March 10, 2023 / By mobanmarket
I spoke with people working in hi-fi to get a sense for how the industry is evolving. Here’s one way: Some companies at the market’s higher end are eschewing the traditional distribution model, in which a domestic company serves as middleman for products from overseas, buying and reselling inventory to dealers and then providing support. In the newer model, distribution services are provided by the overseas manufacturing company itself, either directly or via a US subsidiary. Brinkmann, dCS, Estelon, Gryphon, and T+A employ variations on the model. Some of these companies outsource public relations, marketing, sales, and other services to US-based companies, but they keep control of product distribution.
Aldo Filippelli, who co-launched Dynaudio North America in 1995 and worked there until 2007, now runs Elite Marketing Dynamics, which provides sales management and other services to hi-fi companies—not only to overseas companies including Estelon but also to domestic ones like Krell.
Estelon handles importation logistics and shipments to dealers. Filippelli provides whatever services Estelon and its dealers need: business development, PR, trade show help, and so on. One of his aims is to educate client companies on how to expand their marketing and their markets. “The US market is very behind the times,” Filippelli told me. “It’s still very conventional. They don’t really understand how to reach outside the audiophile world. … They’re leaving a lot of money on the table.” Reaching outside the audiophile world is an important theme in the industry right now. More on that in a moment.
Have you noticed? Even some well-established companies, especially at the industry’s higher end, have a rather small number of dealers. Is that another trend? Is it by choice?
One issue, certainly is that the choice of dealers is critical, especially for elite brands. Anthony Chiarella, who owns and operates Specialty Sound & Vision and serves as director of sales and marketing for Gryphon and Brinkmann, advises companies on dealer selection. “I have to give a really thorough picture of a dealer to a manufacturer,” because choosing the wrong dealers “would diminish the brand.”
So, is fewer dealers good—more exclusive? “There’s definitely some cachet to having fewer dealers,” Chiarella told me. Yet, overall, the industry needs more dealers, not fewer: “Nationally, there is a dearth of high-quality dealers.”
US-based Wilson Audio Specialties, which makes luxury-priced loudspeakers, has neither increased nor decreased dealers. They’ve kept about the same, healthy number—35—for years, Peter McGrath, Wilson’s head of sales (also a noted recording engineer), told me in an interview. Wilson, though, is not complacent: They’re “always on the lookout for dealers,” McGrath said. Prospective dealers must meet certain criteria to become Wilson dealers, and Wilson always seeks a long-term relationship.
Chiarella’s point, that the industry needs more dealers, is important, but to achieve that, the industry must expand. Most companies recognize that expansion is essential. One way to achieve that is diversification—moving into other areas related to perfectionist sound. Some established high-end companies have moved into prestige car audio: Burmester with Mercedes-Benz; Estelon with Rolls-Royce, McIntosh with Wagoneer (now an elite Jeep marque), Naim with Bentley, Sonus Faber with Maserati, Tidal with Bugatti. Many of those same companies, plus many others (starting at a much lower price level) are making products for custom installation (CI).
CI, though, is complicated. The peculiar thing about the CI market is that typically, decorators, architects, or builders—not end users—interface with custom installers. Another thing is, CI hi-fi is hidden in the walls. “CI has killed audio retail,” Chiarella told me. “It’s as if audio has been banished.”
In Europe, hi-fi systems are a source of pride, meant to be shown off, Chiarella said. That’s true in Asia, too. Good visual design encourages that, Filippelli noted. He believes the trend toward hiding hi-fi will change when customers are exposed to more attractive alternatives. Sound isn’t everything after all; design matters, too.
Aesthetics and industrial design have long mattered to many audiophiles; some hi-fi creations are in museum collections. But aesthetics do seem to be playing an increasingly important role. Hi-fi is gradually moving beyond its audio-geek roots.
Filippelli told me about a couple who wanted to buy a pair of Estelon speakers, but the wife didn’t want ugly amplifiers. Once she saw a pair of D’Agostino amplifiers, the sale was made. “[A]verage people we want to attract into the industry … care about the looks,” Filippelli said.
The focus on design raises another point: price. From the industry perspective, a big part of hi-fi’s future is in luxury goods. “The future of high-end audio retailing is a smaller number of larger sales,” Chiarella told me. That’s a trend most audiophiles have already noticed and that many have complained about: The top end of today’s hi-fi market is priced much higher than it was a couple of decades ago.
The higher prices rise, the more appealing the secondary hi-fi market—the market for pre-owned goods—becomes. That’s good for (some) customers, but manufacturers would prefer to keep those sales. Wilson has incentivized dealers to accept Wilson trade-ins by setting up a recertification program—”certified used,” as with cars—and, in some cases, renewed warranties. The program offers Wilson buyers and sellers an alternative to resale at online auction sites and provides dealers with an extra revenue stream.
Back to distribution: Sources who addressed the issue, including Chiarella, made it clear that distributors play a crucial role in the hi-fi market and are likely to continue to, perhaps indefinitely, for all but the highest end of the market. For makers of luxury-priced equipment, volume is lower, with fewer dealers and transactions, so self-distribution is more feasible.
On the other hand, customer service expectations are high, and with fewer dealers, those expectations can be hard to meet. “Dealerships lean very heavily on the manufacturers for support,” Filippelli said. Can manufacturers—or someone—meet that challenge?
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