A New World Order - Where and How To Sell Specialty AV Gear Going Forward

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A few weeks back, HomeTheaterReview.com ran a featured article called "Nowhere to Sell" that outlined the rise and fall of many specialty and big box retailers in the current market. The landscape of where specialty or "high-end" audio video goods are sold has changed drastically in the last 12 to 18 months with the catastrophic failure of Circuit City, Tweeter, The Good Guys and countless regional players, some of which are now closing their doors after 30 to 40 years in business. The idea of competing with price-first, service later (if ever) warehouse stores and shopping clubs has been too much for most specialty dealers to deal with, while custom installers are reeling from secondary effects of a seemingly paralyzed real estate market.

Often lost in the gloom and doom of the CNN reports about the economy or who's going bankrupt, who's reporting bad quarterly results or who is firing a thousand more people is the fact that consumers actually still deeply desire the electronic goodies that the specialty AV business makes, markets and sells. Ask 100 people at any airport terminal or street corner in America, "Would you like to have a bigger HDTV?" and you are likely to get 100 people answering enthusiastically, "Yes." Show them what Blu-ray looks like on a calibrated 1080p set and the love affair only deepens. Demo for them DTS Master Audio or Dolby TrueHD surround sound on even a modest receiver-based 7.1 system and you will have regular Joe Consumers wishing they could spend out of the now-depleted equity in their homes all over again. Employed or not, flush with cash or not, consumers want what the specialty AV retailers and custom installers can deliver, and that is a very good sign for the future for a business that has never really seen a significant slowdown in sales since the advent of VHS in the late 1970s.

I am not suggesting that doing business as usual will cut it in today's market or in going forward for the specialty AV business. Consumers know when they have money to spend that those dollars go further than they used to just a year ago. They want electronic sizzle as well as real value. Gone are the days of implied value, where some brands could live on their reputation, enabling them to sell CD players for $10,000 or overpriced floor-standing speakers or flat HDTVs that cost twice the price that one can find online or when buying them next to a industrial-sized box of cereal. Today, consumers want more integration and ease of use for their dollars. They want 1080p video, slick media servers, loaded music players, whole-home automation and much more. The dealers who are going to survive must adapt to sell these consumers what they want in a world where you can drag home a 60-inch plasma from Costco for less than $2,000. The value must be there or the sale won't. It's that simple.

Rethinking the Specialty AV Retail Location
More than 15 years ago, I worked for two of the highest-end retailers/installers in America, Christopher Hansen Ltd. and Mark Levinson's Cello Music and Film Los Angeles. Both Chris Hansen's and Cello were located in some of the toniest neighborhoods in Beverly Hills and West Los Angeles, and catering to those monied customers helped me sell my fair share of Wilson WATT Puppies, Faroudja LD100s, Cello Performance Amps and Vidikron Vision One CRT projectors. Today's market for the very high end is vastly different than it was 15 years ago. Wealthy clients don't bang down your doors to buy the most exotic high-performance gear the way they used to back when an audiophile print magazine could land you a handful of profitable sales with little to no work. In today's market, in order to sell a $30,000 source component, you might need to show someone how a media server can store and distribute 2,000 movies with iPhone-like fingertip control before you earn the sale. The idea that a retailer is the "exclusive dealer in (fill in a city)" for a particular brand and/or a Yellow Pages ad isn't good enough to keep the doors open any more. Consumers are demanding more and the most forward-thinking retailers are making moves to be more relevant in the years to come.

If I were going to go back into the high-end retailer or custom installation business (which I am not), I would look at my rent more as an advertising expense than as traditional overhead. The B&O store's location on Rodeo Drive draws in international shoppers to start the dream of owning their expensive electronics more than any Google Ad Word or print ad, which is how they justify the astronomical rent in Beverly Hills. Dealers who locate their showrooms close to design centers and work the trade find architects, builders and designers to bring them clients. Genesis Audio-Video in Irvine, California, is one of Orange County's biggest installers and retailers, with a retail location in the same area as a Best Buy. Definitive Audio in Bellevue, Washington, is located across the street from a Best Buy, too, and they are most successful single store AV location in America. See the trend? On the other side of the spectrum, custom installers like Simply Home Entertainment that have existing designer and builder clients but don't need an active showroom dump overhead altogether, opting for a very professional yet somewhat affordable small suite in Beverly Hills. This is not traditional thinking when it comes to specialty AV retail, but rethinking the specialty AV location is going to be key to future success for dealers and installers alike.

Getting Way Out of the Box
Recently, I had the privilege of flying from Los Angeles to Scottsdale via private jet, which is truly one of the world's great luxuries that I desperately wish I could afford more often. The FBO (an FBO, or "flight-based operations," is basically a private jet airport or terminal) that we landed at in Scottsdale was loaded with goodies for the super-wealthy, visible from the first second you get off the jet and walk in the front door. Likely because of the Barrett-Jackson auto auction, there was a pimped-out Rolls Royce Phantom available for play. There were Warhols, Calders and Lictensteins hanging on the walls, as well as an eager art broker willing to wrap one up for you if you just happened to want to take it home with you on the G450. Get this - these salespeople actually have their offices located in the FBO. I have given Mark Levinson grief for pricing their No. 502 AV preamp at a staggering $35,000, but I could understand it if they were selling it in the FBO that NetJets flies into, because somebody who can pay $139,000 for 25 hours on the smallest jet Warren Buffett will rent to you can pop for a Mark Levinson No. 502 and all of the other goodies that go along with it. This is targeted marketing that is in touch with the needs of the people that can really buy the big-ticket AV gear. Audiophiles buy their gear on Audiogon, yet protest when their local salon goes out of business. High-end dealers need to find high-end clients and moving into your local FBO is a potentially affordable move with high upside, even if only one high roller graces your presence each year.

Leaving the gaudy world of private jets, another slick way one might rethink selling audio/video comes from the playbook of Bose. I know what you are thinking and stop - Bose is on to something here. Did you know that Bose sells their products at outlet malls? It's brilliant when you look into the concept. While their pricing and pitch implies that the gear is somehow B-stock, it mostly isn't. Selling in an outlet mall can potentially be less expensive in terms of rent than many other higher-end shopping malls or centers. However, the sheer traffic of customers is off the charts. I openly admit that I drive over an hour from Los Angeles to buy my golf shirts at the enormous high-end outlet mall in Cabazon near Palm Springs. Not only are their prices lower than the local pro shop by a large margin, they also have the best selection of shirts, shorts and other golf clothing. Simply put, it's worth the trip. Every time I walk past the Bose store in Cabazon, it is packed with customers oohing and ahhing over a Wave Radio or a pair of 301 bookshelf speakers. If I were a retailer, I would open relationships with brands that allowed me first crack at their B-stock, returned and close-out items, which would also include high-end gear. Especially with the big-dollar items, I would put them on eBay and Audiogon, as well as on the floor of this new-school salon, just as Jimmy Choo, Giorgio Armani, Zegna and Prada do. First-come, first-served would be the mantra and, when 14 buses loaded with Japanese tourists on their way to the Pai Gow Poker tables in Vegas pull up to the mall, don't be shocked to see a few pairs of last year's Revel speakers or a Mark Levinson amp sell, too. Find me a specialty AV dealer that can pop a $10,000 amp like that today and you will have found a Top 10 dealer for the audiophile brand. It's a new, out-of-the-box way of selling profit-laden product. For the consumer, it is a new way of buying audiophile and specialty AV products, which allows companies to move through their inventory to make way for new gear in meaningful new ways. Remember five years ago? People went to Circuit and Tweeter or Costco and Wal-Mart. Things change fast in the world of retail.

Let's assume AV retailers hate rent, because I do. Imagine creating an old-school audiophile store with some of the most up and coming or under-distributed brands that doesn't have a physical store. Your deal with the brands is that you will floor "one up and one back," meaning for every product you sell, you have another one in stock. Consumers get an in-home demo for 15 or 30 days if their credit card checks out. If the local dealer will not floor enough high-end AV preamps, this virtual retailer will. This isn't as much of a competitor of Amazon as it is a rethinking of the audiophile store. The sad fact is that there are easily 500 brands of solid AV components that can't create enough local demand to allow for active demos in audiophile salons. However, this virtual model is a different store. If you are moving $20,000 to $30,000 a month worth of gear, a retailer could make a strong argument to a smaller electronics, cable or speaker company that this Internet dealer should be the exclusive online reseller of the brand, and who could complain? Certainly not the customer, and isn't the customer always right?

Looking back, I was wrong in predicting a return to the regional chains like Dow in San Diego, HiFi Buys in Atlanta and Bryn Mawr Stereo in Philadelphia. Even Circuit City can't find anyone willing or able to make a run at relaunching their retail stores, although I believe Circuit will be back as an online play sooner than later. The regional chains are a dying breed. There used to be three or four chains in every major market, as well as national retailers. So many of the best specialty retailers can't keep their doors open and the ones who are going to make it are going to need to rethink how they do business. If you want to sell very high-end components or systems, you need to find clients, which is no small feat. If you want to beat the warehouse stores, you have to produce value as well as service, as prices can always drop, but nobody is going to program your remote or service your HDTV at home from Wal-Mart.

The simple fact is consumers still want what the specialty AV business sells and they want it badly. In the coming months, banks will be lending again and people will start buying houses again. In a few years, the money lost in equity from all of our homes won't seem as extreme, yet the desire for the latest in HD, audio and home automation will be stronger then than it is today. The dealers who understand the needs, wants and desires of consumers will get their fair share of the CE business that looks today like it belongs only to Best Buy, Costco and Wal-Mart. The truth is that Best Buy, Costco and Wal-Mart only bring more consumers into the market, thereby creating new potential clients for specialty AV. The trick is finding a way to sell to them that is different than the traditional audiophile salon or strip mall retailer.


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