No Loss For Words At EH Expo, PARA

By Joseph Palenchar On Mar 26 2007 - 6:00am




Infuriating, fun, challenging and ironic were some of the adjectives used here yesterday by retailers, installers and suppliers to describe the current state of the custom installation and specialty audio/video industries.

Industry leaders spoke of challenging changes in technology and control-system infrastructure, infuriating drops in average selling prices, seemingly paradoxical gains in installation-industry revenues despite declining new-home sales, and minimal builder interest in promoting custom A/V solutions despite rising consumer demand for them.

The observations flew during the spring Electronic House Expo and the Professional Audio/Video Retailers Association (PARA) conference, each held simultaneously but on opposite sides of Orlando's International Drive.

"These are amazing, weird and exciting times," PARA chairman Gary Yacoubian said during his PARA conference opening remarks. They're also "one of the most infuriating and fun times," he added, citing "incredible changes" in technology and control-system infrastructure, some of it IP-based. He also cited "unbelievable declines" in average selling prices in many categories in the fourth quarter.

Despite the challenges, "We are the only ones who choose to completely fulfill the promise of all these technologies" by demonstrating them, installing them and servicing them after the sale, he contended, referring to the PARA channel as the "audio/video specialty/custom installation channel." In contrast, the custom install channel and big-box retailers don't do all three, he said.

Demonstration is a key differentiator for PARA's members, who are hybrid retail/custom installers, but demonstrations need no longer take place only in a retail showroom, PARA executive director Kerry Moyer told TWICE. "The definition of showroom is changing," he said. Technology demonstrations are also occurring in homes and design centers, he noted.

Although declining selling prices might be infuriating, declining sales of new homes haven't proven to be so, at least not yet, industry leaders said. "There has never been a higher demand for integrator expertise," said David Epstein, vice chairman of the Consumer Electronics Association's (CEA) TechHome division and president of the Sound Solutions custom installation company in Culver City, Calif. "A broadening base of consumers needs specialists to assist them," he said.

Custom-home builders have been less affected by softening new home sales than production builders have been, and most of the custom industry's revenues are generated through custom builders, he said.

Among Sound Solutions' high-income customer base, "when the economy slows, our business is the same or goes up," Epstein added. Perhaps people have more time on their hands to focus on their home, he said.

The decline in new home sales has given many overstretched installers some "breathing space," added Jay McLellan, chairman of CEA's TechHome division and president of supplier HAI. McLellan said his company experienced a "leveling" in sales in the second half of last year as distributors thinned their inventories in response to slowing new home sales. Now, however, HAI sales are "picking up again," he said.

The full impact of declining home sales on installers' revenues, however, might not take place until the second half of this year, at least for installers aligned mainly with production-home builders, according to one installer. Installers "make all their money at the finish" as they begin installing equipment and speakers in homes whose construction started six to nine months prior, said Tom Callahan, former TechHome chairman and founder of Sawyers Control Systems, a New Jersey-based installation company. With the steepest decline in housing starts occurring in the fourth quarter of 2006, he said, installers who work with production-home builders "need to worry about the end of 2007 and early 2008."

If new jobs begin to slow, installers will have to shift strategies to include a greater focus on retrofits and selling add-ones to previous customers through company newsletters, Callahan said.

Installers might have to pursue those strategies this year if forecasts by CEA economist Shawn DuBravac, who told attendees of an EX Expo breakfast meeting that new home starts were down 40 percent in January compared with the previous January and that "2007 will continue to be down but not collapse" as 2006 did. Even with starts declining in 2007, the year will still be the fourth best year on record for housing starts and new-home sales, he forecast.

For 2007, DuBravac expects national housing starts (single- and multi-family) to fall to 1.46 million, down from 1.8 million in 2006 and 2.07 million in 2005. He said he expect starts to increase in 2008 as builders work through inventory this year. "Year-over-year starts turn positive in 2008," he said.

If that turns out to be correct, Callahan told TWICE, then the upturn in home construction will start generating new business for production-home installers in mid 2008.

Although the sales pace hasn't yet disappointed suppliers and installers, builder attitudes toward custom A/V must be disappointing. A builder survey by CEA and the National Association of Home Builders found little interest by builders in promoting custom electronics. Epstein attributed the attitude to a reluctance by builders to promote until their competitor across the street does. Another reason is a fear of callbacks. "Builders want high customer satisfaction levels," he said.

Added McLellan, "Consumers are more educated than builders," and the builder installs when the consumer asks, he said.

"We no longer have to explain to people what we do," Epstein added.

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