Monday, June 20, 2011

The next "i" word.

Nope, not a new internet product. I have been alluding to the "i" word for some time now. Its here and it is "inflation" and for consumer electronics at least, it starts in China.

Anyone who reads the business press knows Chinese labor costs are rising and will continue to do so quickly. What's behind it? The Government there has mandated at least 15% annual increases to their nation's minimum wage for the next four years. This is good for the Chinese people, but it will ripple through all our lives and will result in more expensive products.

The 15% annual increase is just the guideline by the way. Many factories are offering experienced workers 2 to 3 times these amounts in an effort to keep them. It costs more to house and feed employees than ever before. Benefits are now mandated and even so there is so much competition for workers, turnover is epidemic in some regions.

Yet labor is only one component of inflation. A review of the commodities market will reveal the steady rise in prices for wood, paper, copper, steel, and aluminum. Then of course there is the 300 lb gorilla... oil. We shouldn't even have to discuss this last item, it affects all of us.

Costs have been rising significantly since mid-2008. At first factories were reluctant to pass the higher prices on. Eventually they had to. We as manufacturers did the same, hiding the problem even longer. In NHT's case, because of the efficiencies we gained by shifting our business model to online, we actually lowered our prices even though our product costs rose. At this point its catching up with us. In order to remain financially viable, we either have to raise prices or switch our design emphasis to lower cost models.

NHT is doing both. You can expect Classic to become more expensive; its complex to construct and it uses very expensive materials. Just last week for example, we were notified our Classic tweeters would immediately double in price, following the rocketing increases for neodymium. We love our Classic series, its beautiful in every way and still provides far more performance and fit and finish for your money than you can get anywhere else. We'll make it as long as our customers ask us to, that's a promise.

We haven't been sleeping, we've known about the "i" word for some time now. We also know not everyone can afford our most expensive offerings, particularly in these hard times. As a first response, we redesigned the SuperZero to come in at $99. The cabinet is not so fancy. No 7 coats of high gloss paint. Just simple construction but it sounds really good and is easy on almost anyone's pocketbook. Look for more of this type of product from NHT. Our concentration will be on the other "i" word... innovation. We started this company finding clever ways to bring high end sound to all of our products regardless of price. That passion and commitment has not faltered.

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