Car Audio In Double-Digit Slump

By Amy Gilroy -- TWICE, 7/7/2003

Many retailers and suppliers acknowledge 2003 as one of the most difficult years in the history of autosound.

While growth niches such as mobile video and satellite radio continue to perform well — up 9 percent and 63 percent respectively in year-to-date dollar sales, according to The NPD Group, Port Washington, N.Y. — traditional car stereo sales are down approximately 13 percent in units and 18 percent in dollars through May.

Suppliers say they are uncertain why a category that has been nearly impervious to recession has suddenly fallen into double-digit decline.

"We're not down as far as the industry is reporting, but it's definitely a tough period," Kenwood sales and marketing VP Bob Law said. "Nobody seems to know why. Part of it is the economy, but even inexpensive products under $200 are not selling well, and I don't think that's completely economy-related."

Pioneer said its sales are nearly flat. "We are also finding it to be a very tough year," said marketing VP Mike Townsen. He had no explanation except to note, "What we're hearing from every retailer is there's just not enough floor traffic. They have some good days, but they have a lot of bad days."

Alpine said its sales are down by low single digits.

Putting it bluntly, Joe Cavanaugh, owner of Stereo West, Omaha, Neb., said, "In my 30 years in business, I've never been through a period like right now. There are some brands that are just having a horrible time.

"In the month of April, the entire category was down 21.2 percent, " he continued, citing NPD.

Best Buy acknowledged that the industry is down by double digits, but said the chain is tracking ahead of the market. "I haven't seen double digits [in losses]. For Best Buy the biggest upside is that our average selling price (ASP) is not falling as hard as the rest of the industry. The ASP fell $12 year over year January through April where we only fell 50 cents."

Continued sluggish sales could create some deep discounting throughout the industry for the Christmas holiday selling season, predicted Alpine VP/marketing Stephen Witt. "There will probably be very aggressive pricing in the marketplace as some inventories are building." The good news is that sales will likely match or exceed those of last Christmas due to the discounts, he said.

Reaction from dealers and suppliers to the downturn are varied. Some, but not all, independents claim that suppliers are tightening up return and credit policies. Mark Miller, owner of Westminster Speed & Sound, Westminster, Md., said he's seen it take up to 90 days to get a return authorization for a stock adjustment on a product.

Tim Lavoie, president of Tim's Car Tunes, Indian Orchard, Mass., said, "Our financial relationship with virtually every supplier or distributor has changed to some degree over the past eight months." For example, he noted, "You get calls now at 28 days." New vendors are hesitant to give credit, he said. "We found ourselves doing C.O.D. business for the first time in 10 years."

Suppliers continue to push retailers to increase business despite the slump, urging them to drop competitive lines, said retailers. "Suppliers come to us and still expect us to be giving them increases regardless of what the industry is doing. Our discounts and rebates are all tied to growth and here we are in an environment where the industry is down strong double digits," complained Cavanaugh, noting that he is already cutting lines.

Car Toys, Seattle, said it readjusted lines in January. Music Systems, El Paso, Texas, said it is also dropping brands and Autosound of Lexington, in Lexington, Ky., said it plans to do the same.

On the other hand, Best Buy and Ultimate Electronics said they have not cut lines.

Harvey Wright, CEO of Autosound of Lexington, added, "We're also trying to thin out the selection. There's no reason to have four amps at $199 anymore."

Cavanaugh said he might eliminate his warehouse and/or decrease the size of his stores. "Our stores are larger than the national average," he said. "We're questioning whether we need that square footage. We have a central warehouse and we're wondering: Do we need one?" He is also looking at redoing store displays because they are based on a very broad product assortment.

Some retailers said that off brands, or specialty brands that cater to 12-volt specialists often outperform the industry in a slump because they give better terms and offer higher margins.

Supplier Memphis Car Audio said its sales are up by double digits this year, as they have been for several years.

Rick Mathies, executive director of the Mobile Enhancement Retailers Assn., said of the current sales decline, "It looks bad right now, but I think we're poised for a turnaround." He noted that many mom-and-pop stores are actually faring better than the mid-sized chains.

"It's possible that some of the chains have muddied their identities unintentionally," he said. "The lines between the big-box and specialty retailers may not be as clear and that could be detrimental to [the mid-sized chains]. But that doesn't mean they can't react."

Mathies also noted that both Circuit City and Best Buy no longer use commissioned salespeople. "That's another big opportunity," he added.

Mobile Electronics Sales, Year-To-Date January-May, 2003

	Unit Sales	Dollar Sales
Total Product	-12.7%	-17.7%
Amplifier/Equalizer	-18.4%	-24.8%
Add-on Changer Controller	6.2%	17.7%
Cassette Player	-56.8%	-53.7%
In-dash CD Player	-9.6%	-16.7%
CD Changer	-41.8%	-42.9%
Speaker	-14.3%	-22.5%
Mobile Multimedia	25.0%	9.4%
Satellite-Tuner Boxes	198.7%	63.0%
Source: The NPD Group, Port Washington, N.Y. ©TWICE 2003