View Single Post
Old 09-06-2007   #1
AVRevForum.com
Administrator
 
Join Date: Feb 2007
Posts: 695
Default Inflation For Luxury Goods Skyrockets

By all government measures, inflation in the United States is under control. The Federal Reserve keeps a close eye on prices relative to the rate that they charge banks to borrow money, with a good measure of success for years on end. Even the once red-hot housing market, which saw areas of California and the Northeast booming at more than 20 percent growth per year, has now cooled to numbers that are nearly flat or only a few points higher each year. Other than the hype and needed bloodletting from the sub-prime loan markets, things are pretty healthy in the mainstream economy, with prices pretty stable year to year.

In the world of luxury goods, thing couldnít be any more different, specifically in the world of high-end audio and video equipment, as with, for example, speakers like the critically acclaimed Wilson WATT Puppy model. When introduced in the early 1990s, a stereo pair in a standard finish sold for between $10,000 and $13,000 per pair. Several years and many technical revisions later, the same basic loudspeaker sold for well north of $20,000 per pair in a standard finish. Parts are more expensive, labor is more expensive, and so is shipping, due to the steep increase in the price of oil, but even with those factors taken into consideration, a pair of Wilsons, or any number of other products ranging from matching Transparent Cables (price of copper) to a Richard Grayís Power Company AC power device (price of copper and shipping), all cost a lot more than they did just a few years ago.

In the world of video, driven by the mainstream demand for flat HDTVs to watch movies and sports, prices have been falling faster than a dotcom stock in mid-2000. Five years ago, a 50-inch plasma might have cost a consumer $20,000 or more. Today, any NASCAR or football fan can drag home one from Costco or Wal-Mart for less than $2,000. Front video projectors, once a toy for only the ultra-rich who had $20,000 or more to spend on a TV, can be had with all the bells and whistles for $3,000 to $5,000. Epson is coming to market with a 1080p home theater in a box solution for $7,000 that includes projector, screen, 5.1 surround speakers, electronics, a DVD player and a subwoofer. Just plug it in and have a movie theater in your living room for about the cost of an expensive big-screen TV. Clearly, huge volume and strong consumer demand helps ease prices, yet traditional home theater retailers and specialty audio video retailers are suffering from thin margins. Meanwhile, Costco can make money by selling commodities like $2,000 HDTVs with three percent profit margins. Home theater retailers like Tweeter cannot. Specialty retailers and audiophile dealers are experiencing a similarly bad outcome, as the 40 to 50 percent profit items, like AV electronics, donít catch a consumerís eye the way a $600 Apple iPhone does. It has changed the landscape for AV retail forever.

Both inside and outside the AV industry, you can make a strong argument that prices increase because people are willing to pay it, and you would be right. Bacara, a stunning resort in northern Santa Barbara, has received rave reviews for its oceanfront property, but struggles with occasional lackluster service. However, they still have found a way to book their rooms year in and year out at increasing rates. When the property opened about five years ago, Bacara charged less than $400 per night and offered perks to repeat and American Express customers. Now, their entry-level rooms often start at $600 per night.

Whether it is a room in Santa Barbara, the latest V8 Ferrari or a pair of Wilson speakers, if consumers are willing to pay a higher price, the companies will charge it. Only if and/or when those products lose their demand or become far more mass market will you see a dramatic reduction in price. Even in a mainstream economic recession, luxury goods still have a strong market, as there are more and more millionaires born every day. The most important question when making an investment in anything high-end is: are you getting fair value for your hard-earned dollar? Even if you are draining your wallet to buy that audiophile preamp, if it has the sound, the look and the quality you want at a price you can afford, then it is the right buy. If not, keep your money in your pocket. Itís the only way to keep prices under control.

by: Jerry Del Colliano
AVRevForum.com is offline   Reply With Quote