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Multiple Factors Driving Custom-Channel Growth

DENVER – Systems integrators heading here for September’s CEDIA Expo are defying the odds.

Growth in single-family housing starts slowed to 1.3 percent in the first half (see table), when severe weather hampered new-home construction, but the custom market continued to grow at double-digit rates of 10 to 17 percent at the wholesale level, marketers estimated.

Marketers cited the impact of the higher selling prices of Ultra HD and OLED TVs, the stockmarket wealth effect that convinced the affluent to open up their wallets, and new wireless technologies that expand the market to retrofit installations and enable upgrades of previously installed multiroomaudio and home-control systems. Home-automation products that are easier for consumers to use are also lifting sales, as is the ability to control home systems from tablets and smartphones.

At least as important, however, is stepped-up marketing by installers to past customers to upgrade previously installed systems. Installers are adding audio sources such as Internet radio to multiroom-audio systems or using wireless technology to expand multiroom-audio to additional rooms. Installers are also adding surveillance cameras, wireless door locks and wireless thermostats to previously installed security systems.

Installers’ stronger focus on selling into existing homes and participating in home remodeling projects has also driven up industry sales.

The channel will get an additional lift, manufacturers contended, with the launch of audio electronics and speakers that bring Dolby Atmos surround sound to home theaters. During the Expo, multiple suppliers plan to unveil Atmos products not previously disclosed.

Installers will also find new home-control products that simplify installation, enabling them to increase the profitability of each install and do more installs in less time.

Expo lift: The CEDIA Expo will reflect industrywide gains. CEDIA signed up 463 exhibitors by early August, 2.5 percent more than last year at the same time, and the final count could exceed 2013’s count of more than 470. This year’s count would also be up from more than 450 in 2012 and 444 in 2011.

Stepped-up marketing efforts account in part for exhibitor-count gains, said CEDIA chairman Larry Pexton. More significant, he said, “the importance of exhibitors” is up, reflecting in part the return of Sony, LG and Samsung to the show floor. Christie Digital, a major supplier of commercial projectors, will also exhibit for the first time now that the company is adding residential projectors to its portfolio, he said.

More important to CEDIA’s own revenues, square footage will be up, with reserved space up 14.6 percent to 222,334 net square feet as of August 4 compared to actual 2013 square footage.

In another Expo change, the show’s education program has been revamped with more business-focused courses, Pexton said.

At the beginning of the year, gains by the Expo and the industry weren’t necessarily assured.

“The year got off to a tough start because of the weather,” said Dennis Holzer, executive director of the Power- House Alliance, a confederation of 13 distributors serving the installation channel. The weather threw off many suppliers’ forecasts, but “if you take out the first quarter, some of the numbers they were expecting are coming to fruition,” he said.

To date, PowerHouse has posted sales gains of 10 to 15 percent in dollars in residential A/V products, lighting and other home-automation products. About half of that volume, he conjectured, came from installers selling to previous customers. “Installers must continue to market backwards to jobs they have already done,” Holzer stressed.

What’s up? Holzer attributed most of his 10 to 15 percent growth to retrofit and remodeling installs.

Other key contributors are 4K and OLED TVs that last year “started to hit their stride,” Holzer said. In the prior two to three years, installers had to sell 20 percent more LED TVs to make up for 20 percent price reductions, he said. Now people are upgrading their TVs with better, more expensive technology, and “as they put in better TVs, they address related things such as AVRs,” he said.

Dolby Atmos surround sound will contribute to home-theater growth in the coming year, he added. “It’s the first big thing in audio in years,” he said. “It really is a significant change. It’s not just adding two more speakers in a room.” Atmos “pulls a lot of categories with it,” including specially designed speakers and cables to replace speakers that haven’t been replaced for a while.

Larry Pexton agreed. “Home theaters will make a comeback,” said the CEDIA chairman and Triad Speakers president. Ultra HD will contribute to the home-theater surge, as will new surround-sound technology, mainly from Dolby but also from Auro 3D and Trinnov, he said.

For nationwide distributor AVAD, “sales have grown much faster than in 2013,” said VP/general manager Jim Annes. “This is not a case of the tide simply rising. We invested a good deal of human and fiscal capital over the last few years into areas that we identified as new growth opportunities.”

“A lot of our business is driven by our dealers doing retrofit, upgrades or expansion of existing solutions, coupled with new residential opportunities driven by consumers who have not thought of whole-home solutions as a viable option for themselves until recently,” he explained. “AVAD and its customers left being dependent on new-home construction behind several years ago.”

Another major factor in channel growth, Pexton said, is “the buying psychology of the top 5 percent.” Industry growth tracks the Dow Jones Industrial Average, he said. “People believe the economy is not going to go down, and their portfolio is up.” Many of these consumers restarted new-home or remodeling projects that they froze five years ago in the planning phase. “Dealers have gotten better at going after old clients,” he noted.

“Selling A/V systems to rich people – that’s where a lot of the money is,” he said.

Newer home-automation systems that are easier to use and less expensive than their predecessors are also driving growth, Pexton said. Client satisfaction with previous generations of “complex home automation” systems “was not that high,” and that “negatively impacted the industry,” he said.

Growth segments: Annes also sees significant growth in home automation. “Nest created a lot of awareness around home automation in the general public. Now consumers are saying that a single product with an app is nice, but how can I tie in more of my home and more products? That is where dealers come in, creating that value.”

Control solutions are “the cornerstone of these opportunities, which is why we continue to have a focus on control and home automation in general and see continued growth in these areas,” he said.

“If you haven’t been focused on lighting, shades, networking, control, HVAC, etc., and tying them all together, now is the time to start so that you are not left behind,” he said.

Nonetheless, Annes noted, “all categories continue to grow with us, with the exception of subcategories that are strongly linked to new-home construction. I would venture to guess that the total number of in-wall and in-ceiling speakers sold are not exactly matching levels from 2007 or 2008. However, new sub-categories have grown substantially over the same period, such as sound bars, for example.”

With the wind behind its back, the custom channel is logging wholesale-level dollar-volume gains of 12 to 17 percent this year, up from 9 to 12 percent in 2013, Pexton said in citing CEDIA’s installer surveys and conversations with industry players. The numbers includes A/V, lighting, shades and all other home-control technologies, he said.

IT networking is another growth area, said Power- House’s Holzer. “Almost everyone has home Wi-Fi, but the routers aren’t of the highest quality,” he said. Setting up an entire house with a better router and access points requires expertise to do properly, he explained.

System control from tablets and phones “is dramatically expanding the market,” Holzer said. Installers are reaching out to past purchasers of a 2Gig security system, for example, to add phone control of door locks and thermostats, he said. And consumers who see TV commercials for AT&T’s home-automation system are calling their installers to see what they can offer.

“Because of these new opportunities, business has been good,” Holzer said. “The hardest part is trying to keep up to learn, and we consistently bring in dealers to our locations so they know what’s available and how to install it.”