ReTales # 16: Price and patience

You may have heard that many hi-fi companies ?? manufacturers, distributors and dealers ?? have done very well during the pandemic years. Some have reported their best years in business. With COVID-19 forcing people to stay at home, people have sought to diversify through home entertainment, including music. The industry has benefited.

This is exciting news: it is good for all of us when the industry thrives. But something else, less welcome, also happened: prices started to rise.

In a sense, this is hardly surprising: it’s supply and demand, isn’t it? If demand increases but supply is fixed, or worse than fixed, you would expect prices to rise. But is this really what is happening?

I’ve spoken with several people in the audio industry to find out what’s really going on. What factors are behind the price increases and why have they become necessary?

“Price increases are generally due to the increased cost of raw materials needed to manufacture key parts of the finished product and the transportation costs associated with receiving the parts at the factory,” said a representative of an American manufacturer, who requested anonymity. Stereophile in an email.

Why anonymity? It’s curious. Obviously, businesses need customers to know how much their products cost, and yet, for many people in the industry, price increases are a sensitive topic. Some have been reluctant to talk about it officially. Others were ready to speak, but only if they could remain anonymous. In order to get the information we wanted to convey to readers, we have granted these requests for anonymity.

Manufacturers don’t like to raise prices. But sometimes it is necessary. “I hate it. I know what it’s like to be a kid with your nose stuck to the glass,” Dealer and Distributor Kevin Deal of Upscale Audio in La Verne, Calif., Told me over the phone. . The high end faces two types of cost increases: manufacturing and shipping. “Am I just raising the prices to cover the extra manufacturing costs? Not to increase the shipping costs. I’m just holding my nose up, hoping it’s over soon.”

Firms that compete on price are hit hardest. He quotes PrimaLuna. “We must increase [prices] on PrimaLuna because they increased the price on me, ”Deal explained.“ We are operating on a very small [profit] margin to start. ”

In much of the world, the pandemic is abating, but times are still unpredictable. Businesses find it difficult to predict the future. Even those who have planned ahead and stocked critical parts are again facing shortages as these supplies dwindle. Plus, they pay a premium when they manage to get hold of the parts. “This is my 18th year in business, and I’ve never seen it where you can’t get things like capacitors and resistors,” electronics maker Vinnie Rossi told me. “People are hoarding coins as if they were hoarding toilet paper at the start of the pandemic.”

Some American manufacturers, including Rossi, told me they had to revise electronic designs along the way due to the sudden lack of availability of critical parts. He is still waiting for certain components that he needs to build his new amplification products. (I wrote about the new Vinnie Rossi Brama series in the Industry Update of the January 2022 issue.) Coins 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 many higher. A manufacturer was able to make products but couldn’t ship them because a paper shortage meant they didn’t have enough boxes.

According to an industry source, the cost of shipping freight from overseas in shipping containers has quadrupled or more. An American manufacturer hoped to avoid raising prices this year, but faces “huge increases in transportation costs to make parts available for production.”

Apparently, the speaker category has been hit the hardest by increases in shipping costs, especially the more affordable models. Speakers often have an awkward shape, so they take up more space in containers, which means shipping costs (literally) have a proportionally greater impact on these products than on products of a similar size.

Cheaper products are disproportionately affected as shipping costs are a larger share of the total cost. And the profit margins on these cheap items are narrower to begin with.

Another issue is labor costs. Due to social distancing requirements related to COVID, factories have been forced to downsize. Many have closed for at least a few weeks. In the economy at large, companies that have laid off staff have struggled to bring them back; it is not yet clear if this has been true in the hi-fi industry, but it could be.

Could the price increases only be short term? Probably not, but maybe.

Upscale’s Kevin Deal believes shipping costs will go down. He would advise other companies, “If you make enough money to temporarily absorb the increases, do it,” rather than increasing the prices. But if costs go down, prices can also go down.

Still, “once a price increase kicks in, it’s hard to go back,” a source told me in an email. “At the moment, the forecast for 2022 does not reflect any reduction in material prices and freight costs. Hopefully 2023 will bring some form of stabilization with material and freight costs somewhere in the middle to become the news. standard.”

Waiting for this new normal is easier said than done. Internet-age consumers accustomed to quick gratification sometimes get frustrated and seek to cancel delayed orders. But companies are in the same boat as they are: they also can’t know when a shipment will arrive.

“In these unpredictable times, it’s important that end users maintain a higher level of patience,” a representative for a US manufacturer said in an email. After all, he continued, you are investing in a unique and successful product, not in a cheap product.

“Most people have been understanding enough,” Deal said of the reactions to the delays and the price increases. “I just hope they don’t make a permanent decision based on temporary circumstances.”

In the meantime, demand remains high. This is good news for the hobby and the industry.