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Discounters, Monitors Face Battle on Minimum Pricing - WSJ.com
Discounters, Monitors Face Battle on Minimum Pricing - WSJ.com
Why Isn't There a Free Market for Scuba Equipment?
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Its an interesting debate, which I have kept an eye on for a while. In a way I tend to agree with "off the wall" in that a mark up of 50% should suffice to pay the bills, most dive stores are not mega empires, but usually small or family owned or run business enterprises motivated more by passion than profit.
But in saying that, business people tend to want to make more than "enough to pay the bills", thats why they start their own businesses, otherwise why bother, so Yes, most would like to make a 100% mark up as it gives a return on investment.
Unfortunately, the Scuba industry world wide IS in stagnation or decline, this is especially true on most of the branded equipment lines, this is a generally accepted fact by all the manufacturers, most retailers, and even the training agencies, they may not admit it up front, but behind closed doors they are worried.
I have been intimately involved in the scuba industry for over 25 years, I have worked commercially in most countries world wide and maintained contacts with most, they have all recorded a slow decline in numbers coming through the doors.
There are other reasons for this, but a major one is that scuba diving is an "equipment intensive" sport, this equipment is expensive in general terms and is very dedicated, unlike say a pedal cycle or ball sports which you can use or participate in on a daily basis, scuba equipment is usually only used on an annual vacation or maybe 10-15 times a year for the average diver.
This in effect is not a good investment, and a lot of people are simply not buying equipment any more, due to high cost and the return (usage) on investment is so poor, if they do decide to buy, they generally buy down, the rationale been they only use it infrequently.
I am not a reseller of equipment, but I am a big buyer of equipment for our own commercial use, annually we buy around 160-200 sets of equipment and replace every year. In the past, I would negotiate a deal with one or two of the local importers of the big brands, whereby we could buy equipment at a fixed price over the year, we would commit to a number, and they committed to a price, for the past five years, this has been impossible and we have sourced our own brand name equipment from OEM suppliers in both Taiwan and Italy, in this time we have not only dropped our cost of purchase by 50% over the brands but have only experienced around a 10-15% price increase from these manufacturers over the last three years, the branded equipment manufacturers have increased their prices to the importers by over 70% in the same period.
In our business we see hunfreds of European tourists coming through our doors, in the past they all dived major brands like Scuba-pro, Mares, Cressi etc, today thats declined to about half or even less, 25% of the remainder rent equipment and will never buy their own and 25% now dive house brands.
Why is this happening?
Its simple, branded manufacturers are supplying into a declining market, their numbers are heavily down and they need to keep increasing prices to keep the profit margins and prices are getting pushed beyond what most people will pay for a product they only use once a year, house brands remain cost effective and do the job just fine for most.
It is a general fear that sooner or later a MAXIMUM price point WILL be reached by branded manufacturers and the equipment sales from these companies will decline to a point they will either go out of business, or start direct supply to the public at trade prices simply to stay in business.
This is in fact, already happening in some countries in the world. The fact is divers need affordable equipment to keep them in the sport, a diver without an investment in equipment, quickly looks elsewhere for interest.
Do I see a prosperous future for all in this industry, not all No, I think some manufacturers are already at a maximum price point to consumers and are still not profitable, they cannot continue indefinately like this, I think house brands will flourish as they remain affordable, and here and in many countries house brands now account for 50% of all scuba equipment sales, I think new divers are mostly heavily undertrained, probably due to the fact training agencies have dropped standards to keep people enrolling in courses, I see qualified divers coming through here who cant even kit up a cylinder, let alone be competant divers, hense the "drop out" rate is huge, there is no doubt the industry is struggeling, its not going to disappear, but I do believe there will be some seriously difficult times ahead for a lot of the players, not many will survive.
Sorry, I didnt meant make such a long post, and I didnt mean it to be depressing, its probably not even entirely all on topic, but I got caught up in the moment and wondered what others thought.
But in saying that, business people tend to want to make more than "enough to pay the bills", thats why they start their own businesses, otherwise why bother, so Yes, most would like to make a 100% mark up as it gives a return on investment.
Unfortunately, the Scuba industry world wide IS in stagnation or decline, this is especially true on most of the branded equipment lines, this is a generally accepted fact by all the manufacturers, most retailers, and even the training agencies, they may not admit it up front, but behind closed doors they are worried.
I have been intimately involved in the scuba industry for over 25 years, I have worked commercially in most countries world wide and maintained contacts with most, they have all recorded a slow decline in numbers coming through the doors.
There are other reasons for this, but a major one is that scuba diving is an "equipment intensive" sport, this equipment is expensive in general terms and is very dedicated, unlike say a pedal cycle or ball sports which you can use or participate in on a daily basis, scuba equipment is usually only used on an annual vacation or maybe 10-15 times a year for the average diver.
This in effect is not a good investment, and a lot of people are simply not buying equipment any more, due to high cost and the return (usage) on investment is so poor, if they do decide to buy, they generally buy down, the rationale been they only use it infrequently.
I am not a reseller of equipment, but I am a big buyer of equipment for our own commercial use, annually we buy around 160-200 sets of equipment and replace every year. In the past, I would negotiate a deal with one or two of the local importers of the big brands, whereby we could buy equipment at a fixed price over the year, we would commit to a number, and they committed to a price, for the past five years, this has been impossible and we have sourced our own brand name equipment from OEM suppliers in both Taiwan and Italy, in this time we have not only dropped our cost of purchase by 50% over the brands but have only experienced around a 10-15% price increase from these manufacturers over the last three years, the branded equipment manufacturers have increased their prices to the importers by over 70% in the same period.
In our business we see hunfreds of European tourists coming through our doors, in the past they all dived major brands like Scuba-pro, Mares, Cressi etc, today thats declined to about half or even less, 25% of the remainder rent equipment and will never buy their own and 25% now dive house brands.
Why is this happening?
Its simple, branded manufacturers are supplying into a declining market, their numbers are heavily down and they need to keep increasing prices to keep the profit margins and prices are getting pushed beyond what most people will pay for a product they only use once a year, house brands remain cost effective and do the job just fine for most.
It is a general fear that sooner or later a MAXIMUM price point WILL be reached by branded manufacturers and the equipment sales from these companies will decline to a point they will either go out of business, or start direct supply to the public at trade prices simply to stay in business.
This is in fact, already happening in some countries in the world. The fact is divers need affordable equipment to keep them in the sport, a diver without an investment in equipment, quickly looks elsewhere for interest.
Do I see a prosperous future for all in this industry, not all No, I think some manufacturers are already at a maximum price point to consumers and are still not profitable, they cannot continue indefinately like this, I think house brands will flourish as they remain affordable, and here and in many countries house brands now account for 50% of all scuba equipment sales, I think new divers are mostly heavily undertrained, probably due to the fact training agencies have dropped standards to keep people enrolling in courses, I see qualified divers coming through here who cant even kit up a cylinder, let alone be competant divers, hense the "drop out" rate is huge, there is no doubt the industry is struggeling, its not going to disappear, but I do believe there will be some seriously difficult times ahead for a lot of the players, not many will survive.
Sorry, I didnt meant make such a long post, and I didnt mean it to be depressing, its probably not even entirely all on topic, but I got caught up in the moment and wondered what others thought.
rstofer
Contributor
I only have PADI's statistics to reference but they certainly don't show a training level in decline. Clearly, Worldwide Entry Level Certifications for 2007 (latest data) are down 10% from a high in 2001 but that doesn't seem like a large hit to me. See http://www.padi.com/scuba/about-padi/PADI-statistics/default.aspx#GraphA
It may very well be true that although there is a lot of training going on, new OW divers are not buying equipment. One would have to look at the financials for the various manufacturers to see how they doing. This MIGHT be possible for ScubaPro because they are owned by Johnson Outdoors Inc and they are a publicly traded company. Their stock price is about 25% of its' 52 week high (but it isn't alone!) It is not possible from the Form 10-K to determine how much of the net sales is from ScubaPro but there is a statement:
Now this is through September 2007 so the new annual report should be coming out in the very near future. The 2007 report was filed on Dec 12, 2007. See Johnson Outdoors
From their second quarter results:
For other manufacturers, it may be more difficult to get numbers but ScubaPro should be indicative of the business segment. It is certainly one of the elephants in the room.
The key to the health of the industry will be the 2008 Form 10-K. Even more interesting will be the 2009 version.
I don't think I am willing to write off the industry just yet. I am also not going to be buying stock in Johnson Outdoors either. Although, once this recession goes away, there may be an increased demand for the kinds of things they sell. I'll think about it...
Richard
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fisheater
Contributor
Interesting point about the price of gear increasing past the utility for vacation divers. Makes a lot of sense to me.
However, the industry reaction to it has been to try to create ever more vacation divers. I don't see that as a viable approach, considering the very high drop out rate of vacation divers.
Instead, the industry should focus on creating local divers who then dive when they go on vacation. There's no way that I would have purchased my own gear, just to use it once or twice a year when I was lucky enough to be on vacation in some tropical wonderland.
I bought my gear so I could dive at home. Sure the water is cold, the viz is low and I have to deal with surge and waves, but I'm diving and learning and developing a sense of pride of being a "real" diver. I've seen wonderful things down there and I've made great friends. I'm supporting the LDSs and the dive industry, as well as the training agencies (having worked my way up to Master Scuba Diver status).
And, yet, I don't see "me" or anyone I know like me when I read the industry mags (Scuba Diving, Sport Diver & Dive Training). Instead, I see tanned, scantily clad (not that there's anything wrong with it) folks frolicking on tropical beaches. I see tropical fish and exotic settings.
Don't get me wrong, I like those articles and actually will be going on a dive vacation to a tropical locale.
It's just that only bare lip service is paid to local diving and the ENTIRE image of a "diver" is that of a vacation diver.
Anyone reading or leafing through those mags is going to believe the only time and place to dive is while on vacation. The training agencies feed into this by pushing the universal referral system, making sure that a high percentage of new divers never actually dive locally - virtually ensuring that they never will.
Then again, maybe the above keeps my local dive sites uncluttered by excess divers. Good for me, but not so good for the industry.
However, the industry reaction to it has been to try to create ever more vacation divers. I don't see that as a viable approach, considering the very high drop out rate of vacation divers.
Instead, the industry should focus on creating local divers who then dive when they go on vacation. There's no way that I would have purchased my own gear, just to use it once or twice a year when I was lucky enough to be on vacation in some tropical wonderland.
I bought my gear so I could dive at home. Sure the water is cold, the viz is low and I have to deal with surge and waves, but I'm diving and learning and developing a sense of pride of being a "real" diver. I've seen wonderful things down there and I've made great friends. I'm supporting the LDSs and the dive industry, as well as the training agencies (having worked my way up to Master Scuba Diver status).
And, yet, I don't see "me" or anyone I know like me when I read the industry mags (Scuba Diving, Sport Diver & Dive Training). Instead, I see tanned, scantily clad (not that there's anything wrong with it) folks frolicking on tropical beaches. I see tropical fish and exotic settings.
Don't get me wrong, I like those articles and actually will be going on a dive vacation to a tropical locale.
It's just that only bare lip service is paid to local diving and the ENTIRE image of a "diver" is that of a vacation diver.
Anyone reading or leafing through those mags is going to believe the only time and place to dive is while on vacation. The training agencies feed into this by pushing the universal referral system, making sure that a high percentage of new divers never actually dive locally - virtually ensuring that they never will.
Then again, maybe the above keeps my local dive sites uncluttered by excess divers. Good for me, but not so good for the industry.
widget
Contributor
Yes rstofer, its interesting reading.
I think when THE biggest training agency records a 10% decline its a bit alarming, I am sure if we looked at the others NAUI,SSI, CMAS etc they would show similar or worse numbers simply because their footprint is smaller - either way it shows a contraction in the market long before the present world economy issues.
Scuba Pros figures are somewhat misleading, its great they increased sales and revenue, but they did so at the expense of all the others, simply put, the pie got smaller and Scuba Pro got a bigger percentage of the pie, which would mean certainly a few smaller brands have recorded serious losses.
Personally, I think the smaller brands will be feeling the pain now already, a declining entry level diver means less gear sold, add the competition from the cheaper house brands and even the "no-name" brands and their figures are under heavy stress, to survive they will have to make alliances with bigger companies, reduce prices and lines or just sell up like Seeman Sub or Dacor to the corporations with the financial muscle to see them through the lean times ahead.
Small brands like Beuchat and Seac Sub etc have already contracted to their smaller core market usually in their country of manufacture.
If sales decline sufficiently there, they are out of business - its that simple.
I believe that price is always one of the deciding factors in any purchase, the days of the brands demanding 100% mark ups and putting equipment out of reach of many, may be coming to an end sooner than we think, not because of legislation but plain market forces - the market will have to adapt or die - its the cold hard truth.
I think when THE biggest training agency records a 10% decline its a bit alarming, I am sure if we looked at the others NAUI,SSI, CMAS etc they would show similar or worse numbers simply because their footprint is smaller - either way it shows a contraction in the market long before the present world economy issues.
Scuba Pros figures are somewhat misleading, its great they increased sales and revenue, but they did so at the expense of all the others, simply put, the pie got smaller and Scuba Pro got a bigger percentage of the pie, which would mean certainly a few smaller brands have recorded serious losses.
Personally, I think the smaller brands will be feeling the pain now already, a declining entry level diver means less gear sold, add the competition from the cheaper house brands and even the "no-name" brands and their figures are under heavy stress, to survive they will have to make alliances with bigger companies, reduce prices and lines or just sell up like Seeman Sub or Dacor to the corporations with the financial muscle to see them through the lean times ahead.
Small brands like Beuchat and Seac Sub etc have already contracted to their smaller core market usually in their country of manufacture.
If sales decline sufficiently there, they are out of business - its that simple.
I believe that price is always one of the deciding factors in any purchase, the days of the brands demanding 100% mark ups and putting equipment out of reach of many, may be coming to an end sooner than we think, not because of legislation but plain market forces - the market will have to adapt or die - its the cold hard truth.
I want to thank all of you who have kept this thread alive.
This thread is important in our efforts to rid the industry of the illegal practice of MAP and MARP pricing.
Thanks for the kind words of support and Happy & Safe Diving!
This thread is important in our efforts to rid the industry of the illegal practice of MAP and MARP pricing.
Thanks for the kind words of support and Happy & Safe Diving!
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rstofer
Contributor
If you took the average of the 7 years of data, you would get a decline of just 3 percent versus 10% off the peak. But you are right, it will be interesting to see what happens for 2008.
That may, or may not, be true for the other leading brands (say AquaLung); we can't get the numbers for private companies. That smaller brands drop out simply means there was overcapacity and the market corrects itself.
If they had the financial stability, they could take advantage of the decline to increase their market penetration. Either of those 2 brands are decent equipment. Now, if they would quit trying to price their gear to match ScubaPro/AquaLung and get it down in the realm of reason, they could get a huge chunk of whatever market there is. Edge is doing that! But, it's up to them. Keep their prices artificially high, maintain near zero market presence and eventually go out of business or get real with pricing and dominate the market. Let's face it, the Vietnamese that make the BCs probably only get $20 or so for the finished product. How much markup do they think they need?
Note: I don't know that either of those brands actually manufacture in Vietnam. I do know that Edge does. The box says so.
There is a price/demand curve for everything. For the vacation divers, there's very little reason to buy gear. They can simply rent it at their destination. Even OW students can rent the wetsuit, BC and regulator for about $50 for the checkout weekend. It's not a lot more even after the class. Wetsuits are cheap (Edge for $150, Henderson for $300) so that leaves just the BC and regulator to rent.
One can hope the manufacturers see the light! I see they are starting to do Christmas sales and ScubaPro has decided their Prime Wrist Computer can be sold for $199. That's quite a markdown from the MSRP ($350?). Still twice what it's worth but closer to reality.
The problem with across-the-board price reductions is that earlier customers get really upset. It's bad enough their mortgage is underwater, now their underwater regulator is underwater.
So, the manufacturers have to bring out a 'new and improved but lower cost' model as a breakthrough product. Even if this were targeted at a lower price point, it still takes time and money to get it produced. They actually have to make an investment to get a lower price. Hm... Probably not going to happen.
I don't know how it is going to shake out. Local shops will probably close but online retailers will probably thrive. Nothing in this industry is immune to the realities of economics any more than customers are immune to layoffs and foreclosures. When it comes to groceries or a new $600 regulator, the groceries will come first.
Richard
lmorin
Contributor
One of the inherent obstacles to sales in the dive business is the quality and longevity of the equipment. It is designed to be very, very safe and to remain that way for a long time. So, dive gear does not break down at the same rate as gear used for most other sports.
ScubaSteve
Wow.....what a DB
First of all I say "....or so we hope" to your commment about "longevity.
However, the reality is that this increased longevity means that the manufacturer and seller would have to market and price the product accordingly. This is why most of the equipment is so darned expensive. In theory this means they have to make the same profit from selling fewer units.
This gets compounded when you introduce online shops and brick/click & mortar shops that are capable of selling the very same product at greatly reduced costs. It means that the LDS that needs to charge more to make a reasonable profit loses a sale because his price is much higher than the other one.
This scenario can be described in a thousand different ways.....in my opinion, it just means that the market is still settling. The internet changed the face of almost all different markets and industries. It is a reality that cannot be ignored without dire consequences. There will be many companies disappear because they have to charge much more to make their living. Those that found ways of selling the same product for less will survive (assuming customer service and quality etc. are equal or close). Everything that is needed to dive (including air fills) will have someone supplying because there will be buyers. Obviously this is all very high level with very little descriptive content, but it is a long term reality in my opinion.
Finally some news from the Federal Trade Commission.
Just today... some movement in the right direction. If you are mad as hell about MAP and MARP Pricing... you now have a direct contact to file your complaint with.
The Federal Trade Commission has initiated an Investigation regarding MAP and MARP pricing and whether or not any major SCUBA manufacturers have or are currently violating The Federal Trade Commission Act or the Sherman Anti-Trust Act.
Please contact:
Kelly C. Ortiz
Federal Trade Commission
901 Market St., Suite 570
San Francisco, CA 94103
(415)-848-5177
If you are a dive shop owner who has copies of any email, letter, phone conversation or any other applicable threat relating to the fact you are or were violating MAP or MARP pricing, please call Kelly and or forward your evidence to her. She is collecting evidence in order to pursue a full investigation.
If you are a consumer concerned about MAP or MARP pricing, please contact Kelly and tell her your story about how this illegal price fixing has harmed you financially or caused you to do business on the internet instead of being able to support your local dive shop.
The FTC has assigned Kelly as the Investigator... and she is awaiting your calls, information and evidence. There is now hope on the horizon.
Lets get to it!
Just today... some movement in the right direction. If you are mad as hell about MAP and MARP Pricing... you now have a direct contact to file your complaint with.
The Federal Trade Commission has initiated an Investigation regarding MAP and MARP pricing and whether or not any major SCUBA manufacturers have or are currently violating The Federal Trade Commission Act or the Sherman Anti-Trust Act.
Please contact:
Kelly C. Ortiz
Federal Trade Commission
901 Market St., Suite 570
San Francisco, CA 94103
(415)-848-5177
If you are a dive shop owner who has copies of any email, letter, phone conversation or any other applicable threat relating to the fact you are or were violating MAP or MARP pricing, please call Kelly and or forward your evidence to her. She is collecting evidence in order to pursue a full investigation.
If you are a consumer concerned about MAP or MARP pricing, please contact Kelly and tell her your story about how this illegal price fixing has harmed you financially or caused you to do business on the internet instead of being able to support your local dive shop.
The FTC has assigned Kelly as the Investigator... and she is awaiting your calls, information and evidence. There is now hope on the horizon.
Lets get to it!
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