12-Volters Diversify Into New Markets

By Amy Gilroy -- TWICE, 9/25/2006

New York — Car stereo retailers have always diversified into related markets such as home audio or home theater, but more leading retailers appear to be diversifying than ever before, in part in reaction to slower autosound sales, they said.

A look at past and present officers and board members of the Mobile Enhancement Retailers Association (MERA) shows that many have taken their retail operations into new markets recently.

MERA executive director Rick Mathies said, with regard to branching into custom home theater installation, “It's been going on for some time. You might be hearing about it more now because there may be more main line retailers trying it. I hear it a lot.”

Recently The Specialists, Tucson, Ariz., launched a new custom home theater operation; Empress Audio, Pascagoula, Miss. purchased two marine stores, and Autosound of Lexington, Lexington, Ky., and Westminster Speed & Sound, Westminster, Md., began beefing up expediter sales.

Harvey Wright, CEO of Autosound of Lexington and past president of MERA, noted, “There's definitely diversification going on … because the overall business cycle is definitely dropping.” Don Fluery, current MERA board member and owner of Creative Car Audio in Joplin, Mo., attributes the trend in diversification to slower sales of car CD players.

Some say their new ventures compensate, or will soon compensate, for the slowdown in autosound; others say there is still a shortfall. Aftermarket autosound sales will decline from $2.34 billion in 2004 to an expected $2.06 billion this year, according to the Consumer Electronics Association. (CEA).

The Specialists recently entered a partnership with a local electrical contractor to launch a new custom home theater installation company. The Specialists offered custom home installation on a small scale in the past, but is now aggressively pursuing the segment and building home theater showrooms in its five 12-volt locations. President Charlie Weisel estimates that home theater is now 20 percent of his overall sales, expected to grow to 50 percent in two years. “We have bids backed up waiting for us to get the jobs done. That's refreshing with what's going on in car.”

Weisel added, “We still believe in [car audio] but it's changed and so have we. We're not seeing that much business from the younger demographic now. So navigation has become huge with the soccer moms and older demographics.”

Empress Audio recently purchased two marine dealers to branch into the boating market. Owner Floyd Seal said he expects to combine the 12-volt and marine showrooms.

“I've been looking for a while for something else to pull in with 12-volt. I feel car audio is a good business, but I think long term, you'll need some other things” to supplement it, said Seal. The company had been offering home theater installation on a small scale before hurricane Katrina struck the area last year, but Seal decided to pursue the marine opportunity as two dealerships became available. Empress purchased one boating store in August and the other Sept. 1.

Seal said home theater installation can be tricky for 12-volters. “It can be done and you can make some money with it, but if you are going to do it, you have to treat it like a separate business. There's no cookie-cutter deal,” he said.

Similarly, Harvey Wright noted, “I've heard of more [dealers] who tried it and went back to car than people who went into home theater and stayed in it.”

“It's a separate business, it requires separate staffing and it ties up your money for a long time in new home builds,” he said, adding, “You have to learn to plan that out.”

Mark Miller, owner of Westminster Speed & Sound said his company had branched into home theater from 1995 to 1999 but then exited that market because car audio sales heated up in mobile video, navigation and remote starters at the time. Now Miller says the company is emphasizing sales to car dealers of GPS, remote starters, back up sensors and Bluetooth.

Ultimate Edge, Oswego, N.Y., branched into car and truck accessories such as running boards, tonneau covers and bug shields four years ago and says the category now accounts for roughly 20 percent of its business. President Barry Vogel noted, “It doesn't make up for the declines in car audio,” although he remains bullish that the car audio market will rebound.

“The industry is changing, but it is going to recover to a point of profitability for retailers who understand where it's going. The retailers stuck in neutral who are doing what they've always done are where the problems are,” said Vogel. For those retailers looking toward a future of iPod and MP3 integration, “all we have to do is be trained and ready. It will take some time, but we'll be back.”

Wright, of Autosound of Lexington, is looking into hiring an outside sales staff to support an expanded expediter business, and is in the process of setting up an extra bay for window tinting. The company is also looking into adding dent removal and wheel and glass repair. Wright said custom home theater was not suitable to his location because of its small showroom.