As was suggested by Lilylady, I’m reposting here some comments to a question Larry Larson asked. The original thread relats to any trend changes only after 4 pages, so perhaps this would be easier for someone who wishes to comment or respond.
On the original thread, Larry Larson wrote:
I currently own a nice upright and would love to upgrade to a grand. One way this would be more feasable is if I bought a piano that would likely to increase in value in the next 20 years. My first choice apart from investment value is the Baldwin L, but my teacher has a nice rebuilt Steinway B that I like very much. So I was thinking that getting a good B might be wiser long-term because it is more likely to appreciate in value. Is this true?
To which Marty Flynn replied a few pages down:
My wife Jennifer and I have been doing some research on this topic for a project for publication. We present some facts and conclusions which will not be popular with some folks.
Clearly the term "investment" has different meanings to folks comming at the issue from different directions i.e. bankers, businessmen, factory owners etc. Let's just consider Larry's original statement of need.
Axiom #1: All pianos appreciate in value over time.
The "street" selling price of a new S&S B was about $27,200 in 1986. It took 17 years for the street price to double on that product.
The street price of a Baldwin L was about $11,700 in 1986. It took 15 years for that price to double.
We took several samples of domestic, Japanese, and European pianos and can show that, on average, piano "street" selling prices have doubled in the last 16 years. They have averaged a 138% increase over the past 20 years. This creates a strong market for used pianos.
There is a depreciation - appreciation - depreciation cycle for all types and genres of pianos. First a dip below the purchase price for the first 3-5 years as it takes new price increases to counter the stigma of used vs. new. In years 6-15 the value will rise above your pruchase price and hug the street price of a new unit at about the 70% level. This rise will level off at about years 16-25 when it will no longer keep pace with new kprices. The years after 25 will see a gradual decline in value, but will rarely drop below the original purchase price.
Higher end pianos may enjoy a longer rise and level phse. Budget, low prifile pianos may suffer a shorter stint at each of the three phases.
If a buyer pays significantly higher than the "street" price at the beginning their charting is understandably thrown off.
Axiom #2: All pianos appreciate at about the same rate.
This will sound like profane heresy to high-end mfgrs. and to aficionados of the top tier brands, but our research supports this.
Our process and findings assume the following:
1. Pianos kept in top condition.
2. Pianos resold to end-users, i.e. private-party buyers.
3. Reselling pianos less than five years old will always return disappointing results.
4. Reselling stencil pianos, off brands, and defunct brand names, odd cabinet designs or colors will often bring disappointing results.
Naysayers to these ideas will invariably present scenerios where a seller paid too much, is selling at less than five years of ownership, and is selling to a dealer. They skew their givens to support their contentions. Our processes reflect real life probabilities.
I related to Marty’s points by writing the following:
Marty did raise some good points here.
I'm not sure what kind of "research" he has done, and how the values for the used pianos were calculated, given different condition and usage, but my experience in the industry agrees with much of what Marty posted… but not with all of it.
Indeed, many pianos "appreciate" in dollar value after a certain period of time given that the dollar depreciate and most things, including new piano prices, get more expensive.
Of course, the initial purchase price of an instrument plays a role in how long it will take a retail buyer to get the same dollar amount he paid for a piano reselling it back to a dealer.
For a common home size instrument (up to 7'), and for a piano used in a home setting, a time period of about 15 years seems reasonable, assuming the buyer got a fair deal on a new quality piano to "break even" selling it back to a dealer.
It would be faster to get to this point by selling the piano privately, but often the inconvenience to both buyer and seller does not warrant the price difference, especially when taking to account the amount of work needed to bring the piano to a TRUE showroom condition.
Steinway pianos too will reach this "break even" point with inflation, but it would take them a few years longer to get there (I would say around 20 - 22 years), since it appears that the margins on new Steinway pianos are significantly greater than those on most other quality pianos. Affectively, this is creating a situation where a piano costing more than a Steinway on the wholesale level, may be sold new for less than a new Steinway.
However, most performance-oriented pianos, including Steinway, justify the first of two major cycles of work in a piano’s life.
After approximately 35 - 40 years, given a reasonable environment and medium to low usage, a good quality piano would need some major work. Usually at this time, one would expect to replace the hammers, regulate the action, replace the key bushings, install new strings, new pins, new damper heads, and do some furniture work as well as regulating the dampers. Some in the industry refer to such work as "rebuilding or restoration", I usually refer to this kind of relatively limited (in comparison to restoration) scope of work as reconditioning.
The cost of this limited reconditioning, depending greatly on WHAT has actually been done, WHAT parts where used, and perhaps the most important, WHAT was the level of workmanship performed, will range anywhere between $5,000 - $10,000.
Of course, the cost of reconditioning also greatly depends on the standards and expectations of both rebuilder and customer.
While most performance oriented pianos justify such an investment, one is less likely to spend $8,000 for reconditioning a mass produced instrument with a low current market value of $4,000 - $5,000, and especially when a new instrument with similar performance can be bought for only a little more than the combined cost of reconditioning and current piano value.
Hence, many instruments seem to keep their value for about 20 years or so, will see dramatic price reduction when past the 20 - 25 years of age, until they have very little value, if any at all after the 30 years mark. If these instruments were kept in a less than favorable environment, or got a heavier than normal usage, it is more likely than not that they will not justify the cost of the work needed.
Lower end instruments, which may need even more work due to initial compromises in materials, cutting corners during production, or initial inexperienced labor, will often have very little value in a substantially shorter time period since no one is going to invest in any major work for these, which is likely to cost more than an entire similarly performing new piano...
Often we hear the comment of "such and such instruments were not built to last"...but it is even more important that these pianos do not justify the cost of major repair when needed.
So while most high performance instruments justify this initial major work cycle and will keep on retaining their dollar value beyond that stage, many of the mass produced instruments will simply become obsolete.
In regards to the second cycle of work, which is usually also much more expensive (2 – 3 times the cost of the first work cycle), almost any discussion will probably be moot. It is not very productive to try and guess what will happen 70 years from now.
I personally doubt that the full restoration industry will be a viable business for many more years, and doubt that anyone will want to truly restore any instruments, Steinway or any other make, except for perhaps a sentimental value.
To this , Jazzwee replied:
Ori, up to the just before the last paragraph, I was mostly in agreement and it conforms to what I've been saying.
But when you got to the last paragraph, I certainly disagree at least for the immediate future unless tastes change. The reason is that there will always be a demand for less expensive Steinways.
The other part which I think is a guess on your part is the the fact that you believe Steinways will appreciate slower because of the larger gap between wholesale and selling price. I disagree with this because the difference in margin is not some artificial value but some price that a buyer is willing to pay, which is a premium vs. other pianos. In other words it's tied to supply/demand ratio, and if nothing changes in tastes, I don't see how one can predict a change in patterns of buying.
Unless of course there's some new sentiment/trend that you know of that you haven't shared.
And I answered:
I'm pleased that you agree with most of what I said.
In regards to what you do not agree with...while you may relate to my words as a "guess", I would describe it more as an educated opinion based on my knowledge and involvement in the industry.
Could I be wrong?
Of course... but the fact is that I'm running a very successful business with a double digit constant yearly growth in what seems to be a shrinking industry, including in this area of the country, where even established and long running dealerships have gone belly up in recent years, and the few newcomers forced to an "early retirement" only a year or two after opening their doors, or they seem to be struggling to survive.
One of the factors contributing greatly to any business success or failure is, in my opinion, the ability to read the market, identify coming trends and changes, and adjust accordingly.
So, I do base my opinion on the way I read the market, as a result of interacting with many customers and industry people alike, knowing the piano business in and out, and keeping a hand on the pulse of the industry.
The reason that we have differing opinions is that you form your opinion on: "what was in the past is also what will be in the future", not taking to account major overall changes occurring in the market, and your remarks are based on a statement I don't necessarily agree with like:
"there will always be a demand for less expensive Steinways".
In any case, you yourself have put a qualifier on your words with the phrase: "if nothing changes"...
Well, that's a big IF, and as it happens, I believe that great changes are occurring in the industry as we write this, and these already have a great affect, a trend which will only keep growing.
Please except my advanced apology since in order to understand the trend I’ll refer to, some basic explanations are needed, and this may be a rather long post.
The viability of the true restoration market, as well as the price buyers are paying for new instruments are both deeply connected.
A true high quality full restoration of an instrument is very expensive. I’m talking about the kind of restoration where all major parts are replaced with new (including the soundboard), the best parts are selected, seasoned, matched to the instrument, and only highly skilled (and expensive) workers are used in rebuilding the piano.
The finish of such instrument should look as good, if not better, than a comparable new piano by the same company, and the overall tonal performance should too either compare or exceed that of new such instrument.
A simple fact of life is that the best and most experienced people would like to get paid for their work, and they go to whom ever is willing to pay the most, and/or work independently for themselves.
Our family owned and run restoration facility, which is most likely the largest in the country outside of Steinway for restoring such pianos, is well aware of this.
We install new boards and fully restore close to 100 Steinway pianos each year, and many of the people working with us were working for Steinway for many years gathering experience before they left to rebuilders like us who are willing to pay more. Still, by the way, some of the best people we have, were actually trained in house.
In any case, high end rebuilding is quite costly, and any customer would find out that the cost for complete, quality work is expensive.
True high end restoration appeals usually to customers who have rather high expectations and standards, and who can afford, should they decide, to get a new Steinway.
Truly high end rebuilding of a 6’ piano will easily cost $25,000 - $30,000, and although significantly less expensive rebuilding may be available, my opinion, based on seeing thousands of such “rebuilds” remains that partial or incompetent work is not a good option for most consumers in the long run.
I understand that some people may see things differently.
Now, the restoration industry is depended upon the ability to get the money invested into rebuilding the piano back, as well as making a profit.
We do not restore for reselling any other instruments except Steinway and Mason & Hamlin pianos, in spite of the fact that there are other makes that were producing fine pianos 100 years ago.
Let’s take a 100 years old 6’ Chickering for example, even if the instrument prior to restoration has zero dollar value, not many people would pay upwards of $30,000 for piano with the name Chickering on the fallboard, meaning that it isn’t viable right now to truly rebuild such a piano. When I see such an instrument with the title of “restored” it usually only received partial rebuilding, and /or got a level of work which although may be satisfactory to some, I find way below standard.
I do not wish to insult anyone making a living from partially rebuilding or repairing such pianos. In fact, repairing such instruments, to a certain degree and in certain cases may make sense for a consumer wanting to stretch a bit more life out of an instrument, and that does not have the highest expectations, perhaps partly because of limited exposure to many true high end pianos and rebuilding.
Such a consumer may very well take this route, and be very pleased with the results.
This is especially true as long as the consumer understand that when the time comes to sell the instrument, they will most likely still not have much value in that repaired piano.
Although a Chickering from the turn of the century may be as good as a Steinway of that priod IF it is indeed rebuilt properly, it is not viable to truly rebuild it.
The fact remains that the prices of instruments prior to rebuilding are rather set in the market, and the differences rebuilders are willing to pay for pianos in need of full restoration are relatively small, and often within a few hundred dollars of each other, while some get double the money for the finished product.
If a rebuilder is willing to overpay for a piano in need of rebuilding, he will only be less competitive later when the extra cost of acquiring the piano is rolled over to the end consumer.
It is rather simple really. Most of the value of a rebuilt piano is in the restoration rather than the instrument itself.
A $5,000 Steinway prior to restoration can be sold for anywhere between $20,000 and $40,000. The difference is in the cost and quality of the work.
Consumers are not stupid, I can assure you that, and they will NOT pay double for something that is the same, and no independent rebuilder has the marketing advantage in the shape of claiming that they are “Steinway” allowing them to charge more money.
An older Chickering or Knabe prior to the rebuilding has close to zero value for a rebuilder. Since the restoration cost is going to be pretty much the same as that of a Steinway, but there is no way of getting the same amount of dollars for it, so most high-end rebuilders will shy from trying to fully restore such pianos for reselling them.
So what trend is occurring, in my opinion, and affecting the piano industry to the degree that true rebuilding is going to be a less viable business?
Well, in the past 50 years or so, a few companies have established presence as a “brand name” through a great investment in marketing and some other historical reasons.
Steinway is probably the first coming to mind, and the most successful in this regard, but Yamaha, Bladwin and probably Kawai are also instruments that have had great investment in marketing, and became a household name. Ask the average person in the street what brands of pianos he is familiar with, and most likely these will be the ones coming up.
If anyone is interested, by the way, I would gladly provide at least a partial list of some of the marketing investment and historical reasons I’m talking about in another post.
In any case, while Bladwin seem to no longer be a major factor in the market, and its decline may be blamed on bad management decisions and manufacturing problems in the 1990’s, and whileYamaha and Kawai’s sharp decline in unit sales could be attributed to a growing number of lower priced pianos from Korea and later China cutting to their lower end, what happened at the higher end of the market?
It seems that NY Steinway sales to the private market have gone south in the past few years, a trend that I believe will only keep on growing, especially when compared to the record sales set by some other higher end companies in the US in the past few years.
How do I know that?
Well first, as it turns, Steinway is a publicly traded company, purchased in the 1990’s by a duo of two very talented financiers (I think they were working for awhile with/under Michael Milken, the “junk bond king” at Drexel Burnham & Lambert), and they do publish annual reports.
From these reports one can learn that Hamburg Steinway is doing very well, having new markets opening for them in China and Russia, and have increased its grand piano sales in the past two years from 957 to 1100 units.
Hamburg Steinways are being sold all over the world, by the way, except in the US and Canada, where NY Steinway is selling pianos…this is with the exception, of course, of a good number of the concert grands provided partially by Hamburg, which are “serving” in Steinways loaner bank of 300 concert grand pianos in the USA.
Steinway institutional sales also seems to be very successful and growing rapidly (I guess that no one is going to get fired for getting a Steinway for their school), adding 18 new schools and conservatories to the “all Steinway schools roster” in the past two years (from 50 to 68), the majority of these new schools are in North America, as I understand, and being supplied by NY Steinway.
The number of Steinway dealers and showrooms have also increased by about 8% in the past few years, and at least some in the US, allowing for a significant theoretical increase in shipments of new pianos from the factory, since new dealers need to build inventory. In fact, an 8% increase in dealers and showrooms should account, in my opinion for a much larger percentage increase of factory shipments because the dealer will have to stock 5–10 of these pianos before he have sold even one instrument to a retail customer… Still, however, NY Steinway shipments from the factory have DECLINED in the past two years by more than 9% from 2237 (in 2004), to 2114 (in 2005) and to 2034 units shipped (in 2006).
This decline is in spite the success of the “all Steinway school program”, and increased numbers of pianos shipped to institutions, as well as to any new dealers building inventory.
To me it seems when looking at these numbers, and taking all factors into account, that NY Steinway sales to the PRIVATE market, have declined much more sharply than the 9% reported as factory shipments. I would not want to speculate as to how much greater, but it seems to be a significantly greater decline than 9%.
In the end, it isn’t about how many pianos are shipped from the factory, but how many pianos are actually sold in the US to the private market.
Combine this information with the reports we hear recently on the forum, and in other places, about Steinway dealers lowering prices and giving discounts much greater than we learned to expect (although still relatively small in comparison to the rest of the industry), and the picture gets clear.
I can almost hear the screeching halt of sales stopping.
But I do not really need to read Steinway’s annual reports to know that this is the trend.
I can FEEL it in my showroom, and I have attended and rearranged the mix of my pianos to answer the change in demand in recent years well befor it was reflected in the numbers.
In the late 1990’s, more than half of my showroom consisted of Steinway pianos.
Many of the customers coming in stated upon looking at all the Steinways, in an agonizing voice, that it has always been their “dream” owning a Steinway…even if they were not willing to spend the money for one.
Many other customers have come to my showroom ONLY looking for Steinway pianos, and nothing else. They wanted to “select” the right Steinway, and would often be displeased by the mere suggestion of looking at another piano as well, even if only for the sake of comparison.
Only a decade ago, most people looking for a decent piano were first thinking of Steinway, if they could not afford one, or did not want to spend the money for one, well…than there was always Yamaha at a considerably lower budget, and if not Yamaha, than Kawai, or Baldwin.
These were the pianos people were looking for, almost all others were merely stumbled upon, unless one was a piano aficionado or particularly familiar with one brand or another.
While I still get some of these customers nowadays, the majority of today’s consumers seems to be much more open to the possibility that Steinway is not the ONLY high performance piano, and they are eager to try other brands.
Some of the customers coming to our showroom even make remarks such as “I’m not really interested in a Steinway, I know that they are overpriced for the level of performance they provide, and I’m not the one to overpay for the name”…
The change is so dramatic, that one must ask WHY did it occur.
The only answer I can come up with is rather simple.
The Internet is now equalizing the playing field.
While in the past, only makers with big budgets and great marketing efforts were the instruments consumers were looking for, the picture has now changed.
Consumers are now searching, wanting to play instruments that they would have never even considered or heard of before…especially people who can play the piano and evaluate for themselves.
While the production numbers in the mass produced market are great, the relatively small niche market of high performance pianos is much more prone to show this change, in the way of lost sales to the Steinway private market.
I can tell you that in the past couple of years, I have personally witnessed a great number of Estonia, Bluthner or Bosendorfer pianos that were sold from our showroom, instead of Steinway pianos (whether new, used or rebuilt), including the Steinway pianos in our showroom.
I can tell you that Estonia is working at full capacity for a few years now, and that Bluthner had a record-braking year in 2006 USA sales. They even started building an addition to their factory to be able and increase production. This is in sharp contrast to the decline NY Steinway has in sales to the private consumer.
The demographic of the buyers also seem to confirm in my mind that the Internet is the main factor in this trend. Most of those who are still coming to “select” a Steinway, and are less open to other possibilities, appear as they have done less research and are more prone to fall for all the marketing slogans we here from time to time, including the “investment value” that started this thread.
Even more surprising to me is that many piano teachers, whom I would hope would take a keen interest in pianos and the different tonal characteristics they provide, seems to know even less than most consumers about instruments, and have almost never tried another high end piano except a Steinway.
It is apparent that they do not do much research or reading on the web, and most are still recommending the same few pianos they are familiar with…
In all, I think that the name Steinway will keep on eroding, as people become aware that there are other choices out there…
The more people are aware that other choices are available, the greater is the likelihood that they try, and often choose a piano other than a Steinway.
Eventually, this will lead to a decline in new Steinway prices, and/or to consumer putting less importance on the Steinway name.
In terms of the rebuilding market, I would say that the current value of the name Steinway represents anywhere between 25% - 35% of what the buyer is paying for whether the piano is new, used or rebuilt. As consumers put less value into the name, and will be less willing to pay for it, the viability of true rebuilding for reselling market will become questionable, in my opinion.
Why would someone rebuild a piano if they can get an instrument which they like far better than either a rebuilt Steinway, a new Steinway, or a used Steinway for a similar budget.
Once the mystique of the name disappears, and the public realizes that the king IS naked, the fine silk of the non-existing shirt is looking much less impressive.
In my opinion it isn’t a matter of IF but only a matter of WHEN.
I hope that answers your question.
This post represent only my opinion.