By Lisa Johnston
New products on display at the American International Toy Fair, held in N
TWICE: With single-family housing starts dropping at double-digit rates in 2006 and 2007, how did the custom market fare in 2007? And what is the 2008 custom-market outlook?
Mike Hench, The Edge Group: As you might expect, dealers focusing on entry-level and/or tract homes were the hardest hit by the decrease in housing starts. A few went out of business, and some joined forces with other dealers. Established dealers familiar with the ups and downs of the housing market reduced their installation crews. This part of our business declined about 25 percent.
Bob Gartland, AVAD: The custom market faced a couple of big challenges this year, which made it very difficult to grow. Flat-panel price compression most likely had the greatest impact as integrators cannot overcome the ASP decline with unit sales. And the housing market decline certainly affected many dealers, particularly those whose business is predicated on the production home market. I believe the overall market was flat to 2-3 percent growth year-over-year. 2007 is the first year the custom market has not had double-digit growth.
Jeremy Burkhardt, SpeakerCraft: SpeakerCraft has good growth for the year. Dealers have to reinvent and learned to go get business. The doors don't just open, and people don't just walk through. Mailers, phone calls and past client referrals are continuing to drive business. HTSA and HES have developed great packages for these types of marketing.
Jeff Kussard, Russound: 2007 will end up as a decent year with 10 percent growth overall. Not spectacular, but not bad. However, in 2008, we're going to experience the custom installation industry's first year with only single-digit growth, and things probably won't be much better until early '09.
The outlook isn't gloom and doom — not by a long shot. We still have over a million single-family homes being built. Keep in mind that we continue to experience over 16 percent growth in sales of multiroom systems in new housing. The trick is to be nimble enough to respond and adapt to market changes with products and services that provide new opportunities in retrofit installations.
TWICE: Any particular segments of the market doing better than others?
Hench: The higher end of the market is still robust and is actually growing for several dealers. These dealers typically are well-established and have been in business for some time. They actively solicit new business rather than rely solely on referrals, and they have large client lists that are good candidates for new products.
Jay McLellan, CEA executive board member and Home Automation: We have seen growth in the home security, lighting, energy-management and audio sections of the custom industry, even in the face of the housing downturn and credit crunch. We have noticed slower growth in our low-end products, but the high-end systems have been unaffected. It would seem that custom is alive and well. With interest growing in energy conservation for homes of all sizes, we believe that the market has plenty of room for growth.
Burkhardt: We see all areas of the market with positive growth potential. The iPod has driven dealers to adapt and evolve the way they do business, and this is a logical distributed-audio winner.
Kussard: Production builders are taking the brunt of the hit, mostly because the current situation was preceded by an enormous boom in their business. Inventory levels remain high in both resale and new home markets, with one of the bigger concerns being the inability of buyers to qualify for home loans.
On the flip side, custom home builders, their subcontractors and MDUs continue to flourish. Custom builders in particular are in a good position to react quickly to changing market conditions, while custom installers are benefiting from increased consumer exposure to new technologies available for the home.
TWICE: Is it time to send an AARP application to the install industry? Is it now a mature industry?
Hench: I think that's a relative question. If we look at the penetration of things like distributed audio and whole home control, there's still a lot of opportunity out there, as the percentages are very low. However, the cost of acquisition of a distributed-audio system or automated theater is still relatively high in comparison to the cost of a home theater in a box and a 42-inch flat screen. We are making inroads here though, as the cost of a distributed audio system (that the customer can actually use and enjoy) is significantly less expensive than it was just a few years ago. In sum, I think we can look toward at least one more year of flat to slight growth, and then things will ramp up to a 5 to 10 percent growth rate. While I think our market is not mature, I don't think we'll see it growing at 20 percent-plus again for awhile.
Gartland: The market is hardly mature based on the penetration of installed systems overall, but I do believe dealers will have to become more sophisticated to reach the next level of consumer. In the coming years, we will have to move from a mostly referral-based business to a more traditionally marketed service industry. There are lots of new customers out there, but we will have to compete for them like everyone else.
McLellan: Recent research by CEA, CABA and others indicate that boomers are interested in built-in electronics and understand the technology. They are in their move-up years and desire "do-it-for-me" services. Further, expectations for a "digital kitchen" include home control and energy monitoring. Younger "echo" boomers will have nothing less in their future homes. Opportunity abounds.
Burkhardt: No, the market is nowhere near mature, period!
Kussard: The answer is to never stop marketing yourself aggressively, especially during a downturn. When new housing starts pick up, a segment of the buyers will have remodeled or retrofit their homes for today's technology. Again, it comes down to being flexible enough to adapt to changing market conditions without complaining or throwing in the towel.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.