Buy from a Dealer or buy Direct?

Hello ZG

I thought it would be good to put down my thoughts on the buy direct or buy from dealer’s debate. I did not put 'dealer v direct' because both have a place.

Background
I have been into hi-fi/music ever since the mid 70s when my interest in music really started and I used to listen to my fathers system. He bought this from Comets. I don’t remember this purchase but I do remember him buying a Rotel Cassette deck from them. I distinctly recall that comets had a really large hi-fi section ad the sales person knew his stuff.
I started to assemble my own system and this consisted of a TD150 (bought from a friend), a NAD3020 (bought from the classifieds in a hi-fi mag) and some Diamond MKIs (A Christmas present from the parents). I loved this system and was well and truly hooked into hi-fi. In the early 80s the Sound Organisation moved to York and I used to go in there and ogle at the kit. Although I had no chance of buying anything Hamish et al were always friendly. I had one aim in life at that point, an LP12! At the age of 18 I bought an LP12 from the SO in York.
Time moved on and I eventually bought an ONIX OA21 from the SO and some Linn Helix. I was a constant visitor and was always dealt with politely.
After this nearly all of my system was bought second hand off eBay or friends. The only new purchases being the Radikal and Cirkus for my LP12 about a year ago.

In my working life I now run an Audio Visual distribution company, specialising in Audio and Video conferencing and Digital Signage. I have always worked in a Manufacturer, Distributor, Dealer, end user type of industry model. I have also recently started a new venture that will sell hi-fi and we have chosen the dealer model for sales.

Introduction
All of the comments and statements I make must be taken in the context of hi-fi products. You must also remember that these are my views.
Many people view dealers as nothing but a percentage that is put onto a product making it more expensive than it should be whilst other value their role. Likewise there are those who will only buy direct to get the best price and those who would never buy something without listening and having some tactile experience.
I will attempt below to show the pros and cons of the dealer and direct model.

Dealer
When I mean dealer I mean someone who buys from the manufacturer, demo’s equipment to an end user and (hopefully) sell the item to the same end user.
One thing we have to right straight from the beginning is that dealers exist to make money. They are running a business and they need to make money. That money can only be made one way, by profit on selling equipment, their margin. Depending on the manufacturer this margin can be anything from 30% to 50%. So if they buy something for £600 it’s going to, usually retail, for about £1000. Now that sounds like a lot but what you must remember is that out of that they have to:-
Pay wages
Pay for the running of the premises (rates, electricity etc)
Buy demo equipment
Make a profit to re-invest in the business

I for one like the experience of buying from a dealer. There is something very satisfying about spending a couple of hours listening to kit with someone who has the same interest as you, albeit with an agenda to sell to you. I will however be the first to admit that I only do this for expensive items. Things like cables, stands (not a FRAIM!!!) etc. I am confident enough to buy off the internet but remember, not everyone is confident enough at this and dealers for some people represent an end to end solution to buying hi-fi.

So to sum up:-

Pro:
Comfortable environment to listen to a range of equipment
Provide advice
Offer credit

Cons:
More expensive than buying direct (but most kit they sell can’t be bought direct anyway)
May persuade you to buy something that makes them more money

Direct
The direct sales model has only really come of age with the internet. People can now see and read reviews of products and then make a buying decision without leaving the comfort of their PC. Now for most non hi fi audio like iPod, cables, stands etc. this is the model I use. But I only do this because I know the sound I like and take advice from the people whose ears I trust. Plus I only buy from reputable places. I would never (again) do this with a piece of hi-fi; the risk is too great IMHO. The only hi-fi piece I have ever bought over the internet is a valve headphone amp, it’s been sold…….. The thing is that with the internet if you search long enough there is always the viewpoint you ‘want’ to find. i.e. I like the look of this CD player I wonder what its like. You search and find some bad reviews, you search some more and find a review that says what you want to hear; you buy it, then it arrives and it doesn’t sound like you expected.
When buying amps, cd players, etc I think that unless you know the house sound then it’s a massive risk to invest £300+ on something that you have not heard before no matter how reputable the vendor. I think Linn are doing themselves no favours at all by allowing people to buy the DS model off the page.

Pro:
Cheaper than buying from a dealer, though not always the equipment you want.
No hassle sales cycle.

Cons:
You might not like what you buy.
Returns might not be as easy as you think (China et al).


Manufacturers
Whenever a manufacturer starts up they have a decision to make. Do they sell direct and make more profit at the start with a faster start up time, or do they take the time to promote the product to the dealer. I have been in this position and it’s not an easy one to make. It can be made easier depending on what you make. In my case to get un-official OK from the factory it was necessary to sell via dealers. Plus the product is not plug_and_play and a certain amount of expertise required. If you sell direct then your reputation rests on the capability of the buyer to install the product correctly. If they can’t set it up 100% you can be sure that your products will be rubbished on the internet with no chance of you being able to rectify the matter.
But moving forward and as the business increases is when dealers come into their own. Dealing with 10 dealers is a lot easier than dealing with 1000+ customers. Plus you minimise your payment and invoicing issues not to mention customer support. In the beginning selling 5 items a week is easy to deal with but if the business grows you find yourself having to employ people and all of a sudden that margin you set based on selling direct is not enough, you have to put your prices up or sell via dealers.


Conclusion
Times have changed since the glory days of the 70s, 80s and mid 90s. There are far fewer dealers around because quality music replay is now accessible via supermarkets or the internet. The ones that have survived have changed and stock a wider range of products. I think that the number of dealers is now in tune with the number of customers willing to buy hi-fi from them. I don’t think it will decrease because the customer base is there and willing to pay. We have a skewed view when it comes to hi-fi forums, we think that the whole world thinks like us, well guess what, they don’t.
Dealers exist and perform a useful role for many, many people. That function has to be paid for. It’s not ‘slurping’ its not ‘shark selling’ its just commerce, that’s a fact. They will also continue to survive because many manufacturers won’t sell direct.

Direct sales will of course continue to grow but not at the expense of the dealers. There is a groundswell of companies who sell direct to their customers. I strongly believe that for hi-fi products this is not a sustainable model because if the company wishes to grow the direct sales method just does not work for hi-fi. For mini systems and in ear headphones et al. its 100% perfect, for £££ (£) hi-fi its not. Even direct sales people have to make money and unless they set the margin high enough sales/cash flow will eventually be a bar to growing the company.

Executive summary

Buy hi-fi from a dealer
Buy cables from the interweb


Andrew.

 

It depends what I am buying, and who's doing the selling.

If I'm buying new and expensive (eg my Akurate DS), I'd always use a dealer.

If I'm buying 2nd hand, online every time.

I would not buy hi-fi direct from a manufacturer online.

Two reasons,

1. There are an awful lot of flash in the pan companies who only sell online.
2. There are an awful lot of people with little or no technical qualifications knocking out kit from their garages. Hobbyists with ambition or people who just could not compete with real manufacturers out in the market place.

Chris

 

Andrew
All fair points. However, there is another model: the manufacturer who sells direct (via demonstration) as well as via the web. By doubling the warehouse / manufacturing area as dem space (not difficult to do cost effectively), they by-pass the High Street and (theoretically) pass on the reduced margin savings to the customer. This is how I bought my latest turntable: saw the reviews, went for a dem, bought it (part ex was offered, but I sold my existing t/t privately). They even home delivered and installed it.

So no High Street mark-up, yet with the comfort of having a very professional (and successful) demo, and installation. This model will not work for all Hifi sales, but between this, and the existing Direct Sellers, I think traditional dealers will suffer in the years to come.

Of the two (expensive) pieces of new hifi I have bought recently, I've gone direct to the manufacturer: all the rest is from eBay/forum sites.

 

Good points well put. My issue with this type of selling is that if they get really busy then the direct model falls down unless the margins can sustain what is effectively an in house hi-fi shop. Yes they won't have the dealer mark up to account for but the overheads have to be paid for somehow.
If they have done the sums right however and restrict the trade to a managable amount then its fine.

 

Some people don't want to be big, some people like the process of design and making things and don't want to be shut up in an office, no longer hands on - I hated it when I did it. It would suit you as you haven't a clue how to design and produce what you are peddling anyway so you are just another middleman.

Anyway that is the the way the market is becoming as no high overhead retailed manufacturer could survive on what is left of the UK market, they are only clinging on by their fingertips at the moment because of export.

What Theo is refering to is the future and more and more manufacturers will do it, small and start ups will do it first as can you imagine the hoohah if the likes of Naim went direct and cut their prices by 40%, they would have people queueing at the gates for a 40% refund. That is the transistion problem from the old way. Added to Theo way is the forum contribution to this via Bake-Offs and Bake-Off shows, no bullshit, no paid marketing men, no market control, if a product is not good enough and doesn't survive the comparison process it dies - full stop. On top of this if you are successfull you have many satisfied customers who a very willing to show off their systems, they could act as regional dem points for either a discount on new product or other incentives. Then you will have *real experts* on the product, and not just snotty 16 year old minimum wagers, as they have hands on experience using it showing / demonstrating it without any salesmen bullshit, and could also if need be install it. I am not saying this will happen but it is a logical possibility and an extention on what is happening in forums now.

Finally people don't seem to realise that by buying on line you get a 30day cool off / assessment period by law. If you are unhappy you can return for *full* refund. You do not get that legal requirement if you buy from a retailer and none provide it, you buy - don't like or find you have made a mistake - you are stuck with it - full stop!

 

Richard - I agree with your vision for future retailing, but the point above was unecessary.

 

Not sure these internet audiophiles are any better off than the clueless sixteen year olds or salemen in the shops. Many can't seem to wire a cartridge in phase from reading needledrop threads.

 

On 'Planet Dunn' that's ad hominem, to me its just a small insult. May I ask how you know what involvment I have had. I don't recall you at any of the discussions we have had about the design, I don't remember you visiting the factory that are building it for us and I don't remember you being involved in the initial listening and beta testing stages.

I do agree that staying small is the way for the direct sales to work in the context of hi-fi. Its not a model I want to follow as I would like a reasonable size company at the end of it all. One with a strong financial footing offering a range of products. It might not happen but I have to plan it that way from day one. If I go direct it's a limit to growth and let's be honest about this, profit.

 

Not all customers would be suitable. Who do you think most retailers are, they are customers who decided to join in the slurp.

 

Seconded.

 

Don't be daft, if you were capable of doing it yourself without Yn (whatever) who you employed to design it or a manufacturer to make it you would, but you are not. So your bias is a typical middlemans bias to profit and turnover not to the *fun* of doing something you love, or the craftmens pleasure of making something. The market is dying, it wont support all the middlemen slurpers anymore, the hangers-on who want to jump on another manufacturers bandwagon. Some after marketers and bodgers are good as that is what gives them entry and experience in the market, but all of them like Les at Avondale should know what they are doing, not just being another loud mouthed marketing man like we suffer from AVI, just what the industry needs more of.

 

Sadly, I don't think manufacturers will get anymore involved with raising shop standards (training) than they have in the past (which was largely zip.)

The only advantage I see with the new model is reduced cost for the customer but potentially even lower quality service than they receive now.

 

Whereas I completely understand this model (I spent 20 years in retail), here's a scenario: I once ordered a set of cables from a new, young, direct supplier almost 20 years ago. They were good quality: I bought another pair. Total cost, around £30. That manufacturer expanded their range, built specialist premises with R&D facilities, developed a dealer network, became very successful. To maintain the growth, high value "top" ranges were developed, with premium prices and no doubt large retailer margins. Those premium products have now reach such a level that metre lengths of I/Cs are into 4 figures. Without these ranges, the value ones can't exist as they will never sell enough to support the business.

People will turn round and say, "successful business model", but at the same time, other customers will say "emperor's new clothes" and go back to the small, individual manufacturers for value - a word which has much meaning in the current climate.

All IMHO, of course...

 

"not to the *fun* of doing something you love, or the craftmens pleasure of making something."

So, the future of HiFi is part time hobbyists, eh? The hi fi equivalent of a kit car cobbled up in a small industrial unit. Designed by gifted amateurs and usually hair shirt in the extreme. And then flogged at E-bay or similar?

All I can say is caveat emptor.


I believe your model will remain an insignificant niche within an already insignificant niche.

Chris

 

You see for me the second one is daft and over complicated and wiring looms are a production compromise, try cutting the loom and spreading the cables and see the difference that makes to the sound, but it wont look as neat.

I think members need to understand what is going on here. Look at the timing of him joining ZG at the moment I become active as a poster again. There is history, if I showed you the threats I have received from the man in private email you would understand my attitude to him. Questioning my adherence to CE and threatening to report me (which is complete nonsense). Threats to report me for working at home, threats to *investigate* my past to try and find things to out me on. The mild persona you get publically is very different to my private treatment. Plus he has tried his hardest to get me removed from PF and on one occassion succeeded and will try again here that is for sure - that is why this is happening - it is agenda driven. Reason for all this was this years Scalford Bake-Off Show. Chester Group were trying to justify their organising it by inviting trade to attend. I agreed to do it (I ended up being the only one) and Flatty (as I call him) booked a room as an ordinary forum member yet on PF was spamming about his new product and how he would be demonstrating it there, so I shopped him and told Chester Group who charged him (but only half price).

Since then he has been on AoS to try to cause me problems and even on Subjectivist, so that and the threatening private mails is why he is banned there. So judge these "conversations" on the agenda and motivations behind them.

BTW, regarding the Scalford Show, I was talking to Justin Bird a couple of days ago about the Whittlebury Hall show and he told me Chester Group would not be organising a Scalford Bake-Off show next year.

 

quote

could it be avarice? or self distructio! i persoanlly think that most manufacturers will not this year through, not6 when as you retailers with great amounts of overheads and forced to have dem stock "moneys stuck" and then manufacturers selling direct to punters, to me is fulls investment.

 

quote

not surprised

 

Hmm. Not so sure. I think that the small amount of specialist dealers left have found their product niche and the cusomter base to go with it. Likewise the number of large manufacturers has reduced but those that have survived are stronger now as they sell (in the main) products people want to buy through their dealers.

 

yes i agree, that most of the buyers would like to buy from the local dealers, where in the "old" days they would enjoy personal service and a quite knowledge advice towards different products, unfortuanally it has more or less gone, those who are still offer that i think that the major customers faith has gone,
nando.

 

I have removed my post that showed some pics of an NVA and NAIM amp in the hope and wish that my olive branch, via PM, is accepted.

ZG is just starting up again and it doesn't need a public fight between me and another party.

Andrew.