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     EDITORIAL     

Bracing For Inflation

The industry adapts as prices rise for the first time in four decades

Brian T. Majeski
Editor, Music Trades
brian@musictrades.com

An entirely new operating experience awaits all those who weren’t working in the music industry prior to 1982. We’re referring to the current inflationary climate, marked by steadily escalating prices. The catalyst for this surge has been the torrent of COVID related Federal stimulus payments over the past two years, however numerous underlying causes have contributed as well: a shrinking working age population has pushed labor costs up, global zero-rate interest policies have inflated asset prices, stricter environmental regulations on logging and mining are reflected in higher raw material costs, and logistical snarls are prompting costly investments in duplicate manufacturing sites. The Russian invasion of Ukraine has only acerbated the situation.

Debate rages about whether this inflation is a long term or transient phenomenon. However, the reality for the music products industry is that double digit price increases have become the norm over the past year. This dramatic shift raises a critical question: how will “sticker shock” affect the behaviors of a buying public, long accustomed to stable or falling prices?

It’s hard to overstate just how much prices on a wide range of music and audio gear have fallen over the past four decades. The fortuitous combination of improved manufacturing methods, plummeting computer processing and memory prices, and an inexpensive Asian labor pool resulted in truly mind-blowing improvements in product value. In 1982 a keyboard buyer had to shell out $1,995 for the hot selling Yamaha DX-7, the equivalent of $5,900 in current dollars. Today’s buyer can pick up a more powerful contemporary keyboard like the Korg Nautilus for a mere $2,199. In 1992, if you were in the market for digital multi-track capability, you’d need $3,995 for an Alesis ADAT, $11,575 in current dollars, or about 20 times more than the selling price of most software-based DAWS. Conventional “lo-tech” products have also seen significant price declines. A Martin D-28 circa 1982 retailed for $1,380, or $4,000 in current dollars, and 33% more than $2,999 selling price for the same guitar today.

These lower prices have been an undeniable benefit for consumers, providing greater access to better and more powerful instruments. However, they’ve been a mixed blessing for manufacturers and retailers. Many business operators have pined for higher prices complaining that falling prices have made it necessary to “sell more units just to maintain stable revenues.” Unfortunately, we suspect that it won’t be too long before nostalgia for the era of falling prices sets in.

There’s not much positive about inflation. It has rightly been described as a hidden tax that disproportionately impacts those with lower incomes. The resulting higher prices for life’s essential also take a toll on the sales of discretionary items, including most music products. For businesses, the increased cost of replenishing inventory or other assets invariably squeezes profits.

We suspect that in the near term, the music industry at every level will be squeezing costs to minimize price increases. However, even the most rigorous cost cutting won’t be able to entirely offset the 300% increase in shipping costs or a 25% rise in labor rates, and when the price of an entry level guitar goes from $199 to $259 or higher, unit volumes will most likely decline. Also, expect inflation to reshuffle the competitive landscape: enterprises able to pass on price increases because of unique products or services, or those with a more flexible cost structure will be the likely winners. Old timers with good memories may even resurrect corporate playbooks from the early 1980s, a period of comparable inflation.

The good news is, that even with the current spate of price increases, the value the industry delivers remains at or near an all-time high. Despite the bad economic news trumpeted by the media, U.S. consumers remain in good financial shape, with manageable debt levels, and solid incomes. Finally, difficult operating climates spur creativity and innovation in ways few anticipate. Expect these qualities to be on display as manufacturers, distributors, and retailers find new ways to soften the blow of higher prices to the consumer.

Upcoming Music Trades industry data reports will provide more clarity on inflation’s impact. Be sure to check out www.musictrades.com to keep up.

Brian T. Majeski
Editor
Brian@musictrades.com

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