Dealers Wary of Fallout From Thiel’s Move to Sell Through Amazon

Observing pressures on the specialty channel from manufacturers’ moves to online sites, along with pressure on audiophile sound and sophisticated remote controls from Apple’s iPod and iPad, Wells said, “How many specialty dealers need to go out of business before people realize that things are different?” But he’s resigned to the market changes, he said. “At this point everybody has got to survive, and I guess the Internet is what everybody sees as the key to survival."

Wells said he'll see how the situation plays out before deciding about sticking with Thiel’s product line. He acknowledged that he isn’t selling many Thiel speakers now, because the pricey brand doesn’t fit most budgets in the current economy. Wells said his other high-end speaker brand, B&W, could benefit from Thiel’s move online. “I have a pair of $10,000 Thiel CS3.7s in my showroom, and I've sold one pair in two years,” he said. Aside from the flagship Diamond Series speakers, Wells said, B&W’s line is deep and wide and reasonably priced, sounds good and provides great fit and finish. “You buy one of their products and you really feel like you're buying something special,” he said. “In that respect, I think Thiel has a tough road ahead.”

Bill Skaer, CEO of Eric Grundelman’s CoolAV, a custom-installation company in Dallas, expressed wariness about Thiel’s expansion to Amazon. “I understand in this economy that people have to do what they have to do,” he said. “But any time a manufacturer goes out and sells on the Internet, that’s pretty much the kiss of death for dealers. If it’s going to be any way discounted online, then we don’t need any part of that. Most of us will drop them like a hot rock and say, ‘Good luck with your adventures on the Internet.'"

Thiel President Kathy Gornik said the decision to add Amazon follows positive online experiences with Crutchfield and Audio Advisor, which have shown a “high degree of integrity and are quite extraordinary in their commitment to answering any objection that a customer might have.” Likewise, she said, “Amazon did a good job of identifying and interviewing and selecting individuals who were knowledgeable about the sandbox I play in and understood our sensibilities.” They provided the right answers to all concerns that Thiel expressed, Gornik said, including the sensitive pricing issue. “They're very willing to hold whatever it is we say,” she said. But Thiel has listened to dealer skepticism about pricing assurances from the online giant and has taken steps to protect itself in case the arrangement doesn’t go accordoing to plan. “We have our escape clause,” Gornik said. “If they fail to live up to what they say they're going to do, we can be out of there faster than you can say Thiel Audio."

The pool of conventional, showroom-based Thiel dealers has shrunk over the years, mirroring trends in the industry. Our search of Thiel’s website for a dealer in the St. Louis area yielded two dealers several hours away in Illinois. In New York, only one dealer was listed for Manhattan, and that’s a company that sees customers by appointment only. Gornik said her company has maintained about the same number of dealer accounts the past three years. Still, she lamented the demise of such heavyweights as Circuit City, Myer-Emco and Tweeter, tarnishing CE’s image. “The list goes on and on,” she said of the failed retailers. “Companies that represented a once-vibrant industry -- that were the medium through which companies like mine worked -- underwent a change. Our job is to pay attention to signals from a wide variety of sources about what is happening."

Gornik said the decision to go online, first with Crutchfield, was “angst-ridden,” because of the feared effect on its dealer base. “Our brick-and-mortar dealers are very important to us.,” she said. “We communicated a lot with our dealers before we did this and laid a lot of pipe, because they're the ones who put us on the map and keep our company healthy. The last thing we wanted to do was something that they perceived as harmful.” After favorable experiences with the other two online retailers, Gornik believes brick-and-mortar dealers are taking a wait-and-see attitude regarding Amazon “because their worst fears of an Audio Advisor or Crutchfield simply haven’t been realized."

While Skaer of Eric Grundelman’s CoolAV was wary of competing with Amazon, he said online sales don’t present a direct problem as long as product isn’t discounted. His general manager, Randy Presley, has had no problems with Crutchfield, he said. “If they're going to put Thiel in their magazine, it’s just one more outlet mentioning Thiel stuff, and then I can install it,” Presley said, saying Crutchfield has maintained price well. He’s fine with local Dallas customers seeing Thiel speakers on Amazon as long as price parity is maintained, he said: “But if Amazon is 20 percent less than me, that’s probably the last time I'll even answer” an e-mail from Thiel.

"I'm not a fan of it,” Scott Pflanz, general manager of Pflanz Electronics, in Sioux City, Iowa, said of Thiel’s decision to add Amazon. Despite manufacturer assurances when they broaden distribution to volume retailers including Best Buy or Amazon, he said, it’s only a matter of time before discounting begins. “They say not to worry, that product isn’t going to be discounted,” Pranz said. “But then sure enough, the price gets knocked down. When we tell them, they say they can’t do anything about it.” He said few people buy premium-priced speakers without hearing them first, but customers come in for an audition and then look for a better price. “Thiel is using us as a showroom,” he said. “It’s not fair."

Gornik maintains that the broader exposure of Thiel products online through Crutchfield and Audio Advisor may have created more opportunities for high-end brick-and-mortar retailers. “Even if they do buy a Thiel online,” she said, “it could be that the customer goes to our website to find a dealer so they can audition an amp that goes with them.” She also put responsibility on dealers to reel in those customers once they're in the store. “They're going to win some and lose some but if they have a good sales staff -- a big if -- it’s up to the dealer to capture that customer they may never have seen if it hadn’t been for Audio Advisor or Crutchfield."

Pflanz said he understands the pressure that manufacturers are under in the tough economy. But he sees Amazon as a greater concern than Crutchfield, which hasn’t hurt business at all, he said. “Once product goes to Amazon,” he said, “we lose control over what we can sell it for.” These days, the first thing customers do after auditioning product is to go home and do an Internet search, which sets an expected price, Pflanz said. “If they see it at 10 percent below retail, they're going to come back and expect me to discount.” Brick-and-mortar dealers also must add sales tax, which Internet retailers aren’t required to do. “I can get close on price alone,” he said, but the tax on multithousand-dollar speakers is a significant addition to the bottom line. He used to a free shipping pitch to counter the disadvantage, but free shipping offers elsewhere have negated that strategy. “Shipping used to be the great equalizer,” he said, “but everybody is shipping for free now."

So far, Thiel is selling only lower-end architectural speakers through Amazon. They include in-wall, bookshelf and outdoor speakers and an upcoming subwoofer that make up the entry level of the company lineup. Asked whether adding Amazon might signal Thiel’s intention to move more products mainstream, Gornik said: “We have a signature built around technical standards that we have. It’s really hard to give up any of them because they're a part of who we are. If we went downscale, we'd have to give up some of those things, and every time we've tried to do that, we don’t like it. In my opinion, we're about as low as we could go.” She added, though, that an in-wall/on-wall bookshelf model on the drawing board could come out at $700.

House of Stereo in Jacksonville, Fla., will continue to carry architectural Thiel models “until we start to see price erosion,” owner Bill Gibson said. “I'm not thrilled about it,” Gibson said of the Amazon competition, calling it yet another challenge in a difficult market. “We always try to weigh people having to perpetuate their business and do what they have to do to stay alive, but it’s just getting tougher and tougher,” he said. Thiel sales over the past couple of years have been moderate along with the economy, he said. “We've taken a big hit like most people have,” said the 41-year veteran. “We've seen a lot of ups and downs but nothing like what we've seen in the last year-and-a-half.”