Deflation in the Scuba Market

[Reef Tank]

Maybe you can get a good deal on a trade-in.

But it takes so long to re-train.

 

[NotLloydBridges]

This is how capitalism is supposed to work. Companies compete with each other, prices fall, consumers benefit. Service levels might fall, too, but that's something on which companies can also compete. Alternatively, sometimes the service separates from the product sales, which seems to be GratefulDiver's approach.

Hardcore competition sometimes diminishes things we value -- or say we value, e.g., small businesses. Still, if most consumers really cared about, say, preserving small local drug stores, they would shop there instead of CVS or Walgreen's. Instead, the market reveals that most consumers care more about price and convenience.

Why should diving be immune from competition? Or to put it differently, why assume that diving as a market is like Rolex as a product? Rolex may make a lot of money, but most people wear Timex's. Mercedes may make a lot of money, but more people drive Toyotas.

 

[vladimir]

Personally I wouldn't own a Rolex. I'd either break it or lose it.

They are almost impossible to break. I have lost one, however.

 

[RJP]

This is how capitalism is supposed to work. Companies compete with each other, prices fall, consumers benefit.

You've actually got that completely backwards. In your sort of sentimental utopian socialistic capitalism the fact of the matter is that real wages would fall as prices fall - because companies have less money to pay/hire employees (who are the consumers) and therefor the consumer would have less money to spend on the lower priced goods. Companies go out of business, competition is reduced/eliminated, economies of scale are lost, production is reduced, choice is limited, quality goes down, and ultimately real prices (price-quality ratio) stabilize and may in fact artificially increase.

Hell, you're describing the current economy!

What you describe could actually work but only in a situation where there's a tremendous leap in technology that allows for both decrease in production costs and an influx of new companies into the market. (Think computers 20yrs ago or mass-production of cars in the early 20th century.)

This will be a real oversimplification, but when capitalism works the COMPANIES benefit primarily by generating/meeting higher demand that warrants the asking prices, and then compete with each other on non-price factors for customers who benefit by having a choice of high quality goods for which they are willing to pay.

When that happens there is a proliferation of products, technology and innovation are encouraged, real wages increase, employment increases, interest rates decline, investment goes up, and consumption increases. Then consumers and companies benefit.

That's what happens when capitalism works.

Can never understand the misguided belief that the consumer can only benefit at the expense of the business. It's a symbiotic relationship.

[/macroeconomic rant]

 

[KozMcCharlie]

Anyone who doesn't believe that the internet is changing the way Dive shops need to operate is a fool. The dive shops need to acknowledge the fact that gear is so much more reasonably priced online that just offering a pleasant customer experience and convenient tech service is NOT going to make it alright to spend double on the gear in the first place. Couple that with the fact that they have low inventory on hand and a limited number of manufacturers that they deal with and you've got a losing battle. It's the same thing that happened to the independent musical instrument dealer. There's too much information out there that makes it easy not to have to use a LDS for anything more than air fills and tech services. I'll show you...

You're reading this, so you already know that you can ask a bunch of questions about whatever gear you're thinking about and probably get a bunch of answers that are more relevant than the opinion of 1 shop owner who only deals with a few product lines. Then you find an online store that sells what you are looking for. You pay a lot less because they deal in volume. You wait less time for your gear to arrive because the LDS only puts orders in on tuesday and friday. Most of the big sites let you return if you have a sizing problem so there's no risk there.

There's opportunities on this site and a bunch of others where you can find people to get together and do some diving locally or in a remote location. This is better than traveling with a LDS because while you still have the power of numbers in bargaining price, you don't have the markup on that price because the shop needs to make some money off you.

Then there's the instruction. I haven't done it yet, but I'm reasonably certain that I can find a great instructor through this or another forum. I'll have more opportunity to learn about the way they teach and the depth of the course. On top of that I'll feel like I'm getting more honest opinions in the event that I have a question about how a piece of gear would fit in with my diving.

I'll even go this one step further. After making an online purchase of gear I wanted to make sure that my regulators were tweaked right. The website I bought from found me someone who services the brand and was able to arrange an appointment for me to go to him and have it done. When I got there, he spent an hour in the shop telling me about what he was doing and the reason that he was doing it in addition to asking questions about my experience with other regs. After the hour and him telling me to come back if it didn't feel right after a few dives, the grand total for the service was $10. That's $5 for each second stage and a free look at the first stage and making sure the hoses were assembled right. Who do you think I'm going to go back to every time I need an annual service or have a problem or for a visual or hydro on a tank or anything else... He's a bit more expensive than the couple of shops that I called but only by a few dollars and he handles just about every major manufacturer.

Now tell me how a LDS is competing with any of that? It's not really a deflated market, it's a market that's moving toward the real world. You're not going to survive if you're a small shop whose plan is to sell at MSRP and use training as a loss leader.

 

[Rhone Man]

A couple of things occur to me:

• Prices falling in an industry is not the same thing as deflation. Prices of TVs have been falling in both real and absolute terms for years, but that is because of improved production and development rather than because of a contraction in supply / demand. I suspect the same is true of the cost of dive gear (not sure about cost of training).
• However deflation is an extremely real and serious threat developed economies at present. How bad is the risk? Just look at Japan. In 1985 it had the world at its feet, 4 of the world's largest 5 banks were Japanese, and Americans were terrified as the Japanese came and bought everything viable and no one could compete with them. A decade of deflation later, and they are an afterthought as an economic power. Never underestimate the corrosive effects of true deflation.

 

[NotLloydBridges]

RJP, I commend my fellow Deadhead KozmicCharlie's essay on how the Internet changes everything to you. Other than that, I'd say that you've got the "sentimental utopian socialistic" view of capitalism, albeit from a perspective where businesses, rather than consumers, need protection from the free market. What your doomsday analysis of the effects of competition misses is that when consumers pay less for one product or service, they have more to spend on other products or services. For instance, if I pay less for gear, I have more to spend on trips to use it. I also have more to spend on things like mountain biking or going out to eat or buying books. So while LDS may suffer from lower prices on gear, airline, bike shops, restaurants, etc., gain. Thus, the economy as a whole benefits. That's the story that most defenders of free markets from Adam Smith on tell.

What you are exhibiting is akin to what economists call "rent seeking behavior" (google it). It is anticipated in classical economics, and properly functioning markets should discourage it.

Basically, dude, you are in a tough business, and I feel for you. I think, though, that you need to find more innovative ways to grow than hoping that manufacturers will tacitly agree to keep their prices high, and then step up advertising to persuade consumers to feel good about paying more for gear.

 

[Mike Boswell]

Lots of interesting discussion here about economics (thank God none of us is a real economist!) but I think, frankly, that the larger picture is not appreciated by most people. I have done a bit of travelling as a consultant over the last ten years: I have seen the empty factories in New England, and the bustling new industrial parks in India.

The fact is that affluent countries have shipped their production, technology, and jobs to other, poorer countries. There are hundreds of millions of people in China and India and many other countries who are happy to work for a tiny fraction of that paid to workers elsewhere, and their employers are not overly burdened by regulations or restraints. Those countries are benefitting, but the American middle class is shrinking. Businesses that depend on the middle class - most notably those, like scuba businesses, that are discretionary - are also shrinking.

IMO, we are not, as the public has been led to believe, in a "recession": We are in the midst of a global shift in the way labor is utilized. The young people in Peoria are now competing for jobs, not with each other, but with young people in Bangalore. I hate to have to say it, but I see no going back.

 

[Rhone Man]

I have done a bit of travelling as a consultant over the last ten years: I have seen the empty factories in New England, and the bustling new industrial parks in India.

The fact is that affluent countries have shipped their production, technology, and jobs to other, poorer countries. There are hundreds of millions of people in China and India and many other countries who are happy to work for a tiny fraction of that paid to workers elsewhere, and their employers are not overly burdened by regulations or restraints.

I read a very good book recently which could probably be summarised on one sentence: "For most of the past 3,000 years China and India have been the two dominant economic powers in the world; after an abherrant 400 years or so, the normal order of things is about to resume."

 

[vondo]

It reminds me of back in the '80's and early '90s when I worked for the second largest computer manufacturer on the planet. They refused to see the wave of change brought about by personal computers and portable software, and clung to their mainframe/proprietary software business model ... and they went from market dominance to extinction in a very few years.

Digital Equipment Corp?