PARA Braces For Challenging Economy

MIAMI BEACH, FLA.— Audio/video specialists who restructured their businesses, improved efficiency and updated their showrooms when the economy boomed are in a better position to profit during today's weak economy, but many dealers still have a lot of work to do.

That's one of the messages that retailers and custom installers heard during The Professional AudioVideo Retailers Association's (PARA) 22nd annual conference" the first in years in which members were coping with a marked slowdown in A/V retail-sales growth and mixed revenue performances in the custom-installation market.

During the event, retailers and suppliers cited rapid falloffs in over-the-counter sales growth during the first two weeks in April. Many attendees also said custom revenues have held up better than retail so far this year, mainly because installers were working on contracts written four to six months ago. (See story on page 94.)

Underscoring the new economic realities, one manufacturer said it recently lent assistance to two dealers who suffered cash-flow problems but lacked sufficient credit lines to tide them over.

Despite the economy's uncertain outlook, PARA executive director Debra Smith reassured attendees that "there has never been a time of greater opportunity for our particular sector... because our category is hot. We have the things people want."

Consumers, she noted, "don't feel the need to replace their laptops every six months."

"If we do everything right" touch and excite our customers ... we have more opportunities in the next couple of years than we have ever had," she said.

To do everything right, however, many dealers need to improve their performance, in part by becoming more goal-oriented and efficient, business consultants said during presentations.

On average, said consultant Robert Macfarlane, surveyed PARA members do almost 60 percent of their business in custom, yet two-thirds "say you don't have a sales or profit goal for the custom department" or "a focus on what you want to accomplish."

Anxious consumers and a falling stock market "don't mean your business has to be down, "he continued. Dealers need a vision, plus the passion and determination to implement it, he said. "For a lot of you," Macfarlane warned, "your inner vision is not clear."

That's not true for all members, however. Seattle's Definitive Audio, for example, developed an organizational goal "to maintain its teams without losing money even if business is down 25 percent," Macfarlane said.

In his presentation, Definitive partner Craig Abplanalp said his company recognized four years ago that it was "losing money in custom for years" and that, following a reorganization, "we're as optimistic as ever" even though the local Seattle economy "has been shellacked."

In his presentation, John Banks, owner of Montreal's Audio Centre, said he was able to save $1 million in inventory expenses by pulling relevant information out of the company's computer system.

Jon Myer, owner of the nine-store Myer-Emco chain, said he set goals four years ago to diversify aggressively into the custom market because of the twin threats of online sales and product commoditization. But the company wanted to do so without shifting out of retail.

"[Retail] is still the engine for us to drive our contract business," he said.

The transition, he admitted, was not easy. "It's difficult to build a contract business from retail, more so than if you build a custom business from scratch."

One of the company's "biggest mental hurdles" was "to convince ourselves that services other than box sales have significant value," Myer said. The mindset that “installation facilitates box sales" is "dangerous," he contended. "For a true contractor, labor holds the biggest profit potential."

To fully leverage labor's profit potential, Myer suggested that dealers go outside the A/V industry to attend seminars targeted to plumbing and electrical contractors. Dealers must also run the numbers every month to determine if the custom department is profitable, but Myer-Emco has gone a step farther in job-costing every major install to determine its profitability.

Another goal is to "deliver a design that could justify a fee," he said. In the past, "We used to hand out a free proposal and hope they bought from us." In three months, Myer later told TWICE, the company will begin charging for complicated-system design and will use computer-generated graphics to layer a system design over an architect's digital blueprint.

The goal at Cooper's of Clearwater, Fla., was to improve installation efficiency. Owner Steve Brakke confessed to two years of "profitless prosperity" after going on a hiring spree to "hire for growth." Installation "was grossly inefficient," he admitted.

In the past year, the company "turned that around" by implementing systems and processes that, among other things, eliminated "RadioShack runs" and allowed everyone to work about 45 hours per week instead of 80, he said.

Cooper's also pumped up installation rates. "Our installation department revenue is up, though product sales are down 10 percent in the past year," Brakke said.

Charles O'Meara of Absolute Sound in Winter Park, Fla., said he improved profitability with the creation of a three-person customer-service rapid-response team so that installers don't have to be yanked off a job to troubleshoot problems in a system that has already been installed. The company is turning the team into a profit center by selling extended warranties entitling customers to quarterly system checkups, he added.

For D.J. Taylor of Sound Approach in Newport News, Va., a short-term goal was to prepare for a potential downturn this year in custom revenues.

In January, Taylor said he sensed growing concern by manufacturers and retailers over potential weakening in over-the-counter sales growth, which he considers a leading indicator of custom-install sales. As a result, Taylor said he intensified his word-of-mouth, or "network," marketing program to head off a potential custom-install downturn. That program includes membership in three building associations and participation in two home and garden shows, whose exhibitors are approached for referrals.

An owner, however, can't set goals, or create systems and processes to meet those goals, if he's constantly involved in day-to-day operations, warned consultant and author Michael Gerber.

"If you're spending a majority of your time doing technical work, you're costing yourself a fortune," he said. Owners must "work on the store," not "in the store," to create a "business that works so you don't have to." The business, he continued, must become systems-dependent, not people-dependent.