Growing the High-End Audio Market

How can the high-end audio industry expand its reach beyond the hobbyist audiophile? Why is quality music-reproduction equipment relatively unknown when many other highperformance and luxury products—from cars to watches—are venerated by the masses? What can we do, individually and collectively, to grow the market for high-end audio?

To explore these questions, I assembled a panel of two industry veterans and a top-level business consultant and analyst (who also happens to be a serious music lover and audiophile). The panelists are John Giolas, Director of Marketing at Wilson Audio; Terry Menacker, founder and proprietor of the high-end retail store Overture in Wilmington, Delaware; and Atul Kanagat, a recently retired business consultant (see the panelists’ full biographies on page 101).

As stated in this issue’s From the Editor, The Absolute Sound is committed to providing a forum for readers and the industry to find solutions to the challenges facing highend audio.This Roundtable is just the first step in our initiative to find ways to broaden the awareness of high-performance audio and expose more people to the special experience delivered by our industry.

I began by asking each panelist to describe the general state of the industry . . .

TERRY MENACKER: I can only give you Overture’s experience. We’re finding a re-interest in music, which of course is phenomenal for us, because that’s where our roots are. Our business is very healthy, for good reasons. We sell only the best products, we don’t sell fake (mass-market) high end, and we always put the customers’ needs first. We give them the best experience of any store in the country. When people leave, they really have had a mind-changing experience. It’s working for us, and if it works for us, it should work for other retailers. It’s not easy to do. You have to realize that high-end audio’s not a commodity. It’s part science and part art, and if you’re just interested in moving boxes, you’re not a high-end-audio dealer. Also, the customer must not be made to feel like high-end audio has to be super-expensive. Some of our most enjoyable systems are in price ranges that I’m sure any of your readers could afford.

JOHN GIOLAS: Our revenue has doubled in the past four years. It’s my belief that the successful companies have stuck with and built their culture of specialty manufacturing. They have expanded their relevance in the market by building on their core expertise, and by not moving down-market.

ATUL KANAGAT: It’s a difficult industry to analyze objectively because the individual players are very small and largely privately held. Reliable information is very hard to come by. But my own sense of things is that U.S. consumer demand for twochannel- oriented equipment is declining, home-theater demand is strong, but audio is a small and often not central part of the home-theater budgets—video and control systems crowd out the audio. This declining demand is resulting in three things: stronger brands are taking their average price points up to maintain or grow total dollar margin; many are reducing costs by sourcing from China and trying to maintain margin in that way; and exports are becoming a larger share of sales for many players. I suspect that Overture and Wilson are exceptions rather than the rule. Companies with clear and focused business strategies that have been able to execute their strategies have done well. But that’s not the bulk of the market.

GIOLAS: The industry is in a transition. Some manufacturers have tried to grow too quickly, and they’ve done that in a number of self-defeating ways. They’ve moved into markets that are not conducive to their core expertise, i.e., amplifier manufacturers moving to system control or to speakers. They’ve done it by lowering the common denominator, by getting into the entry-level mindset, by making gear offshore. As a result, they have moved away from traditional specialty high-end retailers and toward broader distribution through the regional chain stores and even national chains to distribute their products. They have alienated the specialty retailer like Terry and have therefore lowered their brand identity and their brand equity in high end.

ROBERT HARLEY: What are the biggest challenges facing the high-end industry?

KANAGAT: When you start to study the industry, you notice right away that it’s extremely fragmented. The industry is composed of hundreds of very small companies rather than a few larger ones. Because it is so fragmented, the industry doesn’t act in unison to further its own interests. We need to find a way to bring the industry together so that it doesn’t transition into a dangerous long-term negative slide.

MENACKER: The quality of the product is slipping. That’s one of the major problems, along with fragmentation. There are a lot of products being marketed as high-end products that really aren’t. The performance of their products comes from the company’s marketing department rather than the engineers. People buy them and they are disappointed. Then they think high end is a rip-off, and they are out of the hobby. Also, there are fewer stores where a music enthusiast can go and have a good experience. As an industry, we can’t run an ad that can describe the listening “experience” someone gets at a good store.