Estonia Pianos and its unique place in the piano industry during the “Great Recession”

It isn’t often that we as a retailer can sit down with the owner of one of the companies we represent and have him/her speak candidly about why they do what they do — or what their plans are for the future. Recently I had the opportunity to spend some time with Dr. Indrek Laul, and asked him some very pointed questions about his company. His answers were both fascinating and admirable.

A little back story: I was very interested to see what would become of the European segment of the piano industry when the recession hit in 2007. European piano companies were already struggling going into the recession, so how would they cope? Who would emerge from this recession still standing? As a piano retailer carrying five European piano brands at the time, my interest wasn’t just academic. I had a lot of “skin in the game,” as they say. So the below thoughts represent my experiences and perspectives over the past decade “in the game”.

Between 2007 and 2012, several European piano companies closed their doors. Others merged or were sold. There were instances of bankruptcy, complete withdrawal from the U.S. market, U.S. distributor battles, government bailouts — you name it. Other surviving companies were siphoning family money to keep the doors open. That’s not a dig at the Europeans — many piano retailers across the world were doing the same thing during that difficult time.

Why did the recession hit this market segment so hard? Beyond other issues facing the whole industry (dealers closing their doors and dealer financing vanishing), European piano prices were largely deemed too high by North American piano buyers — and they needed to go much higher. Piano prices weren’t keeping up with the US dollar’s decline so manufacturer profit margins were already very slim. Proposing even higher prices stood to dry up whatever consumer interest remained in new pianos. How can you viably increase prices when the US dollar steadily falls for a period of years, as it did in the early 2000’s? You can’t, and that is precisely the dilemma that set the stage for trouble.

Here’s a look at the USD-EURO exchange rate from 2002-2004 (view source):

1. January 02, 2002 – 0.9038
2. January 02, 2003 – 1.0446
3. January 02, 2004 – 1.2592

Due to the exchange rate decrease, piano prices needed to INCREASE 39.32 % within two years in order to stay level (exchange rate from 0.9038 to 1.2592 = change of 39.32%) — and that doesn’t take annual inflation into account. Thus, just to receive the same profit from your average piano, Europe had to increase prices by over 40% in two years. And that wasn’t the worst news. The USD continued to tumble all the way to 1.5928 by April 16th 2008 — a 76% change from 2002! (These dates and exchange rates will become very important in the later discussion of Estonia’s unique strategy and surprising success through this difficult time.) All European manufacturers faced either steadily raising their prices on a product that was already price-sensitive in the U.S. market or holding off, hoping that the dollar would bounce back. Manufacturers who raised prices would see slower orders. Those who didn’t had bigger problems ahead, when they would need to raise prices by a staggering 20-30% in one year, after seeing that there was no end in sight to the dollar’s freefall. When this occurred, many US dealers just stopped ordering. During this time, selling these pianos to consumers became more challenging because most American consumers either don’t know about or don’t closely follow European exchange rates. Presenting the same piano at a much higher price on account of obscure exchange rate issues was not an easy sell.

And if a European piano company survived that Great Fall of USD-EUR 2002-08, it was followed by the Great Recession (gulp). So leading up to and during this bloodbath, surviving manufacturers had to revisit everything from their product offerings, to sourcing supplies, to trimming work forces — and even complete rebranding. Some developed secondary and tertiary brands to sell, using their premium brand name as the hook for consumers. This was a trend Steinway started many years ago (a concept borrowed from Baldwin decades before) and was now seen in the “3 B’s” (Bosendorfer, Bechstein and Bluthner). This strategy includes sourcing components and even entire pianos from China and Indonesia — a far cry from the astringent purism of the European piano building tradition.

Many marketers would agree that this approach waters down a premium brand name — even if the construction methods of a company’s premium piano brand remains the same. In other words, say Bechstein (the famed piano builder from Berlin) is sold to a Korean piano company, Samick. Bechstein pianos themselves may not have changed, but some potential buyers are turned off because it is no longer European owned. This, and because Bechstein offers a lower-grade Bechstein AND a tertiary line of pianos called W. Hoffman — also made outside Germany — can confuse a consumer’s perception of a brand name. It can also jeopardize the resale value of a brand — in this case, the real “C. Bechstein” premium handmade pianos. This brand name “degradation” (for lack of a better word) is a real concept, as we have seen the resale value of handmade Baldwin Artist Grands plummet in the U.S. in the wake of Chinese Baldwin grand pianos imported for fractions of the price. The public doesn’t necessarily take the time to learn the difference. Even at its most subtle and unsubstantiated level, such brand name confusion is often used a bargaining chip by a consumer — “Well, I can get a NEW Baldwin for $8000, so why would I pay $12,000 for your USED one?” The argument is invalid but it doesn’t stop consumers from using it — or worse yet, believing it.

After earning a bachelor’s degree in marketing, then logging 25 years in the retail piano business, I’ve always enjoyed marketing. While I certainly don’t know everything about marketing in the piano business, having grown up in it, I probably know more than most in our industry. I have seen almost every manufacturer make marketing decisions that had me scratching my head. Most of the time, my suspicions were correct. Through all of this, there is only one company I have yet to see make a strategic marketing mistake, and that’s the Estonia Piano Factory.

When I had the chance to sit down with the president of the Estonia Piano Factory, Dr. Indrek Laul, during his visit to my store for a Piano Technicians Guild meeting, it turned out to be a most enlightening conversation. Via his insights, combined with knowledge I already had about the effects of the recession on the rest of Europe’s piano industry, I felt like I was experiencing a case study in marketing. And it wasn’t coming from a marketing professor. It was coming from a bright, thoughtful musician who happens to own a piano company.

Indrek’s approach on surviving the declining dollar was indeed unique. His strategy, along with a little bit of luck being in the “right place at the right time” paid off. He didn’t see how raising prices for the same exact piano would hold water with dealers and consumers. Instead he chose to introduce many changes and improvements to his pianos — almost 300 in total — leading up to the recession. By increasing quality he thought, he can offer a much better piano for a slightly higher price. Luckily, John Q. Public and websites such as pianoworld.com and pianobuyer.com had emerged into popularity, inadvertently carrying Estonia’s message in a way that no marketing budget could ever promote. Estonia became “The Golden Child” on the internet — the piano brand to buy. Even the toughest piano industry critics on the web were largely agreeing that Estonia’s prices, while continually higher through the 2000’s, were well justified. The hundreds of changes were noticed and publicized — and Estonia’s rating on pianobuyer.com rose to the level of Steinway, creating quite a buzz in and of itself.

As the Great Recession unfolded, Dr. Laul’s company was already in a good place. His prices were already favorable to the competition and he was running a lean ship with no excess inventory, but that didn’t stop him from preparing further. He decided that the best global marketing strategy would be to continue to focus on the North American market rather than to pursue opening new markets. This was interesting to me because the U.S. was falling into a recession, so conventional wisdom might dictate he explore new markets and go where the money is.

There were several problems with pursuing new markets / countries for a small company with limited production, however. There’s governmental red tape, the cost of establishing one’s presence and brand in new countries, producing professional marketing materials in various new languages, establishing dealer networks, service & support networks and transportation relationships, to name a few. That’s a lot of time and money, which would invariably translate to even higher prices for Estonia pianos, especially considering that the costs would need to be amortized across an annual production of a paltry but comfortable 200 units.

Additionally, the business climate in Europe was accustomed to customers flying in to visit piano factories. After all, a flight from Berlin to Tallinn is the same as taking a flight from Chicago to Orlando, so if people are used to taking such flights for big ticket items such as a piano, there’s no reason to maintain a large dealer network across Europe. So Dr. Laul didn’t need to find additional dealers in Europe.

Alternatively, the Estonia piano business infrastructure in the U.S. was already in place. The owner lives in the U.S. He speaks the language and doesn’t need a translator or a distributor to communicate with the people of the country. The dealer network is in place, the service & support is in place, etc — and the demand for Estonia pianos in the U.S. has always outstripped supply since they began distributing here almost a decade ago. Even with a slight decline in production, if necessary, this could be an easy storm to ride.

During the recession Dr. Laul has also used the downtime to design new pianos. Most manufacturers who weathered the storm are coming out of the recession with reduced product lines. Estonia went into the recession with three models and are coming out with five (the 7’4″ model 225 was added in 2010 and the 6’10” model 210 was added in 2012.) While other companies had to outsource materials from cheaper countries, Estonia did the opposite. They insisted that their instruments remain European inside and out. In an effort to maintain the purity of the Estonia brand name, they do not build additional piano brands or subcontract the use of their factory to another piano company. Estonia does not build vertical pianos at all and the quality of their grand pianos doesn’t degrade in smaller models like so many other manufacturers’ product lines do. The Estonia Piano Factory remains deeply focused — focused on building a single line of high-end grand pianos, led by a visionary who is truly a world-class musician and first-rate human being.

As we approach the 2013 NAMM show in Anaheim, I’m not surprised to see that, as of this writing, there are only two European piano manufacturers contracted for space at the show — Estonia and Fazioli. I honestly hope that the other companies remain strong and healthy for the future of our industry as well as out of respect for their illustrious past. But it’s also a time for me to be proud to be an Estonia dealer and to feel fortunate that my visit to their tiny trade show booth in 1997 has turned into one of the best business decisions of my career.

Roland launches a series of white digital pianos!

In leaving no digital rock unturned, Roland just announced the availability of three digital piano models in white — a great compliment to an already complete product line. They’re not just white digital pianos, but they’re white done right. Whenever we’ve seen white digital pianos in the past (and there haven’t been many), there has always been sort of a “Awww, if they had only (fill in the blank)” response. Sometimes it was the that the finish wasn’t quite right or they still used the same black buttons / control panel found in the other finishes…or maybe the bench didn’t match. Roland really got it right on these:

The RP301R white

Roland RP301R White Digital Piano from Chicago Pianos . com

Roland RP301R White Digital Piano from Chicago Pianos . com

It’s really an egg shell, which is much nicer than a stark white, and it’s a satin finish — not the high polished finish that the other models have. It’s a great great, unique look and we would love to see more models in this finish (eh hem, Roland!)

The DP90S white

Roland DP90S White Digital Piano from Chicago Pianos . com

Roland DP90S White Digital Piano from Chicago Pianos . com

This is a high polished egg shell finish like that which you might see on a shiny grand piano. It is musically the same as a HP503 only with the slimline design and the PH3 action (currently found in the top-of-the-line HP507 and LX15).

The LX15 white

Roland LX15 White Digital Piano from Chicago Pianos . com

Roland LX15 White Digital Piano from Chicago Pianos . com

This is also a high polished egg shell finish and it is a limited edition finish.

All three models boast having a customer control panel with buttons specifically made for these models.

Nice job Roland!!

A new Estonia 225 7’4″ piano has arrived…and it’s for sale…sort of.

This just in!  We’re pretty excited around here at Cordogan’s Pianoland because we have a very elusive creature in our store — an unsold Estonia 225 grand piano.  Since its 2011 unveiling at the NAMM International Trade Show, Estonia’s 7’4″ semi-concert grand model has been almost impossible for dealers to obtain without a pre-sold invoice accompanying the order, but Cordogan’s was able to receive a new, unsold Estonia 225 model because the new model is going to be the focus of an upcoming Piano Technicians Guild meeting at our store October 16th.

This means we have a 225 available to audition which is actually purchasable.  This motivated several potential buyers to come in from great distances to play an Estonia 225.  We cannot deliver the piano, however, until after October 16th, so if the future owner of this piano is reading this, we hope you understand!  🙂

The Estonia 225 joins the Estonia 168, Estonia 190 and the Estonia 274 as the fourth model in this revered product line which is widely accepted as rivaling the greatest pianos in the world.

Here is a video of Dr. Indrek Laul, the president of the Estonia Piano Factory, performing on the new Estonia 225:

And here is a video of several different pianists performing on the Estonia 225 at the 2012 NAMM trade show in Anaheim, CA.

New York Times Article on Deep-Sixing Pianos

Here’s an interesting article from the New York Times about how many used pianos are actually hitting the dumpster these days.  No surprise over here. I’d say that a quarter of the used pianos that people are trying to SELL privately unfortunately belong in a dumpster.  I’d like to add two comments to this article:

1) I don’t think the article did a good job indicating that many used pianos ARE worth restoring and that the used piano industry is exponentially bigger than the new piano industry so buying a restored used piano is definitely a viable option for many piano buyers.

2) Stories like this can easily lead one to believe that if used pianos are getting thrown away, then a functioning one might only cost a few hundred dollars.  Unfortunately, that’s not the case.  Pianos are a lot like cars in the sense that cars often times go to the junkyard and get crushed, but it doesn’t mean that a good used car can be purchased for a few hundred dollars.  Heck, even a good used piano bench often fetches $200-300 at flea markets.  Moving a piano usually costs upwards of $300 and tuning is at least $100.  We’re up to $600 and we haven’t even mentioned a piano yet.  Add that to the countless hours of work that most of these pianos need ($75-100/hr. in-home service rates) plus replacement parts to take on new students and may have yourself a money pit.  Don’t get us wrong, we’re in the piano restoration business and love all that hourly labor work — but we also sell new & used pianos and offer sound advice to people who are wrestling with restoring a piano or buying a different one from us.

New York Times Article on Deep-Sixing Old Pianos

New York Times Article on Deep-Sixing Old Pianos

http://www.nytimes.com/2012/07/30/arts/music/for-more-pianos-last-note-is-thud-in-the-dump.html?pagewanted=1&_r=2

So long Bohemia pianos — we will miss you.

The Bohemia Piano company is the latest victim in the piano industry of the challenging global economy.  You can read more about the history of Bohemia pianos here.  This blog however, is to inform you that we recently received word from the factory representative that Bohemia pianos will no longer be produced.  This is quite a blow to an already shrinking, yet important segment of the piano industry — the handmade European piano market.

Most piano manufacturers — Bohemia included — made drastic changes in order to survive the recession, with various levels of success.  Some chose to shed inventory, facilities and/or employees…some chose to source materials or production in China…others gave themselves up to the highest bidder.  Even the prestigious Bosendorfer piano company in Vienna was recently sold to Yamaha in an effort to remain stable and continue their legacy.

Bohemia was sold several years ago to the Bechstein piano company — a move that we dealers were excited about since it stood to improve the quality level of the product even more.  And it did.  However, the economic presses and rising costs continued to demand price increases that have recently proven to be much more than the market can bear.

An ultimatum of sorts was recently imposed whereby if the US distributor wasn’t willing to purchase a very large order of Bohemia pianos at the new, higher prices, the brand would unfortunately cease to exist.  This isn’t intended to sound like a strong-arm tactic by Bohemia’s parent company, Bechstein.  It’s simply the cruel reality of what it takes to continue to operate in these times.  Without such a commitment from their US distributor, Bechstein is better off focusing on their remaining lines of pianos.  It is also understandable that Bohemia’s US distributor would be reluctant to place such a large order in these continued uncertain times — especially at new, unprecedented prices — when Bohemia pianos had already been met with much resistance in the market at the older prices.

As a Bohemia piano dealer for over a decade, we have seen the tremendous value of the Bohemia piano line and the important gap that they filled for us.  After the exit of Kemble piano company from London in 2009, Bohemia represented the last bastion of mid-priced, handmade pianos from Europe.  They, like Kemble, were the only companies to offer an interesting, higher-performance alternative to Yamaha and Kawai, without doubling or tripling the price to get to Steinway or other, even more desirable premium European brands.  They also offered unique styling, finishes and veneer options that  Yamaha and Kawai don’t offer.

So in the wake of Bohemia pianos, there will indeed be a void in the industry that won’t likely be filled for quite some time.  At the time of this writing, the only Bohemia pianos that have not completely sold out are the studio models 114 & 121 and the 160 grand model. We have sold out of all other models and they are no longer available.  Bechstein will honor full warranties on any remaining pianos.  If you have any interest in a Bohemia piano, please contact us soon because when they are gone, they.  are.  gone.  😦

Pictured here is a Bohemia 121 Rhapsody in polished walnut that is currently available for sale.  One of the unique features of Bohemia that will be most missed is their careful selection of veneers for their cabinets.  This piano’s walnut veneers have beautiful grain that Bohemia meticulously bookmatched on the sides and on the front panels.  Such detail is rarely taken into consideration in today’s pianos.

An amazing “Starving Artist” grand piano just arrived

It has been years since we have been this excited about a used grand piano in our inventory. We have recently consigned an obscure British-made Danemann 6’4″ grand piano that is a musical gem.

How it got to the U.S. is still unclear, as the Danemann piano brand was never widely distributed in the U.S., and certainly not when this one was made. What we do know is that it’s an amazingly high quality piano that has an incredibly dynamic, singing tone with an action that allows an artist to bring out the unlimited palate of tone colors it is capable of producing. The piano also has a perfect set of original, single-piece ivory keys — an extremely rare, valuable feature. It’s almost impossible that this little known brand created such an incredible instrument without gaining greater notoriety.

So why is it part of Cordogan’s “Starving Artist Series?” Because the ebony finish didn’t weather 50 years as well as the piano, so we’re going to leave the finish as is in order to keep the price down and give it every opportunity to find its way into the hands of another artist.

If you’re looking for a great quality artist grand on a budget, you need to experience this piano. You will think you’re playing a Bosendorfer.

Danemann 6'4

Video coming soon…if it doesn’t sell first.