Making Audio Work
Opportunities are wide open for the custom retailer who can peer beyond flat-panel's pixels
By Nancy Klosek
It isn't video. It's audio.
And it isn't easy.
In fact, it takes a village—C-tailing business owners, manufacturers, salespeople—to make the case for a high-ticket audio purchase.
Suppliers and C-tailers who get it know that conducting a good demonstration is only the culmination of the presentation process. The development of cannily designed product lines on the manufacturing side and, on the retail side, an unvarnished self-examination of the dynamics which influence audio purchases are the requisite preludes to a sale, say industry participants from each camp who are most successful at the audio game. All agree the investment is worth the time—and the payoff in profit.
Flat Panels and Audio
Opinion on how the flat-panel sales phenomenon has affected audio sales varies widely. "With flat-panel prices down, margins dropped and more competition, there's definitely some gloom in the video business," observes Bob Brown, president of Lenbrook America. "'Flat panel' is a good name for it - because it's two-dimensional. It's satisfying, to an extent, when you first see it. What's there to dislike? It's Mom, and apple pie. But audio is the third dimension of home theater. What separates a store like Harvey from a Best Buy or a Circuit City? Emotional involvement with the customer. That simply can't be brought to bear in a superstore. If a customer is exposed to the powers of a flat-panel TV through audio, then it becomes a whole different level of involvement. A lot of people are buying 'jewelry' when they buy a flat panel - they're getting rid of their old 300-pound TVs that are four feet deep. But once you've done that, what's next? If somebody puts a high-quality
audio system behind that, it takes the TV and expands it. TVs become bigger, when you add audio."
"Flat-panel is exploding due to lower pricing," says Mihir Mody, CEO of Houston-based Home Theater Store. "Before, it was $7,000 or $8,000 for a flat panel and now, it's $5,000 - a 30 percent drop, opening up more of the revenue stream to us for audio. And our audio business is through the roof." David Wexler, president of Chicago-area-based The Little Guys, whose audio numbers, he says, are up almost 10 percent over 2005 on sales of higher-ticket components, comments, "Lower pricing on flat panels gives people a little bit bigger budget to invest in audio. We try not to 'grant permission' to buy a flat panel without having the audio. And if all you do is put TVs all over the place, they you're telling people that it's OK for them to just buy TVs."
"The selection of flat screens is overwhelming in most retail locations," concurs Noel Lee, principal of Monster Cable. "And the absence of audio is a message to consumers that it's not important. There have to be more audio vignettes and presentations. Audio demos should be required, not elective, as part of video demonstrations."
But Lee, and others, for various reasons, don't think freed-up flat-panel dollars are automatically being funneled to audio. "Flat-screen price drops have made it harder to sell audio, I feel, because the customer's expectation of what he needs for home theater just gets lower, the lower the price of the panel," Lee says.
"The customer spending more money for a higher-quality panel," Lee argues, "is a better target for high-end home audio. They're more predisposed to being introduced to higher-ticket audio as part of a complete presentation. If a flat panel goes for $5,000, I might spend $2,000 on my audio. And if I spend $2,000 for my screen, how much will I spend for my audio?"
Alberto Fabiano, partner in West Hollywood, Calif.'s DSI Entertainment Systems, says that money left on the table from lower flat-panel tickets is prompting interest not just in audio but also, in things like Media Centers: "This money is just burning a hole in their pockets, and they think, 'What else can I get?' and start looking at other items they did not think about getting originally."
Bob Gartland, president of the AVAD buying group, says flat-panel price drops only "theoretically" lead to audio sales, "Certainly, I think we saw the inverse of that a couple of years ago, when less audio was being attached because a panel was $15,000, and people were very fixated on having that panel. I'd be a little reluctant to suggest that the reduction in panel pricing would create more audio; it actually might, besides creating more audio sales, create more panel sales in the same house. That flat TV is the focus of a lot of consumers' attention. Where they used to have a very expensive 42-inch panel and some audio around it, now, they have a 50-inch or 62-inch panel and two other panels in their house."
Ira Friedman, president of custom speaker company Bay Audio, sees little correlation between higher audio spending and flat-panel price declines. "Absolutely," he says, "lower pricing brings more people into the marketplace, but does the price drop of any one particular product change the nature of the business? Only if you are component-driven. If you are [just selling plasmas], and the price goes down, you'll need to get more clientele, and your volume goes up and your margin goes down - or you suffer. For those dealers who keep thinking of themselves that way, then yes, they'll truly be affected by the pricing of any one particular component. Asking the question is the same thing as asking, does the ease of a customer being able to shop on line change the nature of your business. Well, no. If you're selling 'stuff,' and all your value is wrapped up in carbon molecules, then yes, it has an effect. But if you're selling custom installation, which entails project management,
and engineering, and developing a system a customer can easily use, then it's just one little piece."
The State of Traditional Audio
Whatever money is being spent on audio, flat panels notwithstanding, is being apportioned to both traditional and newer categories alike, say dealers and suppliers.
Jon Robbins, president of Broomall, Pa.'s Hi-Fi House, attributes a 10 to 15 percent uptick in his audio business largely to the fact that "our speaker business has been phenomenal." He credits a Sumiko master training program for the Italian-made Sonus Faber line it distributes in the U.S. for the good results, because "the courses don't hone in on their products as much as speaker placement, sound quality and room acoustics" - things that add up to an overall approach to audio sales that, in aggregate, works. He continues, "the training has also helped our other speaker business."
Michael Detmer, vice president of sales and marketing at Niles Audio, points to high-quality outdoor speakers as a growing area of c-tailers' audio business that both fills an application void and meets certain aesthetic considerations. "As people personalize their homes with sound," he explains, "they want it to be outside as well as inside. And they count on high-performance, application-specific products like outdoor speakers. Ours exceed military corrosion specs and are robust enough so that they don't come back and cost them money - they don't have to worry about the quality. And our rock speakers are designed to cosmetically blend into various geographic regions."
Mody says he is selling "huge amounts of in-walls and in-ceiling speakers" for the same reasons as Detmer cites for outdoor speakers' success: application-appropriateness and unobtrusiveness. "All our demo rooms have them, and we do four- and six-zone distributed audio where we demo music servers ranging from $1,000 to $5,000. And we do very well in that category."
Wexler at The Little Guys says his sales staff's focus on selling better product is "pretty balanced across the board. We're actually selling some two-channel stuff, and even some turntables to go with it. Maybe it had to do with the holiday season, and people digging out their old albums. Part of it is that we put three or four different ones on display around the store, and it reminded people subliminally that they have a whole bunch of records in the basement, put away. So, for somewhere between $200 and $500, they buy a turntable."
Two-channel audio, combined with a floor staff comprised of "passionate music-lovers," make the audio case at Home Theater Store, says Mody. "Our audio rooms," he says, "are set up for a two-channel experience instead of a home theater. We typically have eight or nine home theater vignettes around the stores, but we find it's best to sell high-end speakers in a two-channel room environment. There's a plasma display in the middle, but most of our salespeople prefer to have two-channel music playing in the audio rooms. And we typically don't switch between components. The rooms are nice and clean, and all you see is a limited collection of speakers, and they only have one set of amplification and processors needed to drive them. We have a switcher which is also hooked up with solid-core wiring, so there's no digital loss; it's an analog switching system - a really nice way of demo'ing true performance. If you have a commissioned floor, they figure out that with audio, there's
still lots of exclusivity left, and there are many speaker manufacturers, so that almost every retailer can have an exclusive line and run with it - unlike video."
Lee at Monster, for his part, favors touting the pluses of multi-channel at the salesfloor level from the audio-only point of view - a tactic he says is as logical a progression as that which occurred with video. "Audio needs to be a music experience. And two-channel audio is shrinking, but five-channel music has not taken a dip. Higher-resolution video evolved from lower-resolution video, but the same evolution has not happened in audio. It has gone from two-channel to the iPod - five-channel music has not taken its place. And a lot of customers listen to music a lot more than they watch movies. What happens to all the jazz lovers, all the classical music lovers, all the pop music lovers? They're ignored. Multi-channel audio has been completely unexploited."
The State of Non-Traditional Audio
Of course, the single non-traditional audio product that has both directly and indirectly shaped the audio market in the past year, some say, is the iPod, stimulating sales of peripherals and awareness of distributed audio. Other influences that are coming to the fore, say industry executives, are satellite radio, just beginning to percolate with regularity into home components, and to a lesser extent at present, HD Radio.
"The iPod has been a very positive thing for us," says Mody. "It puts us in the position to sell related speakers." "The knowledge level among consumers about audio is certainly becoming more apparent as the iPod has become a way of life," says Jon Robbins, "and people are looking for that convenience, for that different way to control music, in their homes. But it's our job to let them hear the difference between a music server that works through earbuds versus a music server that brings content throughout your whole home. It's our job to point out the differences in sound quality." Fabiano of DSI says iPod presents c-tailers with an opportunity: "It creates a taste for good-quality sound. It's like taking people from wine in a box to a wine-tasting experience in Napa Valley. All of a sudden, you're going to know, by tasting a small sample, the difference, and soon, you'll be spending your entire savings on cases of good wine."
"It's raising awareness," cautions AVAD's Gartland, "but I'm not clear whether that's helping us, because there are people who'll take their iPods and say, 'This is fine for my bedroom,' who might have done something else for music there otherwise, if that weren't around.
"I do have some concern," Gartland continues, "that with the whole digital music phenomenon, which I support, there's not enough talk about performance. And if there is no talk about performance, that will hurt us, because that's what we sell. I don't think digital music and performance discussions need to be separate, but iPod itself is not viewed or discussed as a performance-based product. On the other hand, the ability to have a 60GB iPod almost full with a CD collection and to have a music server at home, and one in the car, and have them all sync up - we're not very far from having that occurring. That will drive interest in audio. And our dealers will win, if they put themselves in the right position with these products."
Friedman of Bay Audio observes that there are likely a lot fewer iPod households that may be apparent from the numbers, when viewed at face value. "People who have one buy a second and then a third one. It doesn't mean that they, all of a sudden, became audiophiles. I also think that those who felt iPods would kill the digital music server market are wrong. I don't believe those guys' sales have suffered. They're mutually exclusive issues. It's just another format, with a magical interface that people react to. That's what people are buying."
"What sources like iPod, XM and Sirius have done," says Detmer, "is provide the end user with a wonderful stream of entertainment tailored the way they want it to be. That's really important. But people do want more than personal electronics in their home." Ideally, if they are shown what is possible, Detmer says, "they would like to have their iPod or XM or Sirius in every room, where they wouldn't have to move the device to the next room" - which makes the case for distributed audio.
"As far as distributed audio goes," says Wexler, "everybody building a home and almost every whole-house system we're doing involves some kind of networking or wiring. People sort of get it, and are a little confused about what they exactly want, but they know what they want to accomplish and don't know what they need to do to make it happen. Because of their Internet research, their questions are certainly more on point than they have been in the past."
IP-based audio distribution still has a way to go to become a top-of-mind alternative among clients who buy through traditional audio channels, because its success is dependent upon c-tailers, who are themselves just getting up to speed, says NetStreams' vice president of marketing, Petro Shimonishi. "Currently," she says, "less of our business is done through hybrid c-tailers, because they're still getting into custom through categories where product lines had already been established. Because ours is IP, we're getting a huge influx of interest from guys new to the custom space - from IT professionals looking to expand their businesses in whole-house control. The other side of it, though, is established custom installation outfits looking at the future of the business, who realize that in order to remain competitive, they need to be able to integrate new media and IT functionality with an existing A/V installation.
"Most people out there," she continues, "are so much more familiar with networking as tying together two PCs and now, as the PC is starting to become more of a home entertainment platform, and more people have movies and photos stored on their PCs, they want to be able to move them around the house using a home network. And that's really the value proposition that we provide, which resonates very well with installers. But we are promoting to those c-tailers who are interested in being on the cutting edge through advertising and by having more 'feet on the street.'
"The audio custom business is still in its infancy," states Friedman. "When my kids go to buy a home in 15 years, they'll expect distributed audio and video in all the primary rooms the same way they expect a DSL or phone line, or plumbing. And because of that, it will change how ubiquitous distributed audio and video will become."
But for now, among the lion's share of consumers, distributed audio remains an educational challenge best - and most profitably - introduced by c-tailers in palatable steps that present one- and two-zone options as a pathway to whole-house treatments, says Lenbrook's Bob Brown. In fact, he adds, selling simpler systems may be the way c-tailers can salvage much of the eroding profitability their cash-and-carry retailing business is suffering.
Says Brown: "What I feel some of our retailers have done is they've gotten so caught up in 'distributed audio,' that the only thing they can think of is the huge contract, the huge sale, and 10 rooms in the house.
"I know a lot of people with money who don't know audio/video," Brown continues. "Show 'em a two-zone system for, maybe, $25,000, and they're wow'ed, they've never heard anything like it. The installation's a day or two, you're out of there, and you have your cash. If you oversell the customer on distributed audio, and you immediately try to get this customer into automating his whole life, it's a year's project, you're collecting cash for a year, it's all receivables, and it can be a trap. The system is more complex and there are always bugs - now you're in Zone Six, and nothing's working. The country is littered with big installations that haven't been paid for, because big clients know how to pay, and how not to pay.
"I'm not saying not to do distributed audio," Brown says, "only don't throw the baby out with the bath water."
Opportunities in New Business Models
Taking new looks at old selling methods, and making constant, small adjustments to ways of presenting audio can spell the difference between survival and failure for c-tailers. "Customized, yet standardized, is very important to profitability," says Niles' Detmer, who says c-tailers can give customers a high degree of personalization at certain price-point in a distributed audio sale, while steering clear of time-consuming one-system-at-a-time designs that "make that model not very profitable," particularly when software program upgrades need to be executed. "Some c-tailers have actually gone under doing [one system at a time at lower tickets], because it's too darned expensive and erodes your margins," he says. With far-sighted companies now making "customized yet standardized" systems possible, "this is the first time ever that c-tailers can delight customers and their accountants at the same time," says Detmer.
The bottom line, says Gartland, is that the industry is seeing "a resurgence in high performance. People are interested in audio. It's been asleep for a while, and I think people are getting tired of background music and are going to keep wanting more than that."&000;&000;&000;&000;