Substantial Dealer Margins

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drummerman

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Jan 18, 2008
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You've all noticed the substantial reductions for end of line products. For example, Arcam's products are available at half price when successors are introduced. Musical Fidelity's are usually a fraction of the price after a year or two.

Goodwill on behalf of dealers? I'm afraid not. They still make a tidy profit and dont think for a moment they sell at cost.

Not all brands are marked up in the same way but never pay full price unless perhaps you buy Factory direct and even then its worth to haggle.

Its ok to say dealers have to survive somehow. They do and they will if they do things right. Apart from that you have to work for your money too and make it last!

Things will get tight in retail and dealers/retailers still have to shift stock. Use this situation to your advantage and walk away if you dont like the deal offered. Dealer margins are huge in many cases trust me. Many had a very good time over the last few years. Now its our time as consumers/customers.

Bargains everywhere.
 
No different to most things mate. I think the only exception is cars, used or new, but they still find ways to get the margin out of the bargain.
 
I think you'll find that certain dealers are picked to get rid of the end of line stock by the manufacturer, this stock is then 'sold' to the dealer at a vastly reduced price and that saving is then passed on to the customer.

A retailer margin isn't just the difference between buying and selling price, they have fixed overheads like buildings, variable overheads such as staff costs and marketing to name but a few. There's far more to it than meets the eye.

I work with many retailers, and one instance I'll mention is something that cost a retailer £1,700 to buy has an rrp of £5,200. But this particular produce could sit in the shop for over 2 years before being sold; in that time much work could be put into selling it, so by the time it is sold, the margin would be much much lessÿ
 
JoelSim:
I think you'll find that certain dealers are picked to get rid of the end of line stock by the manufacturer, this stock is then 'sold' to the dealer at a vastly reduced price and that saving is then passed on to the customer.

A retailer margin isn't just the difference between buying and selling price, they have fixed overheads like buildings, variable overheads such as staff costs and marketing to name but a few. There's far more to it than meets the eye.

I work with many retailers, and one instance I'll mention is something that cost a retailer £1,700 to buy has an rrp of £5,200. But this particular produce could sit in the shop for over 2 years before being sold; in that time much work could be put into selling it, so by the time it is sold, the margin would be much much less

Which is exactly how it works. There's much more to it than meets the eye.
 
JoelSim:

I think you'll find that certain dealers are picked to get rid of the end of line stock by the manufacturer, this stock is then 'sold' to the dealer at a vastly reduced price and that saving is then passed on to the customer.

think your right there, noticed a couple of dealers in particular that have a seemingly endless stock of end of line arcam kit.
 
You all sound as if you would be happy to pay anything they charge you ... each to their own and very british
emotion-11.gif


I know they still make good profit. If you dont take advantage of the economic climate then I'd say thats silly, not to use a stronger word.

Example, I am shopping around for a pioneer kuros. A shop not to far away offers the set for £2399 with 5 year warranty. In the greater scheme thats a good price but there's no way I will pay that. I would expect an additional 10% off or have the optional stand/speakers and a good hdmi cable free to complete the purchase.

If they dont agree on wednesday I just walk out, no problem. Do I care if that set sits another few months in their stock room whilst they have to pay 2 sales assistants and cover costs for the lovely showroom in prime location. Certainly not. A couple of months down the line I'll pick it up for the price I want or cheaper anyway and my 'demands' are certainly not unreasonable.

Now if I would take advantage of a home trial for example, I would make sure the price is settled before I'd do that of course. The same goes for anything they have to order in especially but there too, I would expect money off.

Things will get hard for British retail and for us. My pay does'nt go up in line with cost increases.

I am in no way advocating to bleed our hifi dealers dry but like I said, they had it very good for a long time, many have thrived and expanded.

My loyalty is firmly with my wallet but if you'd rather sponsor the retailer ...
 
Yeah I'm with you Drummerman. I find the dealer margins on hifi to be far too high. Yes they have fixed costs etc but these days I nearly always know what I want. I just want a price from the dealer. If I'm not using a dealer's facilities to demo or taking up his time then why should I pay him a 40% on a £1000 component. What exactly has he done to earn so much of my hard earned cash?

Its the worst in the high end of the market. Some dealers I've dealt with got very annoyed that I even dared to try and get a price below RRP when I was buying my SME IV tonearm. I should mention that I phoned around seeing what the best price I could get. I was perfectly polite and the dealer I did buy from was very friendly and helpful - happy to do the deal at that price.

When I asked one dealer by email if he could beat the quote I'd been given he said he could and do give him a call. I did and since I had a better price since emailing him his response to me was,

"People like you represent everything that's wrong with Britain today. You know the price of everything but the value of nothing"

He then proceeded to hang up on me.....charming.
 
drummerman:

You all sound as if you would be happy to pay anything they charge you ... each to their own and very british
emotion-11.gif


I know they still make good profit. If you dont take advantage of the economic climate then I'd say thats silly, not to use a stronger word.

Example, I am shopping around for a pioneer kuros. A shop not to far away offers the set for £2399 with 5 year warranty. In the greater scheme thats a good price but there's no way I will pay that. I would expect an additional 10% off or have the optional stand/speakers and a good hdmi cable free to complete the purchase.

If they dont agree on wednesday I just walk out, no problem. Do I care if that set sits another few months in their stock room whilst they have to pay 2 sales assistants and cover costs for the lovely showroom in prime location. Certainly not. A couple of months down the line I'll pick it up for the price I want or cheaper anyway and my 'demands' are certainly not unreasonable.

Now if I would take advantage of a home trial for example, I would make sure the price is settled before I'd do that of course. The same goes for anything they have to order in especially but there too, I would expect money off.

Things will get hard for British retail and for us. My pay does'nt go up in line with cost increases.

I am in no way advocating to bleed our hifi dealers dry but like I said, they had it very good for a long time, many have thrived and expanded.

My loyalty is firmly with my wallet but if you'd rather sponsor the retailer ...

Au contraire DM, I am always up for getting the best deal on anything. A bit of haggling is fun. If you don't ask, you don't get
 
Margin just isn't as simple as taking a cost price and comparing it to retail price. Yes, in a black and white sense retailers might have, for example, 20% on a particular product. However, once you take into account all the many costs of running a small business (as many dealers are), this does not all translate into profit. Staff wages, electricity, rent, interest on bank finance, time spent standing out of money on manufacturer offers which the retailer has to offer to the customer and then redeem as late as 30-60 days later... It all adds up and I think a look at the books of many hi-fi dealers would show that many are actually struggling and probably only breaking even or turning in small profits.

We could all say that we don't care about the backroom costs and problems faced by the retailers but the simple fact is that if we put too much pressure on prices in the small specialists they won't be there for very long. Where will we be able to audition, view and get expert advice on new equipment then?
 
Oh, and don't think for a moment that dealers buy products in from manufacturers at the same amounts throughout their life. Many of the end of line reductions are not indicative of previous margins but actually price repositions supported by the manufacturer who also needs to clear its old models through.
 
All very correct, very ethical and admirable but I just care about my pennies. What the dealer does to survive and prosper is his/her business (literally), not mine. I want service, value and choice. In return I give him/her my money to the amount I deem appropriate and my return business if I'm happy. Simple.
 
drummerman:All very correct, very ethical and admirable but I just care about my pennies. What the dealer does to survive and prosper is his/her business (literally), not mine. I want service, value and choice. In return I give him/her my money to the amount I deem appropriate and my return business if I'm happy. Simple.

Put it this way. When you go to Tesco, Sainsburys, Asda or wherever you do your food shopping, do you fill the trolley and then go and bargain with the check-out assistant? I thought not! You could say its different but it really isn't. Margin on foodstuffs is huge and yet we all go in and pay the asking price every week or so. Likewise with clothes. The margins in some of the better quality shops are ridiculous but we don't bargain at the checkout there.

The margins on electrical items are comparably lower AND we expect a much higher level of service when choosing our products. I know of several hi-fi dealers who could easily go to the wall if things don't improve and, in some cases, this would leave areas without any specialist hi-fi outlets. You can't have it all ways. Service, expertise and facilities all need to be paid for and, if it leads to me getting greater enjoyment out of a piece of hi-fi for the time that I keep it, I have absolutely no qualms with that.
 
The food vs electrical analogy is not valid. 'Price elasticity of demand' can be applied to this situation.

When spending a considerable proportion of one's income on a good, one is naturally has a greater incentive to hunt for a good deal; that means asking the dealer for a 10% discount or whatver.

Also, food is a necessity, thus making our demand for it much less elastic. ÿHi-fi/home cinema is the opposite: a luxury.ÿ

ÿ

8 weeks into the economics course and I am already relating the theories to real life. Oh dear. But basically the dealers are offering us expensive luxury items. The odds are ÿalready against them to provide a good deal.
 
I do not think you can compare Hi fi retailers with supermarkets.High street big chains work on 55-75% gross margin before VAT-and they do not barter-they make and control their offers .Private companies like eg Hi fi and car dealers work on their own agenda with the relevant price pitching policy.They negotiate their own deals -and if they do not want to sell ,as they put it "let him walk", which means they will not sell at that price.The survival of Hi fi dealers currently is going to be on reputation,service and the ability to maximise their gross margin without losing the sale.So yes there are deals to be had ,but do not think you can get something for nothing.After all ,whats the point of an unbelievable deal if the retailer isn't there the following week.Certain airline companies prove that point-except with Hifi you will not be stranded in another country without a paddle.
 
Also, looking at Sainsbury's financial summary for last year, they had sales of 18.5 billion quid, and a pre-tax profit of just 477 million quid. Their mark ups can't be that big...

ÿ

ÿ
 
Was I unreasonable?

Today I went to said dealer to enquire about/purchase a Kuro 5090. The set was further reduced by £50, now retailing for £2350 with 5 year warranty no doubt due to the release of the successor, available for £2700 or so.

I asked the Manager to include some accessories such as the stand and a good hdmi cable or the optional speakers. Alternatively he could reduce the price to £2200 (which was my intention anyway at the previous price of £2.4k).

He would'nt have any of it.

I did'nt buy simply because I think I can get it soon at or below the price I wanted to pay plus I did'nt like the completely inflexible aptitude. I also think that for only £300 or so more I'd rather have the new one. Incidentally they always sell pioneers with 5 year warranty.

I assume they know they will sell their remaining sets easily at those prices so don't have to discount below advertised price but they reduce the price regularely anyway.

I kind of like the idea of buying locally, with a face behind the counter, rather than from e-sellers. If something goes wrong its easier to sort out but I am sure they still would make a hefty profit on the set even with my requested discount or the accessories.

I know this belongs in an other forum but I wanted to follow up what I've mentioned previously.

I know £150/200 is'nt the world but it does buy a lot of music or a blue ray player etc. Do you think I am unreasonable?
 
Its a difficult question to answer because I can see both sides of the argument. Of course you want the best value possible for your money and that is understandable.

However, you also have to remember that the set is already discounted and that there is a 5 year warranty (which is a cost to the dealer regardless of the way in which you view it). From my own experience currently selling heavily discounted end-of-line Sony X-series sets, there probably isn't very much margin left in the television set at all and the dealer just cannot afford to do the deal you are asking for. Dealers are there to make money as a business. You can't expect them just to give into every request they get about pricing. If they did they would not survive.
 
I don't think you are unreasonable. You made an offer. It was refused. You didn't buy the TV. Nothing unreasonable there.

As far a giving the retailer a hard time due to the current economic climate, yeap I'm all for that. I'm always out for a bargain and will use anything as a lever to reduce the price.
 
Agreed. You offered a price, dealer said no, you walked away. Nothing unreasonable about that, happens all the time in all walks of life. It only becomes unreasonable if the prospective punter gets annoyed at the dealer or the perceived inflexibility, and that isn't the case here.
 
This is a bit off topic, but what annoys me more about dealers than the outrageous markup is their attitudes that come in various shapes and sizes.

I don't know how it is in the UK, but in the US, at one dealer, when I tried to audition some gears, wouldn't even hook them up demanding that I put down a certain amount of money and guarantee my purchase there. Another dealer, when simply talking on the phone, dismissed my interest in certain gears, and said, "why don't you get something that sounds like music," and started to push his own distribution brand.

I've visited about a dozen different dealers in my lifetime (I move around a lot), but I've met only one real gentleman who actually cared about music and his customers. He even told me that all of his gears get 10% off retail to begin with. I really regret not having bought anything from him at the time (I didn't have money).

If they are frustrated with the economic situation, they should be ready to take the hit and offer discounts. Better service would definitely be a clincher.
 
batonwielder:
This is a bit off topic, but what annoys me more about dealers than the outrageous markup is their attitudes that come in various shapes and sizes.

I don't know how it is in the UK, but in the US, at one dealer, when I tried to audition some gears, wouldn't even hook them up demanding that I put down a certain amount of money and guarantee my purchase there. Another dealer, when simply talking on the phone, dismissed my interest in certain gears, and said, "why don't you get something that sounds like music," and started to push his own distribution brand.

I've visited about a dozen different dealers in my lifetime (I move around a lot), but I've met only one real gentleman who actually cared about music and his customers. He even told me that all of his gears get 10% off retail to begin with. I really regret not having bought anything from him at the time (I didn't have money).

If they are frustrated with the economic situation, they should be ready to take the hit and offer discounts. Better service would definitely be a clincher.

Absolutely agreed. High levels of customer service are absolutely vital. This trade is all about looking after people and giving customers the more personal service that the internet sites simply cannot provide. If you don't give this level of service, then you are never going to survive long term. I often have long conversations with new customers who don't end up buying anything on their first visit. We could talk about music, films, technology - anything - and they don't buy anything. However, they nearly always come back for a further visit to invest in some new equipment.

The other aspect of this is looking after your £5 pack of blank discs customer every bit as well as the customer who has just purchased a £2k AV system. That £5 customer is potentially your future £2k customer for one thing and, even if they are not, they will tell many more people about you if your service is either excellent or poor.
 
I believe good service is worth something too and I understand that TV margins may be lower than some other entertainment products of which I know the mark-ups.

It does make me wonder though when I see last years sets sold at half rrp. I have to assume the retailer is not selling at cost, even less at a loss.

In this case I am not asking for any service. I simply want to buy the TV, pick up and install myself. No dealer demo time or anything else just a straight forward transaction. If something does go wrong then that's a warranty issue for which I pay anyway even though its called 'free'.

Appreciate your thoughts on the subject guys.
 
I'm all for getting a good deal, but if the retailer goes out of business then it's not a good deal for anyone.Also, on food shopping, the margins are relatively small. Relatively. The Directors all get very very handsome bonuses, I know because my brother works for Tesco and his bonus is several times as large as the average UK wage, on top of his salary! I estimate his package is between 7 and 800k at least. It's a different league to most hifi retailers who are small businesses except for perhaps the Sevenoaks crew.

Also, for those of you who think the supermarkets fund the offers...wrong! The suppliers fund the offers and often contribute towards the marketing too.

Given these facts, it's amazing that my local shops are significantly cheaper than Tesco...but they do work all day and all night

The moral of the story is that a small retailer has very limited bargaining power, the large multiples have much more. Think about it; I personally don't want to be buying my kit at Tesco in 10 years' time with no bargaining power, no listener rooms, no expertise etc.

Funny thing is, my bro has no appreciation of hifi, but that's how he thinks, happy to shop in the high street. Muppet.

ÿ

ÿ
 
Contacted SONY centre today asked about 40W4500, yes we have it in stock £1199, "free" five year guarentee. I pointed out that for £1208 John Lewis also supplied a BD350 with five year guarentee. Asked first if they would throw in BD player, guess how that went down. Asked if they would match the deal....nope.

Guess where my money is staying.

Also Richer Sounds arent going to stock DSP863 SE, they are still pushing ONKYO. Told them I would consider Denon AVR1909 with KEF 2005.3 (over a grand), they wouldnt even throw in speaker cable let alone knock off money.

At this rate there will be a rise in the unemployment within this industry as no leaway = no sales = no jobs
 
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