There's No Business Like the Hi-Fi Business Page 5
Take a tough stance from the moment you sign your dealer's agreement: defective products will be returned to the vendor, freight collect. Don't let his problem become your problem. The manufacturer who has his dealers doing his warranty work has made the happy discovery that people will actually pay him to do his quality control. Sales reps will pour on the charm trying to convince you that performing warranty work will be a convenient, painless, and profitable addition to your business. Don't take the bait: just say no.
The big problems
The problems you encounter with financing, establishing and stocking your store, selling and installing equipment, turning repairs around, and keeping your employees productive and content will be formidable. You will be beset by hundreds of nitpicking little chores which you never imagined back at corporate headquarters: ads to be designed and paid for, orders to be placed, income and expenditures to be juggled, taxes to be paid, records to be kept, a building to maintain, confused and unhappy customers to be placated.
All of this, the daily fare of the audio retailer, fades to insignificance compared to one enormous problem: the structure of the industry itself. Retailers labor under an antiquated economic model of local distribution. They imagine that they're competing against other local retailers for the loyalty of nearby customers, in the manner of gas stations and grocery stores. But high-end audio is not volatile like gasoline (with the exception of a few amplifiers whose names I cannot reveal), or perishable like food, and it is rarely an impulse buy.
In reality, all high-end audio dealers everywhere are competing for the business of all audiophiles everywhere. People with enough disposable income to buy expensive hi-fi tend to be well-educated, well-positioned, well-traveled, and sophisticated enough to understand that United Parcel Service goes everywhere, and that the savings on sales tax for goods purchased out of state can more than offset shipping costs. This market no longer recognizes the sovereignty or value of the local retailer any more than multinational conglomerates respect political borders. For specialized interests like high-end audio, the global village is a reality, a reality that has changed forever the notion of "community."
But still, we forget that we no longer live in the quaint, self-sufficient small towns of Norman Rockwell's era. Sales reps, who have the thankless task of signing up dealers like you, will promise you "an exclusive" on Alpha Omega Electronics within your city or region, glossing over the fact that although you are the only dealer in Metropolis, your customers will be price-shopping the guy in Sarasota. And the guy in Sarasota, who has agreed to support the same prices you have (ie, little or no discounts on local sales), appears to have no compunction about offering 25% off to a mail-order buyer.
Net effect: For the resourceful, deep discounts are available on almost everything, which in itself would not be problematic for dealers were it not for the fact that the margin on consumer electronics is low to begin with.
The owner of a jewelry shop or clothing store would think you insane for getting into a business where the standard markup is only 40%. That's where the discounting starts. A really profitable loudspeaker might sell for twice its wholesale cost—what hi-fi shops call a "50-point line." Let's put a hypothetical pair of Whammer Jammer loudspeakers on sale: whack 35 points off their $1000/pair list price. Now they're selling for $650, $150 of which is good clean profit, yours to keep when they sell, right?
Think again. You'll have to pay your salesperson a commission—say, 20% of the profit, or $30. Now we're talking $120. If you have to send your installer out to set them up, subtract another 20 bucks. Finally, take away 25% of your remaining hundred dollars for advertising, freight, warehousing, inventory taxes, and administrative costs involved in making the sale. We still haven't subtracted income taxes from the "clear profit" of 75 big ones, the harvest of many hours of diplomacy with the purchaser while he tried everything in your shop.
Low margins, widespread discounting, desperate competition, crushing overhead, and a clientele for whom price is the only consideration make for a huge attrition rate among audio shops. Compare the dealers' ads in the back of this magazine to one from five years ago. Few of the names are the same. Five years from now, many of the current crop will be gone. These are not happy days for the hi-fi business, or for independent retailers in general. In my experience, a store that lasts five years in prevailing conditions deserves to be called a success, even if its last act is to beg for mercy in bankruptcy court.
Quite a daunting prospect, isn't it? Daunting but not impossible. If you educate yourself, hire the right workers, pick the perfect location, sign a cheap lease, take on all the hot lines, compose glittering ads, pay everything up front, sell like a demon, and work like a dog 80 hours a week, in a couple of years you might have yourself a nice little ongoing concern. You might even take home a livable wage, possibly as much as $25,000 a year—about what you could earn flipping burgers in Omaha.
Hang in there long enough and you'll wean yourself from your hobby and quite possibly the love of music, too. Familiarity will breed contempt: a sad, unavoidable fact of life. But in the process you'll have moved out of your basement, sailed your little ship through churning, shark-infested waters, and learned more than would ever have been possible in the corporate cocoon. Whether you succeed or fail, at least you'll be able to say, "I tried"—a phrase that the drones back in the office, for all their lip service to "entrepreneurship" and "risk taking" and "the pursuit of excellence," will never be able to utter.