Still Not Getting the Picture

I have recently semi-retired from my retail business, but am still in the email loop. The music industry still insists on holding its big USA retail trade show in late January, and the email offers are building up to a crescendo that I am sure the manufacturers hope to have crash at its peak as the annual trade show opens.

If I were a musical instrument manufacturer (mercifully I am not,) the fact that Apple has deemed the timing of Macworld San Francisco to be disadvantageous to product introductions should be a clarion call.

In fact, a January product cycle times the latest and greatest to coincide with the period of maximum retail burnout; the consumer is simply overspent after the Christmas holidays. Even this year, when the consumer spent many percent less at Christmas, they still spent more than they had in previous months. So there is retail exhaustion; everybody wants to take a break, a breather, a brief lapse in consumerism. This lapse may be semi-permanent, but that's not the point. Whether a boom year or bust, mid- to late-January might just be the worst time to promulgate a new program or stimulate sales. It works against the survival of the retail dealer, who is the front line in the battle to put goods in the hands of the consumer. Why should a dealer load up on product when the consumer is napping? And if recession/depression is the talk of they day, the dealer has every reason to lighten up in this time frame.

In the past, these practices might have wreaked some collateral damage to the retailer's cash flow. This assumes that the retailer has put together a horde of cash over the holidays, and that there is some kind of kitty to be raided. While arguably true in the past, those days are over. The retailer is lucky if the rent is paid, the payroll is met, and the tax authorities are at bay. Be thankful for small favors!

In the not-so-recent past, manufacturers had a large body of independent dealers to push around. To the extent that they've cultivated large corporate clients at the expense of this base, they've become beholden to them. Simple logic dictates that to be beholden to a small group of mega-retailers may not be the best way to survive or make money. For one thing, your fate is no longer in your hands but theirs. You end up making what they want made, and figure out how to do it cheaply enough to turn a profit. Of course, giant retailers often don't pay for goods or buy anything unless its sold. The manufacturer has to guarantee a profit level and take back that which fails in the marketplace,as well as anything the retailers deems to be broken, whether broken or not. There's a name for this: consignment. That's how you get shelf space in our modern world. And you make stuff so cheap that you can afford to take half of it back as defective and still make a buck. I feel sorry for anyone who buys an instrument that has been made with this operative mindset.

This is a great exercise in money-making, and there are successful, proven models, but the whole exercise does nothing for your brands and will in fact destroy them. After all, whatever magic is emanated from your brand name is derived from the uniqueness and freshness of products that became industry standards, and that were game changers. To just turn out a bunch of product that meets price points? Consider that the beginning, if not the middle, of the end of your product line. Going, gone; sold to the highest bidder. Let's look at some marketplace failures, like Fender or Honda shoes. Turns out that the brand only stretches so far.

Apple, of course, does not have all these problems. For one thing, they have their own stores, and these are predicated on providing exactly the kind of service you'd want if you paid extra for a computer. None of that PC crudeness here; you can get everything you want (and need) at Steve Job's restaurant. So Apple has created their own bulwark against any product-image damage that any retailer could do to them. They are simply doing a better job of selling their product than any of their dealers, so none of them can come to Apple and make demands for exclusivity, higher profit, or anything else.

Thus all the more reason to respect their decision to withdraw from future Macworld Expos, which basically sounds a death knell for the show. The bad timing is one reason, and the fact that they have the equivalent of 100 Macworld Expos in their store every day is another. And even the merchants who attend the show should and must contemplate other venues and methods to promote their products. There are methods that are thousands of times more efficient to promote your product than a labor- and capital-intensive trade show.

This could foretell the end of all such trade shows, especially those scheduled after the holidays, but then again, maybe all such shows. Although they may fulfill the wishes of cash-hungry manufacturers for order input in a slow time, they are damaging to the very dealers who they need to survive and thrive. And they are woefully inefficient at reaching their targeted audience

If you have to hold a show, I would think July/August is about the right time to tap into the western retail orgy called Christmas. And better yet would be a strategy that reaches the audience with far less cost and much greater efficacy. See you online!

The Price is Wrong

Step right up folks. Buy one, get one free. 70 Percent Off! Thousands in rebates galore when you buy a new car from our stock! Discounts of 40 to 60 percent! Just $359 after rebate.

I love a bargain as much as the next person. But there comes a time when you have to ask, "Why is it that I ever paid full price for anything? Or thought that 25 percent off was a good deal?" And the question going forward, for many retailers, is, "How do we ever get people to engage in this folly of overpaying for our goods in the future?"

The fundamental problem is that once you've established a new bottom for a given commodity, or even for a luxury item, how do you now convince people that you were just kidding? It's hard. Almost impossible. I have recently retreated from the musical instrument business. The hard facts are that a basic guitar of reasonable quality has never cost less. If you look at the price tag, it is about the same numerically as guitars were in 1955, about $200 for a basic instrument, made at that time in the U. S. of A. Now a basic guitar, made in the Republic of China, could cost as little as $79 or $99, and $200 gets you a well-made, perfectly functional instrument. This may not be something you want to show off to your friends, but then again it could be, since so many of these instruments play beautifully and sound just as good. So what is it that justifies a higher price? After all, all those guitars are made out of about the same amount of chopped-up tree plus a handful of magnets, wire and a few components. Why do some cost thousands and others less than a hundred?

The answer is the elusive "value added." And this is where the damage has been extreme. Ignoring guitars for a moment, think about luxury goods like handbags and high fashion. Much like the guitar, they are all made out of a handful of raw materials, and even the fanciest of them require little more labor to produce than the simplest of designs. But design is the decisive factor when it comes to value added; what you're paying for is simply high concept, or at least higher concept than the handbag hanging next to the outrageously expensive one at one-tenth the price. And when times get tough, priorities and values suddenly get rearranged. How much more is it worth to flash some obviously-designer piece of conspicuous consumption, versus how badly do I not want to appear in public with the same handbag I last showed up with? And even further, who really cares? If you take the mania out of the fashion game, all the high-end names are left quite literally, 'holding the bag.' Which brings us back to 70 percent off. Why in God's name were prices so high to begin with if they can take 70 percent off and still afford to advertise? Is it simply a desperate strategy for survival, or has the obscene profit margin that these companies have operated with simply laid bare? Perhaps a bit of both, but the lesson to consumers is quite simply this: you've been paying far too much for everything. There's even a surplus of milk. Perhaps it's time to dicker with your grocer for a better deal. And it could be decades, if ever, that we retrace our way to that frothy economy that knew no bounds as far as luxury was concerned, damn the consequenses to our budget. For companies that have reported record profit quarter over quarter, it could be a rough road ahead. They may have beaten all the excess spending out of the consumer for quite some time to come. Thinking once more about guitars, the manufacturer Gibson likes to bring out very limited edition guitars that cost a couple thousand dollars, and often more. The very fact that they only produce 100 of a given issue is supposed to boost their value. And during the heady years they rarely stumbled. But now that even the deposed titans of Wall Street are counting their beans and global markets are under duress, the idle, monied club of guitar collectors around the world are pulling back. Suddenly even the rarest of new issues looks like little more than a chopped up tree and a handful of components.