TWICE: Have installers shifted their strategies in light of the housing slowdown?
Gartland: AVAD has been working with our dealers for years to encourage them to become full-service electronic "architects" for their clients. We believe offering telephony, residential surveillance, lighting control and home-networking disciplines, along with installed entertainment, helps add revenue to each project. In times when job starts are low, the added revenue from a wider assortment of disciplines can make a big difference.
Klein: There hasn't been a shift so much as technology has developed, opening opportunities that didn't exist before. Certainly technology now exists to offer fast, secure, reliable solutions for retrofits, but more importantly, successful installers are offering complete integrated systems rather than individual products or simple AV control.
Kussard: There is an unfortunate aspect of the construction cycle and how it impacts the residential systems contractor. The time between contract and project close causes many dealers to become aware of market sluggishness a little too late. Plus right now [November], we are in that mad quarter of "get it done by" the holiday or sporting event of the moment. The ones who are feeling it and trying to adjust are likely already too late, but the fact that they are feeling it now, in the busiest of project closing seasons, would indicate that their business was already in trouble last winter or spring.
All but the sharpest veterans will only wake up to this reality after the Super Bowl, and only then will they begin to develop strategies for survival. I don't state this as an indictment — they are simply making hay while the sun shines. We know that there are a good number of dealers who (like in years past) see the ripples in the market but find themselves unable to respond because the demands of their customers must come first in this busiest quarter of the year.
Starkey: Installers are always adjusting their strategies. Now they are looking to maintain the number of jobs they have been sized to do while selling more content per job.
TWICE: Has the influx of new installers into the market actually buoyed sales?
Gartland: I believe the market has created the number of dealers necessary to meet its demand. Most installers can't scale their businesses very much at all, so as demand increases, that demand must be met by new dealers, whether they be small start-ups or someone like Tweeter or Magnolia.
Norder: Today, many new integrators are crossing over from the networking side of the market because of IT and AV convergence. Manufacturers like AMX that embrace IP standards are, and will continue to be, attractive to these new integrators. This market trend presents new opportunities for manufacturers to expand their installer base.
Klein: Good dealers will always attract new customers and close sales. Good dealers take a sale, such a theater, and turn it into a whole-house audio system or even a complete custom home automation solution. New installers do not necessarily increase sales; good ones do.
Kussard: For many current installing contractors, scaling up simply does not fit their business models. This is a major reason why the business has traditionally grown through an increase in the number of dealers rather than via "comp-store" sales growth.
This tendency has historically driven growth in the dealer population in response to growing demand. As early as 15 years ago, we saw the beginning of market sector growth through a broadening of the dealer demographic as a response to a rapid increase in consumer demand and the resulting need for an expanded installation labor pool. Notably this influx came in the form of the entry of low-voltage practitioners who were primarily residential security contractors.
Today this influx continues with the entrance of IT/computer networking contractors and the (now more focused efforts of) larger, regional and national "big box" A/V retailers. Although some of the "legacy" players in the market have managed to grow their annual per location sales numbers to the $5-10 million range, now with the entrance of companies that have the infrastructure to support large forces of field technicians, we may begin to see more notable company or "per store" sales numbers. This could point to a real change in the landscape of residential low-voltage systems contracting.
Starkey: Newcomer business is still strong. Much of the growth is through the distributor channels, where new entrants are coming in. Many installation companies continue to move upscale, leaving the first-rung market available to new comers. Many of the newcomers are able and willing to do simpler systems and are making their presence known in the market.
TWICE: How are installer margins holding up?
Gartland: The average installer still does not face a bid/price environment. These sales are made based on referrals and relationships, and consumers tend to go with the dealer they feel comfortable with. The biggest pressure on the custom dealer is wild discounting on the web or at retail. They are not insulated from the greater market.
Klein: Custom home installation is a high-margin business, and margins continue to remain as high as ever. The number of installers in the field should not affect margins in our market. Our installers do not sell products. They offer personalized service and custom-designed solutions. Installers need to demonstrate the value that they offer and provide a level of integration, functionality and simplicity that no one else brings to the table.
Kussard: Margin pressure at "retail" is always of concern to those who interact directly with the end user. Recently we have seen signs of increasing margin pressure on products — both within certain product categories and from new competitors (at the contractor, distributor and supplier / manufacturing levels) entering the market in response to demand. But it appears that, even now, demand continues to grow for design and installation services at a rate greater than the industry can respond with trained technicians and professionals. As a result the well-managed sales operations appear to be able to maintain good margins through their ability to make the case for a solid value proposition as opposed to selling strictly on price.
Starkey: We are a far cry from saturating this marketplace. The biggest competition continues to be lack of consumer awareness and knowledge. Many dealers run out of bandwidth before they can take their businesses to the next level. This leaves consumers who do not get the opportunity to buy.
Meanwhile, we believe margins have stayed relatively constant with only slight downward pressure on prices or margins.
TWICE: What is the future of the independent custom-A/V installer?
Gartland: Installation companies will have to become better at marketing themselves to their client base. And they have to learn how to create new customers more often. They still have an edge over everyone else with their ability to customize a system to a consumer's desires, build a relationship, and nurture that relationship over time. If you look at other "old world" contractor businesses, the independent still has a significant share of the business.
How will the entrance of regional and national retailers into the custom market affect distributors? I believe that no matter how large a retailer is, or what level of purchasing power they have, once they get into the custom installation of entertainment products, they need a strategic relationship with a distributor. It is just too difficult to get all the pieces and parts of a system purchased and shipped to arrive at a location on a specific day for an installation.
Norder: In the future, independent installers will need to differentiate their businesses from those of big box retailers to keep their current footprint. Service – from incredible custom design to remote and same-day service – is the best way for them to do this. Independent installers also have the advantage of being smaller and less bureaucratic than big box retailers, which enables them to be more nimble and to make decisions more quickly. I believe this will be advantage for them in the future.
Klein: The future is extremely bright for installers who offer custom integrated solutions rather than simply connecting a bunch of products. Total home technology is the future, integrating all the systems in a home.
Wireless systems are great solutions for existing homes, but wired solutions are preferred for new construction. Regardless of the infrastructure, custom installers are needed to design, install, program and service these systems. I've seen several wireless systems that didn't work reliably because the network was not set up properly. You may get a wireless gateway that works perfectly for your laptop, but not for your lights. Getting all the audio, video, lights, thermostats, shades, etc. to work safely, reliably and quickly on a wireless network is complicated. Custom installers will be needed to implement these complex systems. National retailers cannot provide the level of personalized service, support, customized programming and integration that the local installer can. The national chains are not structured to deliver custom integration profitably. The best they can do is to offer packaged solutions to the masses.
Kussard: The opening of the market driven by new technologies and technology reaching down in price will result in a much larger market consisting of many strata. Like other mature markets, this will create ready consumers for a wide range of business models.
Similar to the way we can choose to buy a suit of clothes off the bargain rack for less than a hundred bucks or one that is custom-tailored for thousands, the consumer will be able to choose home systems that range from entry-level plug-and-play to full-out custom systems, from simple single-function systems like media, lighting, etc to fully integrated systems that are custom-designed to help manage all aspects of the home and life.