P>Autosound Web Sales Seen At $50 Million In 2000
By Amy Gilroy -- TWICE, 9/4/2000
Sales of car audio on the Internet are beginning to cut into brick & mortar sales and are causing a dilemma for both traditional retailers and suppliers.
Estimated at $50 million by two leading car audio Internet retailers, car audio e-commerce will amount to 1 percent of autosound's $5.5 billion in retail sales (including accessories) this year. But as e-commerce sales are on the upswing, suppliers and retailers continue to examine potential strategies to beat or join the competition.
At Crutchfield, for example, 30 percent of its orders are now transacted online, according to merchandising senior VP Dan Hodgson, who noted, "That represents more than a 100 percent increase over last year in our Internet sales. I wouldn't be surprised if it reaches 40 percent of our business next year."
Audio Warehouse Express (www. audiowarehouseexpress) or AWE, said its sales are growing by double digits every year, while SoundDomain (www.sounddomain.com) said its sales are gaining by a steady 15 percent a month.
Suppliers see the Internet as a double-edged sword that can help reach new markets, or could hurt brand image and dilute pricing. A do-it-yourself installation job improperly done could result in poor product performance and cause customer dissatisfaction, they say. But AWE claims its return rate is negligible.
"Believe it or not, installing basic car stereo is not complicated," said AWE general manager Gary Wilkinson. "In the majority of cases, the consumer can install it themselves with kits and wiring harnesses which we provide."
Wilkinson credits his low returns to scrupulous customer service. "We have operators who answer the phone and are able to answer questions about what fits what, what you should get in combination to build a system. And we offer a 30-day satisfaction guarantee, so we are careful that we are selling the customer something he perceives that he needs."
But not all e-commerce sites stress customer service, and some are said to be the equivalent of "flea markets" operating on 5-10 percent margins. Added Wilkinson, "We've noticed, over the past year, that there are more and more small sites on the Internet working on very small profit margins. It's rather easy to put together a site, and a lot of entrepreneurs have tried it, and they are not able to provide reliable service -- and it has made consumers somewhat leery of purchasing over the Internet."
Another key issue is price. The concern among suppliers is that the "flea market" mentality of the Web will lead to rampant price erosion and retailers will no longer want to support their brand.
Image Dynamics, Torrance, Calif., which is in the process of choosing a single Internet e-tailer for its products, said it will maintain strict MAP pricing.
"So if someone's buying on the Web at the same price as brick & mortar, then it's really cheaper at the brick & mortar because they can pick it up that day, and they can have it demonstrated," said Image Dynamics president Eric Stevens. "And even though most sites have 30-day money-back return policies, it still costs money to ship it back, where for $3 in gas, he can listen to the speakers at the store."
Along with other suppliers, Stevens recognizes the Web's potential to expand sales, and said, "There are certain people who can't buy your products because there is no retailer close enough, or because of some bad blood they won't do business with their local retailer."
Similarly, Alpine marketing VP Stephen Witt said, "There's no question it gives you market coverage that you may not have, and it makes the product more accessible to a broader base of consumers. However, with mobile products, installation becomes a factor in customer satisfaction."
Some retailers, including Myer Emco, Gaithersburg, Va., have seen little impact on sales, while others are concerned.
Isaac Goren, owner of Sounds Good, Woodland Hills, Calif., reflected, "I would say e-commerce does take a lot of business from us. Consumers, somehow, are finding out the actual cost of products through the Internet, so they walk in the store and it makes it very hard to be profitable."
In addition, Goren claimed, "you can get into ebay and buy every product you want. So people are coming into the store and playing with the soundroom, and they go onto the Internet, plug in a model number and purchase it. Then they walk back into the store with a product that we recommended in their hand to have it installed. We're seeing it more and more, and when we see it on specialty manufacturers like MB Quart and McIntosh, it starts to hurt."
SoundDomain, a leading car audio e-commerce site, sees the reverse trend occurring. "Our experience is that just as often, customers browse around for information on a website because they can get information that they can't get in the store and at the end of the day they go to a retailer who they have a relationship with," said founder and president Alex Algard.
Another gripe is supplier distribution. "You can log onto Clarion's website and on the front page there's a Crutchfield logo and you can buy all the Clarion products through the Internet," said Sounds Good's Goren. "So last year, I went to Clarion to ask if I could sell their product on the Web and they said, 'You can't.' So what's that?"
Other dealers are creating their own Internet niche. For example, Boomer McCloud's site at www.boomerbay.com offers used products and then refers the buyer to the participating retailer with the used product. So it is the retailers, rather than BoomerBay, who fulfill orders and take payment.
Said Boomer McCloud VP Bob Zinno, "We didn't want to compete in the dot-com world selling new products, which has been a wrinkle for the manufacturers, they are still wrestling with approvals to sell new products. And we wanted to drive business back to the store and not be a mail-order house. So when people are interested, the request goes to the store with the piece of equipment and the buyer contacts the store directly."
The new site, which had about 900,000 hits in August, has a pool of 25 Boomer McCloud outlets participating, but other chains and independent retailers are now signing up, said Zinno. He expects 50 to 75 stores to join boomerbay by the end of the year.
Some suppliers are making concessions to the Web by authorizing certain e-tailers, while others are staunchly against diluting their pricing, service or distribution.
Explained Gary Kovner, president of Calabasas, Calif.-based Kove Audio, "These kids get on the Internet and sell product for $10 above cost, so it hurts the brand and dealer. We have a no-tolerance policy: If we catch anyone, they are done. I believe the Internet is great for selling a book or a CD but not something that requires installation. I have cut off dealers for catching them on the 'net."
MB Quart, Walpole, Mass., said the Web is particularly threatening to limited-distribution brands. "Sony is a big name that is extremely important to the retailer, but when you get into someone like us, our business model is based on returning the loyalty that the dealers show us," said MB Quart president Keith Lehmann. "If we went on the Web and diluted the product, it would be a violation of trust."
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