60 replies to this topic

[Shneor]

One thing that turns people off is dime store telescopes and the emphasis on "700 power" plus higly exaggerated photos on the box. These turn out to be useless, and totally turn people off buying anything decent to start with, like a simple 6" dob. So demand is clobbered for most people who have even a passing interest. The used market also depresses prices for new telescopes to some degree. And competition makes sure that margins are thin. Wish I could come up with a fix.

[Jon Isaacs]

 

 

It may sound hard to believe but this is exactly what was posted by the vendor.

He personally went to China and reported his finding online to the yahoo group in a public forum.

Why would he mislead us?

 

I have no idea as to the context of the thread in question, nor have I actually seen this statement..  I have no idea of what the possible motivations might be except to somehow denigrate sellers like Orion and Astronomics.   Maybe you could go so far as to enlighten us who exactly this vendor was and provide a link.   

 

In any event, looking over the various components and their quality in GSO and Synta Dobs, in my mind, there is no way these scopes could be manufactured and sold $40 nor is there anyway the primary mirrors could be manufactured and sold for $10.. If there were 8 inch F/6 GSO and/or Synta mirrors out there for $10.. they would be on Ebay..  

 

Jon

[Cotts]

 

I wonder if dealers might get into arranging the financing of the products.   When you buy a Harley or a Bass Boat or a Sailboat or a fancy sports car the vendors offer financing.  They then make a profit on both the sale price of the item as well as on the financing interest...   They also turn a "$9 000 one time outlay" into a "$95 a month for 60 months outlay" which might look more attractive to consumers who are wavering.  

 

The dealers and vendors could enter into an agreement with a financial institution to provide the financing with the dealer getting a 'taste' of the interest profit (in return for sending business to the financial institution) without having to actually have the deep pockets to offer the financing entirely on their own.

 

I am simply unable to fork out $8 000 or so for my dream scope on the spot but I could consider paying $150 a month for a few years....  I would think that there are many in the hobby who could pay monthly for an item that they could not to pay for in full....  Be it $2000 or $20000....

 

Dave

Sadly, we tried this in my last business.  It turned out that the majority (maybe 75%+) of the people who couldn't afford to pay for their purchase at the time of sale also couldn't get credit. And the finance fees paid to the finance company for the privilege of doing business with them was about 1/2 to 3/4 of the profit.  The financing that's always available to any consumer is to use a credit card and make monthly payments, i.e. not pay the credit card off.  And consumers balk at the high interest rates.  You can't get low interest rates on small consumer loans, unfortunately.  That $9000 purchase would be $300 a month for 60 months.

 

Don.  I guess 'economies of scale' apply to moneylending as well...   Thanks for your insight.

 

Dave

[photiost]

The vendor was Burgess Optics.

 

In the Burgess yahoo group - which has several thousand entries - buried in there is the actual report from one of the factories that were visited and the ridiculously low prices offered to manufacture these items.  Mirrors, tubes and particle boards covered with melamine are not expensive to make, especially when your labor costs are only a few dollars/day. 

 

If you are willing to order a container full of instruments this was your cost price - just a small sample of the savings you could get.

What you would then sell it for is another issue.

 

At one point I bought a set of 12.5mm Symmetrical eyepieces for $10 /each, and a 2in OIII filter for $29 .00 - prices practically unheard of -

so a lot of the savings were actually passed on to his customers.

[Jon Isaacs]

The vendor was Burgess Optics.

 

In the Burgess yahoo group - which has several thousand entries - buried in there is the actual report from one of the factories that were visited and the ridiculously low prices offered to manufacture these items.  Mirrors, tubes and particle boards covered with melamine are not expensive to make, especially when your labor costs are only a few dollars/day. 

 

If you are willing to order a container full of instruments this was your cost price - just a small sample of the savings you could get.

What you would then sell it for is another issue.

 

At one point I bought a set of 12.5mm Symmetrical eyepieces for $10 /each, and a 2in OIII filter for $29 .00 - prices practically unheard of -

so a lot of the savings were actually passed on to his customers.

 

 

Good old, lovable Bill.. 

 

10 -12 years ago, I was snared by his offer that I could put $100 down and $100 in a month and have a 102mm F/6 achromat with a 2 inch focuser, a diagonal and a case.. It wasn't a month.. about a a year later, the scope was delivered but the objectives were all flawed.. New objectives were promised, they never showed up and the whole fiasco was finished another year later with the announcement that there would be no new lenses..  That was coincident with the announcement of the 101mm BackPacker that created a major wave of enthusiasm but it never showed up. I guess there was one that was shown at Stellafane without an objective..  In my case, Bill and Tammy quietly refunded my credit card, I transplanted an Orion 100mm F/6 objective to the Burgess resulting in the Burion.  The Burion eventually ended up with some missionaries working in Uganda.. 

 

(My best friend Bob inspecting the Burion and Polaris mount right before it was shipped off to begin its journey to Uganda)

 

 

I would not be surprised if Bill Burgess visited factories in China that offered to sell him 8 inch F/6 Dobsonians for $40 and mirrors for $10 but I am quite sure those factories were not Guan Sheng Optical nor were they Synta Optical Corporation, the two manufacturers whom we know provide nearly all the "Commercial Dobsonians" to the marketplace.  I would suspect, they were another one of the various factories that good old Bill was involved with that were incapable of providing the goods as promised, I never saw a Burgess Optical Dob, never saw an advertisement for one, new or used, never saw mention of one.. To ask the rhetorical question:

 

Have you?

 

Jon

[photiost]

Sorry to hear that you did not have a good experience with your 102mm f/6 .

 

I chose the larger 5in model and I for one am quite happy with my 127mm f/8 refractor.

 

Excellent deal, the scope came with its own case, 8x50 finder, rings, dovetail bar, and a 2in diagonal - all for $299 + shipping.

If you read the reviews on this particular 1278 telescope, they were very good.

 

http://www.astromart...p?article_id=36

 

http://www.cloudynig...telescope-r2594

 

Not to sway - from a business point of view I don't see how any retailer making 10% profit (at best) on a telescope can actually stay afloat...

 

 

Edit: added image

Attached Thumbnails

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Edited by photiost, 23 December 2014 - 08:52 PM.

[Jon Isaacs]

 

Sorry to hear that you did not have a good experience with your 102mm f/6 .

 

 I chose the larger 5in model and I for one am quite happy with my 127mm f/8 refractor.

 

It wasn't just me, all the objectives were not at all good.  I was actually one of the lucky ones because I was able to replace my objective.  The 127 F/8 was a good scope.  But the Backpacker was a no show and by no means the last of many no-shows from BO. 

 

The fact that someone might have told Bill he could buy a 8 inch F/6 Dob for $40 doesn't seem to have translated into an actual Dobsonian so it doesn't seem to be an actual data point.  

 

Jon

[Geo.]

In my experience the margins on Meade and Celestron products at retail are around 5% in the U.S. Neither M or C fix prices. Their contacts specify that dealers may not advertise below their "minimum advertised price", which tend to be about 10% above dealer cost. Throw in free shipping or negotiate a sale below minimum advertised and there goes the margin. Outside of North America they use exclusive distributorships. These tend to sell only at manufacturer's suggested retail. This along with the VAT can double the price of a scope in the EU.

 

Most of the big sellers drop ship. You buy from them and they have M or C ship to you. So thin margins only have to cover the order processing cost. To0 maintain a dealership you have to make a minimum dollar amount in purchases, usually $5K a year and some agreements may require a certain showroom floor presence.

[MJB87]

About the same cost as an F-22, roughly $150M fly away.  If you want to up NASA's budget, you should go after the aircraft carriers ($9B a pop) and the DDG-1000 destroyers ($3B-4B each).  Better yet, cancel the Ohio Replacement Program -- that is about $90B in tota over 15-20 yearsl.  Also cancel the Next Generation Bomber (Long-Range Strike) Program -- that would get you another $50B-$100B over its lifetime.

 

If I were king, I'd cancel manned space and organize an orbiter and lander for each of the major moons of Jupiter and Saturn.

[edlchiang]

In my experience the margins on Meade and Celestron products at retail are around 5% in the U.S. Neither M or C fix prices. Their contacts specify that dealers may not advertise below their "minimum advertised price", which tend to be about 10% above dealer cost. Throw in free shipping or negotiate a sale below minimum advertised and there goes the margin. Outside of North America they use exclusive distributorships. These tend to sell only at manufacturer's suggested retail. This along with the VAT can double the price of a scope in the EU.

 

Most of the big sellers drop ship. You buy from them and they have M or C ship to you. So thin margins only have to cover the order processing cost. To0 maintain a dealership you have to make a minimum dollar amount in purchases, usually $5K a year and some agreements may require a certain showroom floor presence.

That is a ridiculously small profit margin.   I do not know how they stay in business.

[Paul G]

 

In my experience the margins on Meade and Celestron products at retail are around 5% in the U.S. Neither M or C fix prices. Their contacts specify that dealers may not advertise below their "minimum advertised price", which tend to be about 10% above dealer cost. Throw in free shipping or negotiate a sale below minimum advertised and there goes the margin. Outside of North America they use exclusive distributorships. These tend to sell only at manufacturer's suggested retail. This along with the VAT can double the price of a scope in the EU.

 

Most of the big sellers drop ship. You buy from them and they have M or C ship to you. So thin margins only have to cover the order processing cost. To0 maintain a dealership you have to make a minimum dollar amount in purchases, usually $5K a year and some agreements may require a certain showroom floor presence.

That is a ridiculously small profit margin.   I do not know how they stay in business.

 

Most of them haven't. The actual brick and mortar stores are nearly all gone. That figure is correct, and if the customer pays with a credit card you can knock another couple % off.

[Paul G]

The vendor was Burgess Optics.

 

 

That explains everything. 

[Jon Isaacs]

 

The vendor was Burgess Optics.

 

 

That explains everything. 

 

 

It has always seemed to me that Bill's heart is in the right place but like many of us, me included, his business sense sometimes fails him.  

 

jon

[Paul G]

 

 

The vendor was Burgess Optics.

 

 

That explains everything. 

 

 

It has always seemed to me that Bill's heart is in the right place but like many of us, me included, his business sense sometimes fails him.  

 

jon

 

 

My impression is more of a carny barker than businessman. I'd have a higher opinion if it weren't for all the people who did the Burgess shuffle, "We're boxing it up as we speak, should ship out this week." Two months later, "It's shipping out this week." Two more months later, "It's shipping out this week." Two years later, no response to e-mails, phone calls, certified mail, as if he had fallen off the face of the earth, while still popping out sales pitches on his group for awesome deals. It's why some of Tom Back's best friends and best customers were appalled when he hooked up with Burgess.

 

That said, I would still do business with him as long as:

-- he had a product I needed and couldn't get elsewhere

-- I had his assurance either in writing, e-mail, or recorded phone conversation that the product was in stock and not vaporware

-- I paid with a credit card and made it clear if I did not receive the product within 30 days I'd do a charge back on the card.
 

[schang]

I'd be happy to trade my dinner money for that lunch money any day...

[Ducky62]

We need more comets. Everybody loves comets. Comets sell telescopes.

 

The politicization of science and more government spending doesn't sell telescopes.

[Hobby Astronomer]

Well if you look up the information on the 10-K Meade Instruments for the year ending 2/28/2013 with the Security and Exchange Commission, you will get the entire scoop on the telescope business. 

 

Meade is a midget. 

 

Company had a 21% loss while the top two execs received compensation valued at $644K.

 

Telescope sales were down 17% versus the prior year.

 

Scope sales were right under $15M.

 

Here is a paste from the management discussion and analysis of the annual report.

 

Fiscal 2013 Compared to Fiscal 2012

The Company reported net sales of $17.5 million during the fiscal year ended February 28, 2013, a decrease of $4.1 million or 19% from net sales of $21.6 million during the fiscal year ended February 29, 2012.
Approximately $2.0 million or 49% of this decrease in net sales was due to a decrease in net sales of the Company’s imported low-end telescope products to mass-retail customers generally because of increased competition from the Company’s Chinese-owned, vertically-integrated competitors who can sell such products at a lower price. Sales of nearly all of the Company’s other product categories were down as well, with the exception of intermediate telescope products which increased approximately $0.8 million due in part to the introduction of the Company’s new LX80 product in Fall 2011. Declines in the Company’s high-end telescope and related products were attributed to increased competition, effects on consumer discretionary spending associated with the general economic conditions and a decrease in order fulfillment attributed primarily to the Fall 2011 announcement of the Company’s new LX800 and Spring 2012 announcement of the Company’s new LX600 products and followed by longer than expected product development for those products. The Company was not able to begin shipping the LX800 until February 2013 and the LX600 did not start shipping until April 2013.

 

The gross profit margin during fiscal 2013 decreased to 13.6% of net sales, compared with 24.6% of net sales in fiscal 2012. This deterioration in gross profit margin was driven primarily by higher discounts and
returns on low-end telescopes and spotting scopes sold to mass retail customers due to poor sell-through, as well as the substantial decline in revenues without equal reductions in indirect manufacturing costs and overhead.

 

Selling expenses decreased from $2.4 million (10.9% of net sales) in fiscal 2012 to $1.7 million (9.7% of net sales) in fiscal 2013. This decrease was attributable to (i) reduced net sales, offset partially by increases in discretionary spending such as advertising expenses relating to new product introductions and related promotions, and (ii) the elimination of approximately 10 positions relating to the Company’s U.S. sales and distribution operations in January 2012 due to the decline in sales of the Company’s low-end telescopes and imported products. These reductions saved the Company approximately $0.7 million annually.

 

General and administrative expenses for fiscal 2013 were $3.5 million (20.3% of net sales), an increase of $0.1 million or 3% compared to $3.4 million (16% of net sales) in fiscal 2012. There were increases and decreases amongst the Company’s various general and administrative expenses, but the Company was unsuccessful in reducing these expenses in total compared to last year and incurred additional legal and other costs during the fiscal year ended February 28, 2013, in conjunction with the Company’s exploration of strategic alternatives.

 

Research and development expenses increased approximately $0.2 million or 22% from $0.9 million in fiscal 2012 to $1.1 million in fiscal 2013. The Company developed several new products which are intended to capitalize on the Company’s competitive advantages and to broaden the Company’s product line into areas of the market which the Company has been absent in for several years—such as German equatorial mount telescopes. The LX800 and LX80 telescopes were announced in Fall 2011 and the LX600 was announced in Spring 2012. The development of the LX800 and LX600 products took much longer than originally anticipated.

 

Release of warranty liability of $0.3 million during the twelve months ended February 28, 2013 pertained to a reduction in the Company’s warranty accrual which was recorded based upon an agreement with the acquirer of one of the Company’s former sport optics brands which released the Company of its remaining warranty liability associated with those products. No such adjustment applied to the prior year.
The Company incurred interest expense of approximately $29 thousand during the fiscal year ended February 28, 2013 compared to interest income of approximately $2 thousand in the prior year due to the fact that the Company did not advance on its credit facility during fiscal 2012, whereas the Company began advancing on its credit facility in September 2013.
Liquidity and Capital Resources

 

The Company incurred a net loss of approximately $3.7 million, which resulted in a net decrease in cash of approximately $3.6 million from $3.9 million at February 29, 2012 to $0.3 million at February 28, 2013.

 

The Company has limited working capital and access to credit. The Company had $40 thousand of remaining availability at February 28, 2013. In addition, while the Company’s financing agreement with its lender does not contain explicit financial covenants, the Agreement allows the Company’s lender significant latitude to restrict, reduce or eliminate the Company’s access to credit or require the Company to repay any and all amounts outstanding under the Agreement. If its lender restricts, reduces or eliminates the Company’s access to credit, or requires immediate repayment of the amounts outstanding under the agreement, the Company would be required to pursue additional or alternative sources of liquidity such as equity financings, a new debt agreement with other creditors, or liquidate assets. However, the Company cannot assure that any such additional sources of liquidity would be available on reasonable terms, if at all.

 

The Company’s financial statements for the fiscal year ended February 28, 2013 were prepared assuming the Company would continue as a going concern; however, the Company’s declining revenues, recurring losses, weakened financial position and reduced liquidity raise substantial doubt about its ability to continue as a going concern. The Company’s board of directors decided in January 2013 that the Company should consider its strategic alternatives to preserve and maximize shareholder value, which ultimately culminated in the signing on May 17, 2013 of the Agreement and Plan of Merger which, subject to shareholder approval, would allow for the outstanding shares of the Company to be purchased for $3.45 per share or approximately $4.5 million.

 

Due to the Company’s declining revenues, recurring losses, limited liquidity and weakened financial position, the Company may not be able to operate long enough execute that planned transaction. Net sales during the three months ending May 31, 2013 are expected to be approximately $3 million, substantially below the net sales of approximately $3.8 million during the three months ended February 28, 2013 and net sales of approximately $4.2 million during the three months ended May 31, 2012. Due to the lower net sales levels the Company is encountering, the Company expects to incur substantial losses during the period through the close of the transaction.

 

In addition, the Company has limited and decreasing working capital and is finding it increasingly difficult to operate normally. The Company’s net debt, which consists of the net balance owed on the Company’s credit facility less cash, was $92 thousand at February 28, 2013 compared to $371 thousand at April 30, 2013.
In addition, as is common with public company transactions, a number of law firms are investigating the recently announced merger transaction and may choose to file a lawsuit against the Company in an effort to obtain financial dispensation from the Company. Such actions, or other factors, could cause further delays in the close of the planned transaction and/or result in additional costs. If such events occur, the Company may not have sufficient working capital to operate through the close of the planned transaction. If the Company is not able to obtain additional capital, it may be unable to execute the planned transaction and the Company may then have to file bankruptcy and cease operations.

 

Capital expenditures, including financed purchases of equipment, aggregated $0.1 million for each of the years ended February 28, 2013 and February 29, 2012. The Company had no material capital expenditure commitments at February 28, 2013.

[Hobby Astronomer]

Man I could probably raise $5 million myself to become president of a telescope company. The guys missed the boat. Companies this small are often not very efficient. They get the market wrong. They get the pricing wrong. They get the product wrong. This Company should have never gone public. CFO and CEO ran it right over the cliff financially.

Edited by Hobby Astronomer, 28 December 2014 - 01:13 AM.

[tecmage]

Somehow this thread as wandered from discussing margins and ventured into Education, Politics, Government and Religion. I will be doing a clean up on this thread, and  ask everyone to stay on topic.

 

thanks,

Richard

[edlchiang]

I started this thread and I agree with the moderator 100%

[MJB87]

Back on topic, at least I think.  If not, I apologize.

 

I just spent some time looking through the financial history of Meade, as described in the DEFM14A Proxy Statement issued prior to the merger vote.  I'm trying to future out how the business cratered.

 

It appears that

 

- Meade lost $9M in sales starting from a $26M base in a four year period AFTER the recession, when the economy was recovering.  This doesn't make much sense. You can't blame the poor economy for this performance.

 

- Management cut admin costs by $1M right at the start of the period, even though the business was still growing, and also took a big chunk out of selling costs.  This was BEFORE the big drop in sales, and may have led to it.

 

- After sales began to fall management responded by cutting selling costs by almost $1M and admin costs by another $500k or so.

 

- R&D was kept at a level less than half of what it had been prior to the recession.

 

At that point the business was unwinding.  The issue wasn't poor margins on sales, it was the inability of the company to main top-line revennue after a period of cost restructuring, despite a growing economy. My impression is that Meade management tried to cut costs on its way to prosperity and instead weakened the company to the point it was unable to compete and win. I suspect (but don't know) that its distributors and support channels abandoned them.  I cannot state this with any authority, and thus it may not be true in this case, but I've seen lots of similar situations where a management team attempts to "harvest" an established business and instead runs it into the ground.

 

Finally, there is absolutely no good reason this company should have been publicly traded.  Being a public company imposes substantial costs and reduces flexibility.  The company should have been privately owned and funded with debt (low cost at this time) rather than equity.
 

Based on the numbers, I believe the  margins in this industry are adequate to return more than the cost of capital given the low asset intensity of the business if the business is managed for growth and the balance sheet is funded thoughtfully.  (Meade's assets were almost fully depreciated.)  This downfall didn't have to happen.

 

MJB

Edited by MJB87, 28 December 2014 - 05:37 PM.

[Hobby Astronomer]

For Meade, I wonder what the sales mix is between the retail telescopes and the higher end scopes that most of us buy, and what the corresponding margins were. 

[MJB87]

Good question.  Don't know the answer but normally margins are higher on the high-end products, in part because the distribution channels are simpler.  Plus, the average high-end buyer will purchase more accessories that (as reported earlier) have higher margins.

 

It also seems clear that sales are driven by new product introductions and upgrades.  Perhaps Meade's decision to cut its R&D in half in 2008 preciptated the decline in sales.  This is especially true since it happened at a time of major innovation broadly in the industry.

 

It is also notable that the initial declined after an outsider was brought in as CEO.  He lasted only a short while before the former CEO was brought out of retirement to try to salvage things.  That outside CEO came from a company that made sporting goods, e.g., trampolines and skateboards.  Hardly a product line representative of high end telescopes.  Perhaps that signaled a desire to move the focus toward lower-end products.

Edited by MJB87, 29 December 2014 - 11:10 AM.

[Hobby Astronomer]

I would think there has to be a 40-50% direct cost margin on the bigger scopes to be economically viable. 

[Starman1]

Good question.  Don't know the answer but normally margins are higher on the high-end products, in part because the distribution channels are simpler.  Plus, the average high-end buyer will purchase more accessories that (as reported earlier) have higher margins.

 

It also seems clear that sales are driven by new product introductions and upgrades.  Perhaps Meade's decision to cut its R&D in half in 2008 precipitated the decline in sales.  This is especially true since it happened at a time of major innovation broadly in the industry.

 

It is also notable that the initial declined after an outsider was brought in as CEO.  He lasted only a short while before the former CEO was brought out of retirement to try to salvage things.  That outside CEO came from a company that made sporting goods, e.g., trampolines and skateboards.  Hardly a product line representative of high end telescopes.  Perhaps that signaled a desire to move the focus toward lower-end products.

Profit DOLLARS are higher with the expensive specialty stuff, but profits have a lower PERCENTAGE.  5-10% margins on a $39 telescope wouldn't even allow them to be stocked from a warehouse without losing money (though, in fairness, BigBox sellers spread the profits, so one department can break even if another makes a lot of money).

5-10% margins on a $3900 telescope yields enough profit to pay for stocking and moving the product.

The problem, though, is that the cost of running a brick and mortar store is about 30% when utilities, payroll, taxes, etc (EBITDA). Astonomy stores have to have other sources of income to get to that point, because even the accessories don't have that kind of margin.  I was in an industry for over 30 years where the retailers made 35-40% margins, yet all the retailers complained about going broke because they weren't 50%.

Which is why I think you will see nearly all retail astronomy-related stores close in the next few years (if they haven't already)--except those with a large on-line presence.

 

An industry starts out with a bunch of small manufacturers selling direct to consumers.  Margins keep the manufacturer in business.

As the industry grows, the mfrs take on retailers, offering them a courtesy 10% discount to be a representative.  You begin to see products in a few stores that sell a lot of other products as well.

Then the prices slowly go down for the mfr, with larger production, and the retails slowly go up so the retailer can make enough margin to start stocking larger quantities and advertising them.

As the number of retailers rises, distributors come into the picture that act like local or regional warehouses for the products.

The margin is smallest for the mfr (large volume), larger for the distributor, and largest for the retailer, who has to maintain the most expensive outlet with the least merchandise per square foot and the highest overhead.  This is a mature chain of distribution.

 

The problem is that the small size of the market never got us past the point of small margins.  So we never got an explosion of storefront retailers selling the products allowing lower costs in manufacturing or higher margins for retailers.  Plus, in a few cases, the distributor or mfr kept the bulk of profits for themselves, making the retailer's position quite untenable.

This is not an uncommon problem in small, hobby-oriented, industries.

 

One possible cure is when/if retailers get large enough to bypass distributors and go straight to a manufacturer for a private-label brand.  This is constantly being tried in this market, but it rarely succeeds. Orion is the exception rather than the rule.  That can increase margins for the retailer but does also increase some overhead in the form of larger inventories and slower stock turns.

 

One sign of where the astronomy industry is now is that I have seen a slow disappearance of private label brands over the last decade.  No doubt the economy from 2009-2012

had something to do with that.  But it could also indicate a slow erosion of the customer base, too.  I'm keeping an eye on it through my Eyepiece Buyer's Guide.  I'm getting ready to start on the 2015 version, and I'm going to pay attention to see if more private label brands are lost.