What do audio shops need to do to survive ?

I think that "brick and mortar" audio shops could still survive. But there has to be a new way of thinking. The idea that they can make $5k profit on a set of speakers is gone forever. Maybe the specialist that only sells $50k speakers that cannot be gotten anywhere else may still be able to whack the wealthy customer for 50% of the selling price in dealer profit, but not with the middle class customers. Price conscious people in an economic crunch will seek out the lowest cost possible for their purchases.

What the dealers must do, is to realize that things are never going to go back to the "glory days" of old, when they could make huge profits on a single set of speakers, because they were the only dealer in town, with a protected territory, and you had to pay the price. Now the "audio sodomy" is going the other way, and they don't like it much. Hard for them to make the Porsche payment now.

For peaceful coexistence, there must be a meeting of the minds between the dealer and the customer. The customer is not going to pay huge 40% markups to a guy who goes into the back room and hands him a box. The customer thinks this is piracy. The dealer is not going to give any time of day to the customer who is going to offer him 10% over cost for the item, or go out and buy from the internet. Both sides think the other side is trying to screw them. This is not conducive to good business.

I think that there will be 2 kinds of dealers that will survive. The first is a dealer that cuts prices to the bare bone, still gives some helpful service, warrantees the product, and gives local peace of mind to the customer. This is hard and not highly profitable, and will result in a basically "blue collar" dealer who just eeks out a living. This kind of dealer will probably make most of his money in HT installation work. The other kind is the very high end, ultra specialist dealer that only has customers with six-figure budgets. He will do consulting, custom work, interfacing with architects, and the final customer training. He will make alot of money on everything, and will likely have several Porsches and a Mercedes.

It is because the economy is polarized and is not going to change. It is because the wealthy have alot of money, but time may be limited. They will pay to have the chores taken off their hands by an expert. The rest of us are in a cash crunch. The more savvy of us will buy off the internet, because we know what we're doing, and dealers offer little value to us. The less-savvy will need a little "hand holding" by a dealer to help them feel comfortable.

The idea that a middle class guy will walk into an audio store and spend $20k on a pair of speakers that cost the dealer $10k is gone forever. Only the rich will do that now. And they didn't get rich by being stupid either. If they can save money, they will.

Everybody else will buy from the cheapest reliable source possible.

Now,if you order something on line from Van Alstine or Odyessey(to name two reliable suppliers),it takes a while for it to be built and delivered. At some point,manufacturing technologies will advance to the point that the interval between order and UPS delivery will be less than a week. When "just in time" delivery of finished goods is possible,retailing possibilites will exist that do not exist now.
I would not attempt to take business from Circuit City or Best Buy;they have too much marketing muscle. What I'd consider would be renting kiosk space at malls during the winter quarter,stocking one of every item I offer,and taking orders for pre Christmas delivery.

what is wrong with 10%

Skyebox, nothing is wrong with 10% over cost, except that many brick and mortar stores cannot keep the doors open on 10% profit over cost. They have all kinds of expenses beyond what they put in their pocket. I doubt that many could exist on that level.

Normally, brick and mortar specialty stores survive by providing services that can't be matched on the Internet or by mail order suppliers. Their overhead is higher, so their prices need to be a bit higher for them to stay in business.

What they normally offer the customer is a venue where they can see and listen to different models within their budget; and a place to return faulty or defective equipment and get it repaired or replaced without the hassles of shipping.

But in today's market I think they need a new gimmick or enticement to help them stay afloat. For example, maybe they could institute a "trade-up" policy, where they will give you something like 80 percent of your purchase price up to 2 years from the date of the purchase toward the purchase of a similar component, provided that component is at least 1.5x the price of the original component.

That is just an off-the-cuff example of a new service that could be enticing to prospective buyers and I'm sure there could be other things that could be done to attract business, such as holding manufacturer seminars and volunteering to host local audio club meetings.

The bottom line is that brick and mortar establishments can't just sit in their shops and wait for business to come to them. They have to adopt a proactive attitude and use their creativity to go out and grab the attention of prospective buyers.

Also, it is beyond my comprehension how certain retailers can afford to be snobbish toward any customer in this type of economic climate. I would think they would need to be as cordial and helpful as humanly possible...