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Installer-Level Profitability

1/06/2005 02:00:00 AM Eastern

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Key Points

TWICE:How are profits holding up at the installer level?

Rashid Skaf, AMX:In our market, installer profits are increasing. We've enabled our installers to see more profits by developing technologies that produce higher profit margins.

Home theaters have typically driven the residential integration business, but now we're seeing that evolve to more interest in whole-home integration, which is a much more lucrative business for installers. Those customers who initially began with an AMX control system for home theater experience its power in that setting and want to integrate it to control all the electronic devices in their homes.

Jeremy Burkhardt, SpeakerCraft: SpeakerCraft believes in and practices select limited distribution. By providing our dealers technically superior products and a select distribution channel, we are confident that margins will stay high at above 60 points.

Mike Detmer, Niles Audio: It's only natural that installers need high attainable profit margins because they provide services such as designing, proposing and bidding that they do not necessarily bill for. However, some installers are realizing that cash conversion is paramount. In fact, some installers have opted to forego higher margins for reduced inventory costs to increase their cash conversion cycle.

Ted Green, The Advantage Group:This is an area in which installers have expressed some concern. All segments, disciplines, and trades are looking for growth. As such, installers face increasing pressure from security/fire/burglar installers, commercial systems installers, electricians, and other disciplines/trades branching into more home A/V, home theater, and distributed audio.

Also, it has not escaped the attention of many installers that large-scale retailers are looking at custom installation as an area of expansion.

As such, there are definitely concerns over contracting profit levels as competition increases for the consumer's dollars.

Paul Starkey, ELAN Home Systems: Most dealers are still in a growth mode. The market is still under- serviced. New dealers are entering the field, but most are undercapitalized. Pricing appears to be remaining stable, with not much downward pressure in the specialty phase that we are in.

Ray Lepper, CEDIA and Home Media Stores: Margins on video, especially flat-panels, continue to be a problem, but they're offset by solid margins in audio and system-integration products. The lower prices on plasma and LCD frees up the consumer's budget on other, higher margin, product categories. So savvy CEDIA members are holding and in some cases actually improving product margins overall.

Competition from startup CI companies is having an effect upon established businesses in most markets. On the other hand, we're not seeing the effects of large players' moves into the installation business — at least not yet.

Some feel that there's just too much product looking for a path to distribution. Couple that with the line extension of some brands, and you've got a market that's awash in hardware but lacking a sufficient number of solid businesses to support it. I think this will negatively affect loyalty both up and down the supply chain.

Mitch Witten, Sonance: Most of our customers indicate that profits are holding up extremely well on audio. Video is where the margins are lower because of the widespread availability of these products and the constant bombardment that their clients get from the retail segment. That makes it more difficult for the installer to present a significantly more expensive video product and explain why the customer should pay more.

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