You may have heard that many hi-fi companies—manufacturers, distributors, and dealers—have done very well during the pandemic years. Some reported their best years in business—ever. With COVID-19 forcing people to stay at home, people sought diversion through home entertainment, including music. The industry benefited.
This is exciting news: It's good for all of us when the industry thrives. But another, less welcome thing has been happening, too: Prices have started rising.
In one sense, this is hardly surprising: It's supply and demand, right? If demand increases but supply is fixed, or worse than fixed, you expect prices to rise. But is that really what's happening?
I spoke with several people in the audio industry to find out what's really going on. What factors are driving price increases, and why have they become necessary?
"Price increases are typically driven by the rising cost of raw materials required to manufacture key parts for the finished product and freight costs associated with receiving parts to the factory," a representative of a US manufacturer, who requested anonymity, told Stereophile in an email.
Why anonymity? It's curious. Obviously, companies need customers to know how much their products cost, and yet, for a lot of people in the industry, raising prices is a sensitive subject. Some proved unwilling to talk about it on the record. Others were willing to talk, but only if they could remain anonymous. To get the information we wanted to pass along to readers, we granted these requests for anonymity.
Manufacturers don't like to raise prices. But sometimes it's necessary. "I hate it. I know what it's like to be a kid with his nose pressed against the glass," dealer and distributor Kevin Deal, of Upscale Audio in La Verne, California, told me by phone. Upscale is facing two kinds of cost increases: manufacturing and shipping. "I'm only raising prices to cover extra manufacturing costs—not for increased shipping. I'm just holding my nose, hoping it will be over soon."
Companies that compete on price are taking a bigger hit. He cites PrimaLuna. "We have to raise [prices] on PrimaLuna because they raised the price on me," Deal explained. "We run on a really thin [profit] margin to begin with."
In much of the world, the pandemic is subsiding, but the times are still unpredictable. Companies are having a harder time forecasting the future. Even those that planned ahead and stocked up on critical parts are now facing shortages again as those supplies dwindle. Plus, they're paying a premium when they do succeed in sourcing the parts. "It's my 18th year in business, and I've never seen it where you can't get things like capacitors and resistors," electronics manufacturer Vinnie Rossi told me. "People are hoarding parts like they were hoarding toilet paper early in the pandemic."
Some US manufacturers, including Rossi, told me they'd had to overhaul electronics designs midstream due to the sudden lack of availability of essential parts. He's still waiting for some components he needs to build his newest amplification products. (I wrote about the new Vinnie Rossi Brama series in the January 2022 issue's Industry Update.) The parts are expected soon.
The costs of raw materials—neodymium, copper, aluminum—have increased, too, some by as much as 10%. Some short-term increases have been much higher. One manufacturer was able to build products but couldn't ship because a paper shortage meant they didn't have enough boxes.
According to one industry source, the cost of shipping freight from overseas in shipping containers has increased by a factor of four or more. One US manufacturer was hoping to avoid raising prices this year but faces "huge increases in freight costs to make parts available for production."
Apparently, the loudspeaker category has been hit hardest by shipping-cost increases, especially more affordable models. Speakers are often awkwardly shaped, so they take up more container space, which means that freight costs have a (literally) proportionally larger impact on those products than on products of similar size.
Less expensive products are disproportionately affected because shipping costs are a larger share of total cost. And profit margins on those lower-priced items are narrower to begin with.
Labor costs are yet another issue. Due to COVID-related social-distancing requirements, factories were forced to reduce staff. Many closed for at least a few weeks. In the wider economy, companies that laid-off staff have found it difficult to bring them back; it isn't clear yet whether that's been true in the hi-fi industry, but it might be.
Could the price increases be only short-term? Probably not, but maybe.
Upscale's Kevin Deal believes that shipping costs will come back down. He would advise other companies, "If you're making enough money to temporarily absorb the increases, then do it," rather than raise prices. But if costs go down, prices can go back down, too.
Still, "once a price increase goes into effect, it is difficult to go backwards," one source told me in an email. "At the moment, predictions for 2022 don't reflect any price reductions in material and freight costs. Hopefully, 2023 brings some form of stabilization, with material and freight costs landing somewhere in the middle to become the new normal."
Waiting for that new normal is easier said than done. Internet-era consumers used to fast gratification sometimes get frustrated and seek to cancel delayed orders. But companies are in the same boat they are: They can't be sure when a shipment will arrive, either.
"During these unpredictable times, it's important for end users to maintain a higher level of patience," a representative of one US manufacturer said in an email. After all, he continued, you're investing in a unique, high-performance product, not some cheap commodity.
"Most people have been pretty understanding," Deal said about reactions to delays and price increases. "I just hope they don't make a permanent decision based on a temporary circumstance."
Meanwhile, demand remains high. That's good news for the hobby and the industry.
