Major distribution changes undertaken by Klipsch will cut the speaker company's domestic home audio volume by 30 percent, but it hopes to recoup the lost sales in two years, said chief operating officer T. Paul Jacobs.
As part of its revamped strategy, Klipsch is dropping two major A/V specialty chains — the Tweeter Home Entertainment Group and Magnolia Hi-Fi — while offering a limited home speaker line to Best Buy for the first time.
Klipsch is also dropping CE retailer The Wiz, whose parent Cablevision plans to sell or shut down. The Wiz accounted for 5 percent of Klipsch's audio sales. Tweeter and Magnolia accounted for 25 percent.
With the changes, Klipsch admits it will lose its status as the top supplier of speakers to specialty A/V dealers. To compensate for the lost volume, Klipsch is counting on:
Best Buy's additional volume;
Signing up new A/V specialists to replace the 200 lost Tweeter, Magnolia, and Wiz storefronts;
An expanded factory-rep force focused on A/V specialists;
And deeper penetration into the custom installer market.
In part, Klipsch will accomplish the latter objective by establishing a network of mini warehouses in the next 12 months to ship products within 24 hours to small installers. "We won't use stocking reps or distributors so we don't lose control of our distribution," he said.
Also to tap custom more aggressively, the company over the next year will expand its Aragon electronics brand into custom electronics, including distributed-audio electronics, to complement Klipsch architectural speakers.
Also to boost sales, the company will begin in September to offer the first of four Reference series high-end home-theater-in-a-box systems to help A/V specialists tap into a profitable segment of the expanding category. The first of the systems, retailing for a suggested $3,499, will feature a universal SACD/DVD-A/V player, will complement co-branded Samsung/Klipsch systems, and will be among the first HTiBs with THX Select certification, Jacobs said.
Klipsch is leaving Tweeter and Magnolia because of market conflicts posed by the chains' expansion into markets where other Klipsch specialty dealers reside, Jacobs said. "The market conflict would only spread as Tweeter and Magnolia expand further."
Independent A/V specialists have formed the "core" of Klipsch's distribution, but the company also sells to A/V specialty chains, including the members of the Pro Group. "If we didn't resolve the dealer conflict, retailers would stop selling us," Jacobs said.
In addition, Tweeter cherry-picked Klipsch lines in some markets rather than support Klipsch's brand strategy, which is to offer a representative selection and perform "top-down" selling, starting from Klipsch's $5,000 Reference series home-theater speaker system, Jacobs said. The result was "an inconsistent brand story" that confused consumers in those markets, he said. Likewise, Magnolia also cherry-picked the brand. "We don't have a broad line, so if you cherry-pick us, it sends a confusing message," Jacobs said.
Klipsch decided to leave The Wiz because the chain's financial problems precluded the chain from delivering a consistent Klipsch message and because the chain "wasn't able to upscale their audio business," Jacobs said. Klipsch intended to part ways even before the announcement by Wiz parent Cablevision that it will leave the CE retail business.
To manage potential conflicts between Best Buy and A/V specialists, Klipsch is offering Best Buy a separate speaker series, called Synergy, and reserving the higher technology, higher price Reference series for A/V specialists. The 14 Synergy series models range in price from $249 to $900/pair. The Reference series ranges from $299 to $2,200/pair. "Reference uses the latest technology and needs a trained sales force," Jacobs said. "Synergy is a value line focused on non-commissioned, non-negotiating salespeople."
Best Buy also won't have access to Klipsch's architectural and outdoor speakers. It already sells Klipsch computer speakers.
Jacobs said he's optimistic about Synergy's prospects in Best Buy because the chain's new-store format, which includes vignettes, allows for better audio demos than some stores' "audio caves" and other stores' aisle displays of speakers.
The Good Guys and Ultimate have "embraced" Klipsch's new strategy, Jacobs said, and of the remaining PRO buying group members, "half embraced it enthusiastically, and the rest embraced it if we adhere to our commitments of support."