Part V back in January was supposed to be the final installment of my post-CES chronicles, but we'll add a Part VI to look at how all these products are getting to market. Each of these posts includes a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. This one is less about CES and more an essay about the rising power of distributors in home theater...
In 2005:
Go back ten or twenty years, and there were two main distribution channels to bring home audio and television products to market: big box retailers, and specialty audio retailers (some of whom were branching into home theater with the advent of large screen televisions, laserdisc players, and surround sound). Today there are two more ways to reach consumers: the Internet, and custom installers, also called the CEDIA channel.
To service custom installers, major distributors are gaining power. Common in the computing industry, a distributor is simply a middleman - a large wholesaler with a warehouse who takes on inventory and then resells it to retailers (or, in this case, to custom installers). Nobody likes a middleman because they add costs, but when you have a lot of small retailers placing small orders, manufacturers often cannot deal with them; enter the distributor. In the world of computing - particularly small business-oriented products, VARs (Value Added Resellers) provide a lot of the IT services used by law firms, florists, etc. When they need a network firewall or piece of software, it is far more efficient for everybody for the VAR to call a major distributor like Ingram Micro, which specializes in putting together small orders, rather than try to open an account with Microsoft or Cisco.
At CES...
CES isn't the primary show for custom installation, that would be the big CEDIA trade show in Indianapolis in September. But it was interesting to see how the CES Show Daily (a thick daily trade show paper produced just for CES) was chock full of distributor ads touting A/V equipment. Distributors are riding the custom installation wave, a market that is becoming seriously crowded.
- For starters, a lot of the independant A/V stores are having a really tough time and are essentially becoming custom installers themselves. Consumers have been putting more money towards big screen TVs, which are low margin in the best of times. To compete with the big box stores, smaller retailers often sell TVs at a loss, and hope to make up the margins on speakers, which are far more profitable. But audio sales are down - the Wall St. Journal reported earlier this month that audio sales dropped 12% last year as consumers bought more plasmas and iPods and fewer speakers and receivers. This is not true across the board; I interviewed an employee at a local high end A/V mini-chain who told me he's having a banner year. His secret: he refuses to sell plasmas without an accompanying set of slim speakers from Definitive Technologies or KEF. But when audio can't pay the bills for cut-rate video pricing, then the other option for independant retailers is to make money on services, specifically custom home installation.
- Electricians are moving from one low voltage specialty - custom lighting installation - to other (ostensibly similar) low voltage jobs: computer networking, whole house automation, and home theater. True, some knowledge of acoustics would certainly be useful (read: ought to be required) before an electrician is qualified to set up a home theater. But there is a definite convergence between home automation, networking, and A/V underway already, and nearly every custom A/V job requires an electrician at some point, so this trend is likely to accelerate.
- Finally, traditional custom home theater installation benefits from the decor-friendly plasma push. Many consumers are not capable of installing a plasma on their own: it's made of glass and must be uncrated properly, it's heavy and brackets must be mounted on studs, and it requires A/V sources to be in the right spot if a wall mount is going to look professional. Most consumers are not capable of installing in-wall speakers, which require cutting into drywall and pulling wire through walls.
The main reason why distribution makes sense for CEDIA members (and their retail and trades-based company) is structural. Custom installers typically need small orders from several different manufacturers drop shipped directly to the work site on an irregular basis. This is something a distributor is designed to handle, and nearly impossible to replicate by setting up one-on-one relationships with manufacturers. Distributors are now advertising that not only do they own inventory, but they hold it at mulitple warehouses around the country to provide just in time delivery on products so that installation schedules don't slip. Distributors higher up in the food chain ("Value Added Distributors," or VADs) also take over some of the mix-and-match/training functions that can help an installer hone in on just the right doodad for the job.
-avi
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