Winning and Losing In Las Vegas - Why The AV Business Desperately Needs More Consumer Demand

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The push pull relationship between audio video companies and their traditional dealer base is the absolute definition of a dysfunctional relationship. AV companies expect dealers to "push" their products so dealers demand high profit margins - yet nearly all dealers refuse to do a lick to market themselves to new customers. Dealers actually expect customers to beat their doors down to buy expensive and profitable consumer electronics just the way they did when consumers were flush with cash in the mid-2000's (thanks to them spending home equity on flat HDTVs). As we now know, that home equity evaporated into the ether. AV companies need to rethink their product offerings and find ways to market their products more effectively. Dealers need to build local support. Stereotypically, neither party wants to invest a penny in marketing with both sides twiddling their thumbs waiting for the recession to end and not seeing that the new economy has already started.

These realizations are not new but as I am just coming back from a long weekend bachelor party in Las Vegas (and no I haven't seen The Hangover yet) - I have a new perspective on the issue of how and how not to create consumer demand. It's safe to say the city of Las Vegas has been as hard hit by the current recession as any other area in America. One real estate investor recently told me of angered homeowners who, upon being foreclosed on, actually dump bags of cement into the plumbing of the house before they leave. Talk about a parting gift for the new owners! But even with that kind of acrimony - and also including the oppressive 115 degree heat - Las Vegas is still booming. Don't believe me? Try and get a good hotel room on the weekend even in the depth of the summer. Look at the lines at nightclubs like Pure at Caesar's Palace or Tryst at the Wynn or XS at Encore. They have - and I am not making this up - 2,000 people waiting on line for the right to pay a $45 cover charge that allows them to stand up all night and purchase $20 a pop cocktails. And that's on a Thursday night. If you want to actually sit down you need "bottle service" which entails you springing for at least one bottle of, say, Absolut or Grey Goose for the inflated price of $450 a bottle. The good news is the mixers are included. And in case you're wondering, the hookers are not included but are certainly attracted to any guy sitting there with bottle service. Some things never change in Las Vegas.

While I personally can't stand hip-hop music and I am revolted at the idea of paying $450 for a $32 bottle of Grey Goose - I must admit that I am impressed with the fact that entrepreneurs like Victor Drai and the club promoters at Rehab at the Hard Rock Hotel get thousands and thousands of people to literally hand over days of their pay for the right to pay for seemingly over-priced goods and services. These promoters know how to create demand and lots of it. They have vast mailing lists, VIP clients (we were sitting next to Jerry Bruckheimer and his entourage at Rehab yesterday), PR firms that get their messages everywhere from television to gossip magazines and beyond. They are an Obama-like promotional machine that gets people to part with their money in ways I have never seen before at a time when people likely shouldn't be spending that way for a cocktail or a pool party. Legitimately, what you spend on a cabana on a Sunday is realistically enough for a down payment on a home in the Las Vegas area. And trust me - the cabana isn't that big - yet there wasn't one not sold. We were told that in the 20 weeks a year of the Rehab party at the Hard Rock Hotel, the promoter's gross is $7,800,000.

The business model of the top nightclubs and parties in Las Vegas is an example of what can be done with a well crafted campaign built around consumer demand, but before I got to any of these hot spots, I took a visit with a dear friend of mine who is literally turning around a large format brick and mortar store near the Mandalay Bay. Built into the former Lamborghini showroom, this 11,000 square foot luxury superstore reminded me of every "build it and they will come" showroom in AV history ranging from Christopher Hansen Ltd in Beverly Hills to SoundEx in Philadelphia to the failed Cello Experiment in the go-go 1990's. All of them failed at one stage or another, a fact my good friend knows very well as he is working a complete 180 for this store. The demo rooms were spectacular and numerous. Ranging from Theo Kalomirakis-designed themed theaters to a $1,800,000 CAT/Runco-based large format home theater - the store has everything. Kalidescape and Crestron in every room. Krell and Mark Levinson. They have everything except enough customers beating down the door to get a demo, which is a problem built over the last few years. Just as Las Vegas moved from their "family town" marketing of the 1990s to their "Dubai-west" cost-no-object phase - so went this retailer. People in Las Vegas demand high value for their audio-video dollar. While Paradigm and Anthem are being sold there on a daily basis (both lines brought in by the new leadership), $22,000 high end plasmas complete with video processors aren't selling for $2,200. $500,000 CAT speakers painted Ferrari red sit in a warehouse waiting for the right home at "pennies on the dollar" price. Krell piles up. Lexicon, Theta, Revel Gems and other goodies are waiting to find the right home. The store just needs to find the right customers, which the new leadership is doing a good job at, considering the current climate. They just sold a pair of Krell Master Reference amps and reinvested the proceeds into new, relevant and value-oriented products.

Those with vision see that going forward everything is different in this new economy. People do want to spend money but you have to find them and then propose a truly fair value. From the dealer side, this means skipping the occasional $20,000 print ad in a local "lifestyle" magazine for a well-purposed Google Adwords campaign. Moving forward, this means collecting email addresses and building databases of clients who are enthusiastic about AV gear and inspiring them to upgrade over and over again. From the manufacturer's perspective - they too need to get people in the door at retailers. There were a handful of lines on hand that won't sell for ten cents on the dollar. That's simply shameful.

Amazingly, the fallout from dealer and manufacturer arrogance and mismanagement hasn't landed in Las Vegas or elsewhere around the country. In the past week, I heard of the failure of two of the absolute best AV dealers and installers who simply couldn't make a go of it in the current climate. If dealers want to succeed, the best solution is to create consumer demand and get people buying again, as there are still people with money out there looking to spend. Today, they want and get more value and performance for that dollar and they don't necessarily beat down a dealer's door to buy what the dealer is "pushing". They've been on the Internet. They've done their research and they want a deal. The dealers who can get them into the store and close them will be the ones who survive and thrive as our economic woes are deeper than a 6 month "bounce back" recession, yet there are retailers who will take this time to simply grab market share and run with it. Those dealers in five years will be raking in the money like the nightclubs and beach parties all over Sin City.

The best part of my trip was when the phone rang with a sales lead from a direct mailer. Somebody wanted an Anthem D2V AV preamp and one had just arrived for inventory. The guy drove three hours the next day and bought it for a fair price. There is hope and there is demand for those looking in the right places.


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