Sales through the custom-install market stabilized and could end the year with a slight gain even though single-family housing starts began declining again, marketers told TWICE.
The reasons include electronic systems contractors’ embrace of retrofit sales, willingness to tackle smaller jobs, and ability to serve as an alternative to A/V specialty stores that closed in recent years.
With the industry stabilizing, the CEDIA Expo is poised to post its second consecutive gain in attendance. “Preregistration up to the early-bird deadline showed solid growth,” CEDIA CEO Utz Baldwin said.
The number of exhibitors, however, will be down slightly to 438 in 368 booths, compared with last year’s 450 exhibitors in 383 booths, though that number will include “an impressive number of firsttime exhibitors,” Baldwin said.
The expected uptick in attendance and market stability come despite multiple forces conspiring to kick the legs out from under the industry, marketers said. The downside forces include:
• single-family housing starts falling by 7.6 percent to a forecast 435,000 in 2011 after a 6.6 percent gain in 2010, according to the National Association of Home Builders (NAHB);
• builders of middle-market homes stripping out amenities to compete with the low prices of foreclosed homes and short sales, in some cases building new homes simply to sell the land underneath to pay off bank loans;
• banks now refusing to roll the cost of electronics into new-home mortgage loans; and
• a slower-than-expected uptake in sales of energymanagement systems because of the long return on investment for consumers.
On the upside, positive developments include:
• a forecast 39 percent rise in multifamily housing starts in 2011 to 158,000 units following a 2 percent gain in 2010, according to NAHB’s forecast;
• continuing, though diminished, demand by the ultra- wealthy for high-end jobs, including high-end integrated home-control systems;
• installers’ embrace of the retrofit market to offset the decline in new-home construction, shifting their business models to target consumers rather than home builders, architects, and interior designers;
• installers’ willingness to take on smaller jobs, including family-room updates and the installation of flatpanel TVs; and
• installers’ newfound willingness to embrace wireless technology to support retrofit sales, having become more comfortable with wireless reliability and quality of service but being careful to set customer expectations.
ESCs’ shift to retrofit “is a change the industry had to make,” CEDIA’s Baldwin said. “It will be quite some time before new-home construction will be way up.” Surveyed CEDIA members did an average of 63 percent of their gross revenues in retrofit and remodeling jobs in 2010, up from 2009’s 54 percent, he said.
Also aiding ESCs is their ability to fill a gap left by A/V specialists who’ve closed their doors, said Jeff Kussard, strategy development director for distributor Capitol Sales. “Big-box people do a reasonable job of educating consumers about our services, but if the consumer doesn’t have an A/V specialty store to turn to, they turn to a CEDIA guy.”
The trends have produced a market of extremes, marketers said. “What’s driving a lot of ESC business today is a reasonable amount of projects where you spruce up the family room with a small home theater project with price points between $3,000 to $10,000 with a median of $4,000 to $5,000,” said Kussard. At the other end of the spectrum, “survivors focused on the high-end projects of the ultra wealthy still manage to keep busy, though the number of projects has diminished.”
Progressive Retailers Organization (PRO Group) executive director/COO David Workman agrees that middle-market jobs are few and far between, thanks to the collapse of new-home construction in the middle market for $400,000 to $1 million homes. In these homes, installations costing $50,000 to $60,000 were the “mainstream systems you lived on,” he said.
This year, “the frequency of jobs is coming up,” he said, but “even with good months, no one has confidence that it’s a trend. It’s better than it was, but no one [A/V specialists or installers] feels like it’s a real prosperous time,” in part because gains are from low comps and partly because of a lack of confidence in a sustained economic recovery, he said.