Deflation in the Scuba Market

[offthewall1]

As a general discussion topic, I'm interested in everyone's opinion on deflation in the Scuba Industry.

The Scuba Industry is just a ridiculously small piece of the economy, but like the art market and many other markets, especially expendable income markets, it is being devastated by deflation.

While many of us are the beneficiaries of such deflation, from consumers to shops like mine that buy and sell pre-owned gear and sell it at fair prices everyday, I can't help but wonder what is happening to dive stores across the country.

I suspect it is the same as many other businesses. As an example, Walmart continues to deflate prices so low that other businesses in their market areas are closing at an uncontrolled rate. They simply can't compete.

The big box scuba retailers such as Divers Direct and online sellers like Leisurepro and Scuba.com are gaining immense price seperation from LDS's, even more so than it had been because the manufacturers are dumping goods to generate cash flow.

My question is this. "How low will prices go before the industry completely collapses?" By collapse I mean the disappearance of a multitude of manufacturers?

Just something to ponder. What are you seeing in your neck of the woods? Dive shops closing? Prices on gear free-falling?

Deflation is taking hold in America and a double dip recession is looming, followed by a full blown depression like what we had in the late 1920's and early 1930's. Nobody was diving back then - so we have nothing in our market to compare it too... nothing to give us a clear sign of the impending collapse...

This post is to help gather information about the industry across the country... as there is little tracking being done of the openings and closings of dive shops and the overall failures in the industry. Any information you post here will be appreciated.

What are you seeing?

 

[Wookie]

I'm not involved in retail, but my suppliers aren't going down on their prices (except fuel). The delivery person is making the same money for delivering fuel, but the price is declining as manufacturing demand slows.

I don't see a softening of the price of my supplies, but I do see fewer customers. That's just the economy. My competition is fading (Nekton, Gulf Stream Eagle) and I am working hard to fill the gap that they have left behind.

As usual, the Scuba industry is behind the times. Manufacturers are only now dumping inventory to stay afloat (which many won't do, then we'll all be left with a bunch of regulators no one can get parts to service) instead of having been proactive 3 years ago, when the most blind could have seen this coming. They held onto MAP/MARP so long they put their marginal shops under, and now they are dumping product. They are even coming to me asking to outfit the entire boat with rental gear for a grand a diver. Sorry, boys, it doesn't fit in with my business plan. Which I made when the economy tanked. And it's working, so far (Knocks on wood).

 

[elmer fudd]

I'll go out on a limb here and state the obvious.

Scuba products were and largely are ridiculously expensive. $200+ for a pair of fins? $40 for a hose? $20 for a styrofoam tank holder? How about $1500 for a drysuit?

Sorry, but I don't buy the argument that any of those prices are even remotely close to the cost of production and if they are it's evidence of incredible inefficiency.

 

[Jax]

Perhaps this would be better served in the Surface Interval forum?

 

[RJP]

As a general discussion topic, I'm interested in everyone's opinion on deflation in the Scuba Industry.

The industry has been its own worst enemy. As with many industries where the majority of business people are hobbyists/enthusiasts first, business people a distant second, there's a complete lack of understanding about the role of pricing as a marketing variable and/or price elasticity of demand.

Pricing of scuba training, gear, travel, etc is actually relatively inelastic, especially on the low end of the pricing scale. That is to say that price is not genuinely a primary/significant barrier to diving. Therefor, lowering prices only marginally increases demand, and nowhere near sufficiently to generate offsetting volume. (eg a 25% price reduction at retail requires a 100% increase in volume for the same net profit) Yes, there are people for whom price IS a barrier, but overall it's pretty far down the list.

So, over the last few years retailers have engaged in "mutually assured destruction" pricing. In lowering prices to steal market share from competitors, they have set a "new normal" expectation among existing divers and divers that entered diving during that time period. Unfortunately, this strategy did absolutely NOTHING to creat new divers. All it has done is create a situation where, when the economy rebounds, there will not be flexibility to raise pricing levels back to the "old normal" because the net-net will be that scuba diving will become disproportionately more expensive than it used to be - for everyone. Here's where price-elasticity of demand will get ya... people react much more negatively and quickly to absorbing a price INCREASE than they do to paying an initially high price.

Scuba diving is a "demand generation" marketplace, not a "supply side" marketplace. Instead of taking the route of trying to get existing divers to cross the street to your shop (or buy mask A instead of mask B, etc) by lowering price, everyone should have be trying to market their products in such a way to justify the highest possible price. Instead, since they are not economically/marketing savvy, they see low demand and cut price. Demand doesn't come sufficiently or fast enough, so they cut price more, etc, etc.

Again, I recognize that the economy doesn't help matters. However, the best marketers have been able to maintain volume AND pricing levels during this economy by driving DEMAND for their products, not by cutting price in a fool-hearty attempt to steal market share.

/rant

:cool2:

 

[MXGratefulDiver]

As a general discussion topic, I'm interested in everyone's opinion on deflation in the Scuba Industry.

The Scuba Industry is just a ridiculously small piece of the economy, but like the art market and many other markets, especially expendable income markets, it is being devastated by deflation.

While many of us are the beneficiaries of such deflation, from consumers to shops like mine that buy and sell pre-owned gear and sell it at fair prices everyday, I can't help but wonder what is happening to dive stores across the country.

I suspect it is the same as many other businesses. As an example, Walmart continues to deflate prices so low that other businesses in their market areas are closing at an uncontrolled rate. They simply can't compete.

The big box scuba retailers such as Divers Direct and online sellers like Leisurepro and Scuba.com are gaining immense price seperation from LDS's, even more so than it had been because the manufacturers are dumping goods to generate cash flow.

My question is this. "How low will prices go before the industry completely collapses?" By collapse I mean the disappearance of a multitude of manufacturers?

Just something to ponder. What are you seeing in your neck of the woods? Dive shops closing? Prices on gear free-falling?

Deflation is taking hold in America and a double dip recession is looming, followed by a full blown depression like what we had in the late 1920's and early 1930's. Nobody was diving back then - so we have nothing in our market to compare it too... nothing to give us a clear sign of the impending collapse...

This post is to help gather information about the industry across the country... as there is little tracking being done of the openings and closings of dive shops and the overall failures in the industry. Any information you post here will be appreciated.

What are you seeing?

What I'm seeing is a paradigm shift in how scuba businesses operate. Those who saw this coming and changed with the times appear to be doing OK. Those who clung to the old business model are going the way of the dinosaur.

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. Same thing's happening with not just dive shops, but the manufacturers who helped them push their failing business model.

Buh-bye ... free-markets demand you either change with the times or die.

On the other hand, some manufacturers "get it". Those who offer online sales, manuals and training for self-maintenance, and reasonable prices for quality products will flourish ... as a handful are doing. Those who don't, won't.

I've recently joined a consortium of independent instructors who've banded together to offer an alternative business model to the dive shops in our area. Our focus is on providing quality training at a premium price and helping our students get gear at reasonable prices. They pay more for the training and less for the gear ... and in the long term they get better quality products and services at lower cost. Time will tell whether this approach works out better or worse than the traditional business model ... but it appears to be working out quite OK so far ...

... Bob (Grateful Diver)

 

[RJP]

Sorry, but I don't buy the argument that any of those prices are even remotely close to the cost of production and if they are it's evidence of incredible inefficiency.

Any company that charges prices "even remotely close to the cost of production" will be out of business by the end of their first day.

Do you have a job? Do you base your pay on your actual cost of your time, or do you seek to earn as much as possible for your work?

Virtually any product sold at retail is marked up 100% every time someone touches it, from raw material, to refined materials, to parts, to produced product, to wholesale, to distributor, to retailer. It's woefully naive to expect that there's not significant profit being made at every step along the way.

 

[JKPAO]

[. However, the best marketers have been able to maintain volume AND pricing levels during this economy by driving DEMAND for their products, not by cutting price in a fool-hearty attempt to steal market share.


Hey RJP


Must be thier advertisement! You back in the water yet?
See you topside! John

 

[RJP]

Our focus is on providing quality training at a premium price and helping our students get gear at reasonable prices.

Why do you care how much they pay for gear? From a marketing standpoint, you may be hurting your high-quality/premium price "brand essence" by doing so.

You've got the first part right in terms of marketing your own product in a way that commands the highest possible price. But you may well be hurting yourself in worrying about pricing on their gear. Sort of like a Mercedes dealer telling new car buyers where to get "reasonably priced" insurance.

From a marketing standpoint you might want to tweak it a bit and help your students identify "the best possible gear for the type of diving they will do... gear that is commensurate with the quality of training you provide" and then letting them buy it wherever the want, for whatever the market will bear.

I would not want to do ANYTHING that will even remotely engender any sort of price sensitivity in my customers

 

[Mike Boswell]

...Deflation is taking hold in America and a double dip recession is looming, followed by a full blown depression like what we had in the late 1920's and early 1930's. .... What are you seeing?

My biggest concern for the economy is, where will new jobs come from? What industries are growing? Who is hiring?