All those A/V specialists who dropped retail to focus on custom installation just may want to rethink their business decision.
Custom installers are facing big challenges because of a new-housing market that won't return to its peak levels for a few years; a depressed home-remodeling market that likewise reduces the potential for custom-install sales; inroads by electrical contractors into the custom market; and home builders who, despite an apparent need to aggressively differentiate themselves, still do very little to promote custom installed systems, Consumer Electronics Association (CEA) economist Sean DuBravac told installers here during last week's EH Expo.
“Housing-industry-related businesses have been in recession for more than a year,” DuBravac said. Those businesses include building materials and furniture, whose year-over-year sales fell 4 percent in February following average 10 percent growth from 2003 through 2006. Likewise, the home-remodeling market is depressed, based on NAHB indices that include calls for bids and appointments for proposals, DuBravac said. The incidence of people upgrading their homes rather than moving “is not happening to the extent it did before,” he said.
“The glory days are gone,” added Steve Koenig, CEA's industry analysis senior manager. “Installers have to think strategically about [which builders] to go after.” Those builders are either local, small builders who accounted for 11 percent of custom install jobs in 2007 or the large builders who accounted for 89 percent of all jobs but sold lower-priced systems, CEA found in its sixth annual builders' survey. The survey was conducted in conjunction with the National Association of Home Builders (NAHB). CEA also found small builders are twice as likely to install a home theater when compared to a large builder.
Installers who now have some breathing room to think strategically about their companies' direction can adopt multiple new strategies, and installers who broke out into discussion groups after the CEA presentation offered some suggestions. They include a greater focus on add-on sales to previous customers, using trusted relationships to reduce competitive bidding, creating builder-targeted brochures to outline the profitability of multiroom audio/video systems, installing custom technologies in vacant homes to do demos to a builder's potential customers, and developing protection programs to overcome builders' fears of callbacks after a custom system is installed.
Small custom builders seem to be the best bet for installers, said David Epstein, chairman of CEA's TechHome division. Because of cash-flow problems, tract builders have cut their expenses, which include payments to custom installers. “That business essentially dried up,” Epstein told TWICE. Installers who focused on it are “in big trouble,” he said.
Getting any builder to promote custom options, however, is a challenge, Epstein agreed. Builders are a conservative lot, doing just enough to keep up with their competitors but “not springing out ahead,” he said. Fear of callbacks is another reason, he admitted.
The builder mentality could explain why, in Koenig's words, “few builders proactively market” custom install systems. Depending on the system category, only 9 percent to 28 percent of builders market a given system, with structured wiring among the most marketed systems. “The majority is upon the request of the buyer, or there is no marketing at all,” said Koenig.
In fact, 64 percent of surveyed builders called it “somewhat important” to market home technologies, whereas only 25 percent called it “very important.”
Although builders rarely market custom systems, the majority of builders do offer them, and the percentage of builders offering various types of systems remained about the same in 2007 compared to 2006, Koenig noted. The type of company doing installs for builders, however, is changing, CEA found. In 2007, the number of builders saying they used electrical contractors grew, and the number of builders saying they used custom installers, or integrators, declined slightly. Also in 2007, builders relied less on major retailers and security installers than they did the previous year.
“Electrical contractors are gaining nationally,” Koenig said.
In 2007, 72 percent of builders used electrical contractors for custom installs, up from the previous year's 63 percent. Fifty-eight percent used custom installer/integrators in 2007, down from 2006's 62 percent, CEA's survey found.
Electrical-contractor competition and builder attitudes are coming at a bad time, CEA's statistics show. Housing starts are continuing to fall but will pick up at the end of the year or in 2009, DuBravac said, but don't expect a “v-shaped” rebound. Installers “won't see 2004 to 2006 for a few years to come.”
New-home sales, DuBravac said, fell 25.7 percent in 2007 to 780,000, from 1.05 million, and will fall again in 2008 by 20.3 percent to 620,000. Housing starts fell 27.7 percent in 2007 to 1.3 million and will fall in 2008 by 23.8 percent to 990,000.
Existing-home sales fell 13.3 percent in 2007 to 5.62 million and will fall in 2008 by 14.4 percent to 4.81 million. Existing home prices fell 8.6 percent in 2007 and will fall in 2008 by 9.3 percent.
DuBravac also forecast continuing price declines through 2009 and the beginning of 2010, assuming no housing-stimulus legislation. Peak-to-trough prices will fall 18 percent to 20 percent nationally, he said, with steeper declines in parts of California, the Mid-Atlantic states and Boston.