine.
Gone is the retail location, to be replaced by a warehouse. Gone is the $250,000 demo room because sexy install photos on an iPad sell to architects, designers and contractors just as well and at higher profit margins. Literally, specialty retailers are wooed to become custom installers because they can work less to make the same or more money with lower overhead and higher margins. While they are a key part of the top AV brand dealer distribution networks - some custom installers or appointment-only dealers can offend the hardcore enthusiasts as they stereotypically don't show or demo much (or any) product. Internet buyers don't like this but must understand the business model. At the same time, dealers who do floor a lot of products can be very hard to work with. One notable high end dealer went out of his way to attack me and our publication on Facebook recently. If he's out attacking publishers who create reviews for consumers to read FOR FREE and then come into his store - then I ask you, how would he treat you when you came into his audiophile salon? The answer: think Julia Roberts in Pretty Woman if she was shopping on Rodeo Drive for a pair of Sasha WPs. To me, his business model stinks just about as bad as his customer service, which is exactly why I didn't send him a very good personal friend of mine who is a top hedge fund manager. He literally doesn't deserve the referral nor is he getting it.
Internet retailers are eating up market share in this bad economy with "better than you can believe" prices on strong performing products. AV enthusiasts seek out the Outlaw Audios, Orb Audios, Oppo Digitals, Aperion Audios and other online retailers for fantastic value, high performance products and low prices that make the specialty stores look silly. But put price aside as these retailers don't have retail margins to worry about - what Orb, Aperion and Outlaw do that is so excellent is customer service. They bend over backwards to give the consumer a fantastic experience that beats out traditional brick and mortar retail - and for that they deserve the sale, loyalty and profit that they make. Orb Audio salespeople spend more time helping consumers make the right decisions about AV receivers, setting up a cable box or plugging in an Oppo player than they do selling their namesake speakers. And that's how it should be and they know it. Orb, like other top online retailers will go the extra mile to earn the client in ways that old-school stores and custom dealers often will not; thus they get the sale.
The truth is: online retail only represents about 20 percent of overall retail purchases but in the specialty AV world - their market share is getting larger and larger. At the same time - not all online retailers are created equal. Some sell flawed components at "unbelievable" prices to consumers who are asked to deal with unthinkable levels of grief. At the same time - you see a company like Outlaw Audio shelve their next-gen HDMI AV preamp before it shipped because it didn't meet their quality control and reliability standards despite the fact that the company had 5,000 orders (you do the math) waiting to be filled.
This type of high ethical standard is what all retailers should deliver. Clients are to be earned and nurtured. It's far harder to lose one than gain one. People who just walk in the door and ask to buy XYZ product at retail prices are not so much of a sale as they are an order. Building a relationship with consumers and offering them fair value gives a retailer the right to ask for the sale again and again. Fair customer service, top performing products and going the extra mile makes consumers want to refer their friends at time when it's harder today to sell anything to anybody. Too many customers buy only on price but none of them have given up on getting good customer service and value. Basically, whether he's buying online or at retail, the customer wants it all and one thing that hasn't changed in this prolonged recession is the fact that the customer is always right.
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