It seems I’ve been having this conversation a lot lately,  and that conversation is one over dealer markup versus Internet direct sales. It’s no lie, Internet direct sales or dealers have created a marketplace that seems to favor the consumer. When I say “favor” I mean these Internet direct businesses are seen as saving consumers money. In doing so these Internet direct businesses have inadvertently (or not so inadvertently) “vilified” brick and mortar dealers and/or the manufacturers who still support them. On the flip side, there is somewhat a movement underway in this country for folks to patronize local and small businesses. Mom and pop hi-fi and home theater stores would definitely qualify as local or small businesses. These shops’ actual service to their customers notwithstanding (some provide no service whereas others are exceptional) survive on the so-called markups or margins that exist within the products they sell or represent. So on one hand consumers want low prices but on the other they also want to support the little guy, so what is an enthusiast to do? First off, one must understand or dispel the myth that Internet direct sales are in some way different from physical brick and mortar ones.

I recently had a conversation with an online retailer who was trying to convince me that their product -no it was NOT Emotiva -was the same as another manufacturer’s -only they sold theirs for half the price. They claimed their product was the same because half a decade ago it was once made in the same factory. The product’s point of origins was neither here nor there for the real point was that I should’ve automatically gotten behind their product rather than their competitor’s because their product simply cost less. First, and just to clarify, I wasn’t for or against anything, I judged each product on their own merits and chose to ignore price. However, since this Internet direct retailer/manufacturer insisted upon making price part of the discussion, I humored him. He insisted that because his product was half the price yet produced similar results the other product should be immediately discredited and his product be declared the “winner.” I found no logic in his argument for the very product he chose to compare himself to didn’t even exist in the same space -that is to say it isn’t available for sale online, but rather through dealers. Therefore, he was essentially asking me to chastise or penalize the manufacturer for supporting small business. Which I thought was a crap thing to do.

Look, I’m not made of money as I’m sure many of you aren’t either, but I’m not about to throw someone under the bus because they support local brick and mortar stores. I may not always see eye-to-eye with brick and mortar but the majority of these local and small businesses aren’t bad, nor are they run by bad people. These are folks who survive (emphasis on survive) on these margins -they’re not getting rich. And when I explained this to the manufacturer he seemed to grow more frustrated, which lead me to believe, that like the brick and mortar dealer, he too was just trying to get by. So rather than appeal to his sense of fairness I offered up a mathematical argument, one void of emotion at all.

It went something like this.

Product A sells for $500 and is sold via an Internet direct model, meaning the customer believes he or she is paying $500 for the item’s true value and not a penny more. Product B sells for $700 and is sold through traditional brick and mortar stores. Now, I know that product A and B are not the same -comparable but not the same, but for the sake of this illustration let’s assume they’re the same thing. To the consumer, product A appears to be the better value, for it’s $200 less than B. You’d be right to think that A was a better value than B, provided A and B were truly the same. However, if product A were to be sold via a traditional dealer then it (A) would cost the same as B or more. That isn’t to say that product A therefore doesn’t have any markup -it does, arguably the same or more as B, it just isn’t shared with a dealer but rather the manufacturer or importer directly. But it’s important to understand that the makers behind product B aren’t sitting there twisting their mustaches in a darkened room with a kitty on their lap thinking of ways to screw their customers -they aren’t. Why? Because they themselves aren’t making any more or less money than the maker or importer of product A. In truth they’re making the same -arguably they’re even making less. Yes, it sometimes costs the manufacturer of product B money to support their dealers -especially in a world that now has to contend with virtual dealers and/or Internet direct sales.

The point is, neither side is right or wrong it just is what it is. As a paying customer you have to understand that when you shop at a physical store, part of the cost of buying something there goes to footing the bill and supporting the livelihoods of those who’s store you just patronized. By purchasing “locally” you’re supporting two businesses, the original manufacturer and the local dealer. With Internet direct sales you’re potentially only supporting one -the Internet direct retailer themselves. Again, that isn’t to say one is better than the next, it just is what it is. But it is unfair to chastise those who would be in support of product B over A because you don’t want to pay for someone else’s livelihood, but yet in the same breath fight for the well being of small businesses. It’s hypocritical.

There is room for both, and if nothing else the presence of Internet direct dealers helps keep brick and mortar “honest.” Internet direct companies arguably also help  thin the herd when it comes to eliminating “bad” brick and mortar dealers, but it doesn’t make them (Internet direct companies) better. There is room for everyone, if nothing else, Internet direct retailers and their “lower prices” do help bring new enthusiasts into the fold. But rather than rallying against those whose businesses are a little different, we should be looking into ways that we can work together. After all we all trying to progress the same hobby -a hobby that will live and die by the strength and unity of its fans, and not in who charges what.

As always I thank you all so much for reading. Until next time, take care and stay tuned…

Andrew

  • Donny Purych

    I don’t see a difference in supporting id companies or local. Both are small business . I shop for the best bang for my buck. The salesman at local hifi doesn’t bring anything to the table that I need. I grocery shop at a local place that costs more then Walmart because the store brings something to the table. Great service and convenience . A smaller store easier to get around. If your buying midlevel where I shop the I’d companies are tough to beat. If I had boatload of cash then I would go to a hifi store. Then there prices wouldn’t effect me

  • http://twitter.com/ARobinsonOnline Andrew Robinson

    Totally get where you’re coming from. I didn’t mean to imply one business model over the next was a small business where one is not. But you did hit upon my last point, which is to say that if the local brick and mortar dealer were to provide you with better service -whatever that may be for you -then you’d consider it, but since they don’t you go Internet direct. This is how both sides can keep each other honest, however, it must be an equal playing field.

    What I mean by that is using a brick and mortar dealer to “try” something out the going online and buying it for less. In this respect the manufacturers are not helping the situation, or the rules are different, which isn’t right.

    I may not be the world’s largest Apple fanatic nowadays, but their across the board pricing scheme does seem to work and benefit a lot of folks. Yes it’s more than what you’ll pay for a PC, but if you want Apple, online or not, you’re not going to save a penny. Just a thought. With that sort of plan it is then left to the dealer or retailer to provide you with something worth coming in for. Thanks so much for reading and for sharing your thoughts.

  • Porscheguy

    I wish no ill to the B&M’s. If you think that’s a better way for you to shop then you should do it. But the internet has changed a lot of of things besides buying direct. This very website (and dozens like it) along with many forums serve to inform the consumer in such a way not offered 10 years ago. Professional and consumer reviews abound and all this is a treasure trove for the consumer. There are few if any B&M stores left (where I live) and the ones that do cannot stock everything so most of the time they don’t have what you want so they say “give me 15% and I’ll call you when it comes in”. I’m not sure where you got the 40% markup (btw, a 40% markup on $500.00 is $833.00). Bestbuy is 50% (or double) from their cost and speakers can be 300% mark up or more at the “audiophile” stores. How about Crutchfield? Other than special sales, they sell at MSRP. Period. Want to buy a NAD M-15HD2? List price. How about some Thiel CS3.7′s? Sure, $7500 ea @MSRP. So locally you have dealers that order what you want and make 40% or 50% just for handing it to you or the big online retailers that don’t even have a storefront and want to make the same margin. So as an example, lets say Emotiva was available at Crutchfield now and the products are now marked up 40%-50%. So instead of calling Emotiva, Aperion, SVS or Outlaw, You now call Crutchfield to buy from them. Whats gained other than paying more? You have certainly reviewed enough gear from the ID companies to realize its a solid value most of the time. Subwoofers? SVS and Rhythmik build fabulous ones. I’d rather buy from them than spend $4000.00 on an excellent JL product because half goes once again, goes to the dealer. The B&M business model needs some compelling reasons to continue, and right now I don’t see any.

  • http://twitter.com/ARobinsonOnline Andrew Robinson

    I removed my mathematical error.

  • Porscheguy

    I was hoping you would comment a bit more on my post :-)

  • http://www.facebook.com/JamesMVHolmes Jim Holmes

    Donny, I totally agree with the fact that most of the time, salespeople in hifi stores just don’t provide the value add to the sale. Substantial product knowledge and the ability to execute a stellar demo are critical components of that process. Also, a neat, clean well laid out store with rapid fire switching capability for accessing different combinations of gear. My encounters have been more the opposite, where you need to interrupt a salesperson from reading their paper to get help, the store is a mess with cardboard boxes and open gear just sitting there. Nothing properly configured for a good demo and no one seems to know any answers without looking it up on line. Hell, I don’t need to pay someone 40-50% to do that, I’ll do it myself. Which brings us back to ID and in some cases they hire technical experts to provide pre-purchase answers and after-sales support, all you miss is a good demo.