Monday, March 11, 2013

Trolling for Hate: Hinderers and the Secondary Market

Thus far the opinion pieces I have written have been well received, but not controversial.  Well, time to change that.  I have my NOMEX suit on.

First, take a peek at this video from SoloKnifeReviews:



I think that the market for Hinderer knives is completely out of whack.  Supply is artificially limited in a way that harms the people Hinderer tries to benefit.  You see, Hinderer knives are available directly from Hinderer only to military, law enforcement, and EMT folks.  A few occasionally leak out on to the market when Hinderer sells directly to a dealer and a few more leak out via B/S/T boards on forums and at knife shows, but the primary source is the stream of knives originally sold directly to service folks.

Hinderer's knives are amazing.  Having handled, though never owned, a few, each is a real gem, both in terms of design and fit and finish.  I am also deeply grateful to Hinderer for giving special preference to service folks.  They are both the people that need and use the knife as well as people whose pay is most radically incommensurate with the value and service they provide.  It is a very nice way to say thank you and give these folks some preferential treatment.

But like all things economic, the law of unintended consequences has powerful and sometimes exploitative consequences.  From childhood, American kids learn about supply and demand.  It is part of our cultural heritage and it is a good lesson to learn.  The demand for Hinderer knives readily outstrips demand.  They are, after all, among the finest hard use work folders ever made.  But the prices are so high that they regularly sell on the open market for three or four times their suggested retail price.  The only place I have seen them sold for MSRP is J.S. Burly's (which happens to be the store for EDCF).  Hinderer gave Jon a few XM-18s and Jon, being the paragon of honesty, sold them for MSRP--around $387.  Look on other sites and XM-18s rarely sell for anything less than $800, with $1000 being around the average.   

But Jon is a rare individual.  No other dealer, to my knowledge, has sold their direct-from-Hinderer knives at MSRP.  Check other places and you see all of the Hinderers, regardless of source selling for four figures.  This isn't a crime.  This is how the market works.  Low supply, high demand = high retail prices.  My issue is that many of these dealers, because of the high prices Hinderers command, take advantage of the some folks Hinderer's policy seeks to benefit. 

Suppose I am a police officer--I am not, but just suppose.  Suppose I am not into knives, but I ask a buddy who is.  He tells me that I should get a Hinderer.  I see the price and I balk.  Then he points to the Sig Sauer on my hip and tells me that you get what you pay for.  Seeing the wisdom in that and trusting my buddy I decide I want a nice beefy folder and I sign up for and buy a Hinderer directly from the man himself.  I pay around $387 and he ships me my XM-18. 

All is well so far, Hinderer's policy is working. 

Now suppose, for whatever reason, I want to sell my XM-18 (yes, I know heresy, but some people don't care quite as much about their knives as we do).  Again, I am not a gear geek or a knife guy, so I figure, here today gone tomorrow.  I decide to sell it to a dealer as they can give me cash the quickest (absent a forum exchange, but again this is not someone as obsessed with knives as we are).  The dealer, being a dealer, wants to make a profit so they offer the law enforcement guy $600.  More than what he paid, almost double in fact, but about half of what they will sell it for.  You see the problem, right?

Admittedly the guy that will lay out even $387 for a Hinderer or the guy that knows about Hinderers is unlikely to be completely disinterested in knives, but I imagine that there are quite a few service folks that match up with my hypothetical person.  It is hard to imagine, but not everyone is as obsessed with knives and gear as we are, even folks that have a better excuse to own them than those of us that dwell in the office and cut open packages most of the time.  

The secondary market's insane prices are not being passed on to the people Hinderer's policies are designed to support.  It is not the case that a person that paid $387 for a knife that will now sell for $1200 is getting proportionally more.  The increasing prices on Hinderers, by in large, are simply more profit for the dealer.  There are, of course, dealers selling to dealers, and in these cases, who cares.  But for the folks that Hinderer wants to help, they will likely see very little increase in the price a dealer pays for their knife.  And why would the market ever have that happen?  If the unsuspecting LEO/Military/EMT is getting twice what they paid for the knife, will they be aware that the dealer is getting even more profit?  Probably not.

The person that is being taken advantage of, the guy or gal that can get a Hinderer but doesn't really care all that much about knives, is not the kind of person that will seek out the highest bidder on ebay.  At MSRP, the Hinderer looks like a Strider or a CRK to these folks, at least price-wise.  And so if they get a surprise bump when they go to sell the knife, they are probably all the happier for it.   

Absent those knives sold directly by Hinderer to honest dealers like Jon, or those that leak out from knife shows, all of the XM-18s and XM-24s on the market got there because of dealers lowballing folks that serve and happen to need a little extra cash OR by getting them from Hinderer and jacking up the prices.  The dealers aren't doing anything immoral.  It is just the way the system works--they need to turn a profit.  But Hinderer's limitations on who he sells to, as many things in economics are want to do, creates an unintended consequence that HARMS the exact people he is trying to give (deservedly) special access to.

As a side note I can say that having dealt with BladeHQ's custom guys, that the Hinderer price gouging doesn't happen there.  If you see one on their site for a load of money, they probably paid a slightly smaller load of money for it.  My personal experience tells they operate on smaller margins than most dealers.  I am not saying this because they are a sponsor, but because it is true.  Other dealers might do the same, I just don't have personal experience with them.  

If I knew I was buying a knife from a law enforcement person, a military person or an EMT person I would have no problem whatsoever paying the going market price of $1000 for them.  None whatsoever.  I think of it like a small thank you for people that do not get thanks enough for what they do and the sacrifices they and their families make.  I refuse, however, to pay market rate for these knives from an untrusted dealer.  If the dealer is selling them like Jon did, again no problem, but those folks out there that are asking for $1200 for an XM-18 they bought off a guy returning from Iraq looking for money for a wedding ring make me ill.

Then there are the dealers that get the knives from Hinderer himself and STILL mark it up.  Those folks are robber barons too, but somehow they are just price gougers and not people taking advantage of others.  I have less hostility towards them, but I am still not giving them a dime of my money because it only perpetuates the cycle of taking advantage of those that serve.

This is pretty basic economics and logic here.  Supply and demand.  Mr. Hinderer has indicated that he is trying to ramp up production, so I would imagine that a lot of this will fix itself.  SoloKnifeReview's comments about the "bottom falling out of the market" seem prescient.  Hinderers are great knives, but, as SoloKnifeReview points out, they aren't especially rare.  If you go to an even smallish knife show you'll likely see a few. 

Additionally, the economic pressures to change the policy are HUGE.  Rick Hinderer himself is leaving a lot of money on the table and the policy that was designed to benefit service folks is probably, in many cases, leaving them in the same position they were in before prices spiked, while dealers reap the reward of the insane secondary market.  Why not ramp up production, sell the blades to service folks for $387 and directly to everyone else for $500 and roll in the cash?  This seems like an upgrade over the current system where unscrupulous dealers treat service folks like strip mines. 

For now though, be wary of the $1000 XM-18.  It might have come from someone that served this country, that was in a bit of a jam, and had to sell low and fast to a knife dealer.  If it is Jon or Blade HQ or someone you trust to pay a fair value for the blade, that's one thing.  If it is some price gouger out there, taking advantage of Rick's service only policy, then beware.  

17 comments:

  1. There is one variant to solve this problem — buy high quality replica :)

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    1. Are you willing to trust your life to a replica? Even if it is well made?

      Even high quality replicas don't have the same level of fit and finish as the real deal ( I am assuming the replicas you're referring to are the KJ variants?). Why are they making replicas if their quality is so high? Why don't they just make their own designs?

      Also, how do you know the makers are using the materials that they state they are using. Simply marking a blade with S35VN doesn't magically make the knife S35VN. Also, how do you know the HT is good? There are so many risks when buying something of the sort.

      Additionally, the stealing of intellectual property has been an age old battle that any respectable person would not do.

      This is not a way to solve a problem.

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    2. I told about Kevin John's works so it's quality higher than regular (not custom) Hinderer knives. And KJ have their their own designs but it are not known to the public.

      I believe that this "stealing" does not make much harm to Rick. It is rather a recognition of his work and perhaps a reason to think about pricing.

      Feeding of insolent traders also is not a solution.

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  2. Sorry, but I don't see the harm. I see a person who doesn't take the time to research the market and decides to sell the knife for a quick profit. A profit that he is obviously satisfied with or they wouldn't make the deal. No coercion, no theft, no deceit, no harm, no foul.

    I don't know the Hinderer folks, but I do know several craftsmen with "small" businesses and many of them have no interest in scaling up their businesses. While "artificially" limited supply may increase the desirability of their product and provide some free marketing, the primary reason for not scaling up a business of this sort is often that the owner/craftsman doesn't want to deal with the headaches involved: Finding other craftsmen and ensuring the their work is up to standards, etc. Is scaling up production possible? Yes, but for many, the extra money isn't worth the headache.

    Maybe the "problem" could be solved with a little consumer education. Send a note with the knife with some advice for selling the Hinderer on the secondary market? Offer a buy-back program to help get the knife into the hands of another first responder?

    While I love the idea of Hinderer making more knives for the rest of us, I don't see this "harm" as the right excuse to pressure this move. ;-)

    "...unscrupulous dealers treat service folks like strip mines." I have never seen any strip mines that were left with 25% more value than they originally started with, nor do I believe that these sellers have been deprived of choice.

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    1. Rob, funny side note. EPA requires site restoration on strip mines, so in that sense they are "better off". Aside from the analogy, the point is that the increase in prices doesn't help the people the service only policy is designed to benefit.

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  3. As an LEO who bought a Hinderer direct I disagree. We know what these knives sell for. If you know enough to want one, you know you are getting a screaming deal. I wouldn't sell my Hinderer unless I lost my job or was struck with a severe medical condition, because not only is it a great knife, but I think it would be wrong to do so. If I had too, though, I certainly wouldn't need to sell to a dealer for fast cash. I think it would take under fifteen minutes to double my money on USN. I don't because Rick sells these at dealer rates to us for us to use, not flip...

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    1. I am so glad this is the case, I am just concerned that not everyone is as up on the prices as we are. Thanks for your service and insight.

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  4. I'm a firefighter who bought an XM-18 directly and I'm really thankful for being able to direct order. Holding one in my hand I can understand why they are so sought after, although I wouldn't pay more or than the direct order price.
    As far as I know production is already at max, while keeping the quality standards they want. Rick sharpens all of his knives himself, with higher production numbers that would not be possible.
    I think anybody, who invests $385 in a knife has some sort of knowledge on knives. Nobody will pay almost $400 for a knife if he isn't clear with the value he gets. Why would he, if in his mind a $50 knife will suit his needs perfectly. Also, Hinderer knives are very rarely readily available, I waited over 6 months until the 3.5" model I wanted got into production again. If somebody just needs a knife, he won't wait several month for it, while others are readily available.

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    1. How long was the wait, out of curiosity? And thanks for fighting the flames.

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    2. I first contacted them in April last year. At the current time they only had the 3" models available, with the 4" scheduled for the summer and the 3.5" late summer. Eventually they had do move back the production dates so the 3.5" only became available this January, so actually it was a lot longer wait than the 6 months I wrote originally.

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  5. As a LEO this is the first that I heard that Hinderer sells direct to First Responders (Military, LEO, Fire, EMT, etc) at this price. This surprised the heck out of me as I am a regular member on BF and I know a lot about knives. I suppose I never looked into a Hinderer as the price that these sell online are ridiculous and I would never be able to afford one. Heck, I cannot even afford a knife over $120. I am surprised at the mark up of these knives. Maybe they are worth the money that individuals pay for them on the secondary market, maybe they are not. I will never own a Hinderer but I hope that service members who do are not getting scammed if it ever came a time that they had to sell because of any economic distress. I agree with the tone of this article and it is very insightful and puts the price in perspective on who you are actually benefitting when buying one.

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  6. I'm also a firefighter and was lucky enough to get two Hinderers(3"&3.5") through the Front Line program. I thought they were both good knives, but decided I liked CRKs more and sold both as result. I sold them for exactly what I paid, but had to chuckle a bit as I even got "Green Rep Points" for my pricing. I wasn't doing anything special, just holding up my end of the deal for getting a chance to own them at a fair price. Based on my experience, they aren't worth the inflated prices, but at the end of the day, they are worth what people are willing to pay. I hadn't really thought about stores gouging buyers, but certainly see it now and will vote accordingly with my $$$ when buying knives in the future.

    I guess being that it's a hobby, you gotta pay to play. The Front Line marketing is getting pretty old though. Maybe I should start marketing those folding utility knives, as that's what you're more likely to see than 400-800$ folders on the fire ground.

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  7. What really confuses me is how Chris Reeve knives sell for the same price at authorized dealers as they do directly from CRK. Im guessing some sort of agreement is in place with the dealers to keep a static price?

    What possible reasoning would the folks at Hinderer Knives have for not doing something similar? Obviously there isnt much that can be done for online classifieds or marketplaces...

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  8. Has anyone else noticed the falling prices of production XM18's specifically the latest Gen 4 S35VN steel versions? It seems as though all the BF Fan Boys already have theirs and the rest of the casual knife buyers arent willing to fork up $600/$700 or even $800 for these knives. Lately most have been sitting on the boards for a while when priced too high and the ones that are selling are selling in the $500 range. Also I think Rick is getting more knives out, I know a dealer who has recieved plenty of current XM knives and sells at a very fair price. So I would say that the author of this blog had some good insite on the bottom falling out of the Hinderer market. Seriously, there is no good reason a Hinderer should sell for any more then a Sebenza or a SMF, both of which sell at boutique deales for $475. Hinderers steel, workanship and design are no better, atually might even be inferior. I've owned a half dozen brand new XM's and none have been consistant. Some were centered and flipped smoothly but others were off centered and would only flip with wrist action. Even Hinderers web site states flipping action or late lock up are not reasons for return, so they know their product isn't consistant. Either way, Ricks policy doesn't work as we all know there are those unscrupulous buyers who have a friend who can order their knife for $385. These days, who doesn't know and EMT, Fireman, Cop or Soldier. Besides, flippers are just the latest fad in the knife world, once it subsides, the XM will lose flavor. Spend your money how you want, just be advised that paying anything more then $400 to $500 for a "production" XM is a risk.

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  9. Rick runs his business how he wants(obviously), but i believe it would be better suited if he also did a better job looking after his larger possible customer base(the knife community).

    He has recently been doing lottos and just released to the public on his site which is refreshing. I don't think his company will survive in the high quality first line responders only market, but look how well the knife community has treated the likes of Ernie Emerson. And at the release to the public hinderer sold 50 knives in under two minutes, the support is there...RETURN THE FAVOR!

    I don't really know that pretty much selecting customers is a good thing, it has caused hard feelings for some in the market. I mean everyone chooses a job based on their needs/skills/abilities/wants and selecting these professions as "special customers" isn't a great idea in my mind.

    America was built on capitalism which utilizes the free market, and these tactics just skew the crap out of it.

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    1. Things are getting better. You can find XM-18s in stock at a few places, albeit for higher prices than the direct buyers get. I agree with you that this is not a wise business decision, but there is the possibility that the KAI deal is so lucrative that this small source of funds doesn't matter.

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  10. XM's now under $400 and sitting!

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