Friday, September 5, 2014

Denon and Marantz in dire financial $trait$

What the heck is going on to high-quality audio? First Pioneer announces its decision regarding their Elite product line and now D&M Holdings (owners of Denon and Marantz), are in the midst of a financial disaster? It appears that the dominoes are beginning to fall - again.

The high-end never has adhered to what could be termed as a "good business model" seeking to do what other exotic product manufacturers do - captivate the elite with tantalizing toys. If this disasterous pattern begins to spread, it could impact other high-end offerings such as motorcars, jewelry, art, and who knows what else.

Many folks just claim that they missed the mark in product strategy and this could be true. There is a fine line between selling enough of something to stay afloat and offering a product that the elite will buy. Once you dip below this imaginary line, you enter the realm of mass marketing where profit is measured in a very different way spread across investors and held accountable to a board of directors.

Mass marketing is the antithesis of the high end and we will never hear a "thoroughbred racehorse" from a company concerned more about profits than about quality. But yet we live in a changing world where profits must be considered if one is to stay in business. Such is the dilemma. How is this apparent dichotomy addressed?

In the 1970s, there was a rash of similar failings where the market shifted gears to "good enough" from "the best possible" and few subscribing to the latter view survived. But now, those who even subscribed to the "good enough" model also seem to failing. So what is the answer? Is the high-end doomed? Will only those who support a few of the elite manufacturers decide who survives and who does not AND will those surviving companies truly continue to develop new technologies and higher fidelity? It remains to be seen.

Survival is the cornerstone of any company and one must figure out how to adjust or compromise to do so. If such a adjustment does not prove profitable, then failure is around the corner. If a compromise does not detract from a quality offering, then such a decision was a good one. But how does one know where or how to compromise? Good question to which there is no cookie-cutter answer.

However, if one looks at how any start-up company evolves from its modest founders working in a basement or garage with little overhead and operating expenses, to a facility that rents office space and hires staff to handle specific responsibilities and compartmentalized issues, herein could lie the hint. Once a company grows to a certain critical size, the cost of the infrastructure becomes a burden and salaries the major drain on the budget. Keeping head count under control seems to be one of these deciding factors.

A friend of mine saw this handwriting on the wall decades ago and decided at that time to reduce his staff and focus on only a few things. Literally his company shrank from 30 people to 12 and these 12 do more than the other 30 ever did. He still looks for ways to be more productive but he keeps his staff lean and involved by giving each of these folks a lot of responsibility. The other key is his rule of never involving more than two people in any meeting. He has found that egos and ulterior motives are minimized and the best decision is usually reached. I wonder what lessons his model could be applied to the high-end?

I am not a business person only a lover of sound. I yield to those who have knowledge of how to succeed and survive and what I say may be completely off base. But like subjective evaluations, time reveals the truth about business decisions. Obviously, D+M Holdings have not made the right business decisions, choices, adjustments, compromises, and changes, and as a result Denon and Marantz are soon to become dusty names of the past. Downward spirals from wrong decisions are inevitable but so are the right decisions a sign of success.

For the moment, the high-end market appears to be shrinking and many more prestigious names may also disappear. But one thing I know, from the ashes upstart companies will be reborn and ideas will survive. New companies with smaller overheads will enter the market and their offerings will replace those of the stumbling giants. It is time for change. Hang on...the dust will eventually settle. I predict that like the proverbial Phoenix, huge changes in the high-end is about to be observed.

Yours for higher fidelity,
Philip Rastocny

Skeptics are essential to keep us sane; skeptics do little to keep us inspired. Philip Rastocny, 7-16-2014

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