Home contractors are a prime source of revenue for C-tailers, systems integrators and manufacturers willing to understand the landscape

By Nancy Klosek

One’s destined for the kitchen and the other for the living room floor, but the similarities that exist between Corian countertops and carpeting are self-evident to any home contractor.

Both figure prominently on the list of needs that can be met

by trusted and familiar suppliers who know the ropes in house-building. Builders can work seamlessly with such providers in

an opportune fashion and then move on.

But what does it take for consumer electronics integrators to make the subcontractors “A” list in builders’ minds? And what

are CE manufacturers doing to help ease the way?

NOW IS THE TIME

Until very recently, the idea of C-tailers building relationships with builders was little more than a peripheral topic, of interest to a handful of custom installers and CE brands willing to branch out of their comfort zones of expertise.

“There were a few custom installation guys who made relationships,” recalls Sonance Vice President Mitch Witten. “They’d get the pre-wire jobs to do, and then get the systems work for those home buyers who wanted it. It was a kind of quiet business, because CEDIA was focused on custom homes and retrofitting at that time, with the minority of membership involved with tract homes.”

The landscape started to change about five or six years ago, Witten says, when “builders started to ‘get it’ and realize that distributed audio could be a part of the mortgage. It began to trickle [into their consciousness] and in the last three to five years, it became something you saw way more often.”

“Ten years ago, there were difficult conversations with builders,” observes Jeff Goldstein, director of marketing for Sony’s Consumer Systems & Applications Group. “They weren’t into consumer electronics. But now, [consumers are] looking for the ‘rest of the story’ [beyond cable, satellite, telephony and data]—they want integrated A/V entertainment.

“The idea of ‘built-in’ is becoming a little more common for consumers, too,” he says. “They’re hungry to be rid of the traditional A/V stereo receiver they’ve had since college in a rack with a big ball of wires hanging out in back. They’re looking to make it more a part of their homes. The appeal is ‘put in on the move-in’. Also, the cost of doing it after the walls are closed rises about 400 percent; it takes a great deal of labor to fish wires through a wall.”

“As product categories mature, better product reliability is attracting more builders these days,” says Integra/Integra Research national sales director Mark Weisenberg, “There’s less pain in it for them.

“Builders want to make money,” he adds about the swelling of interest in abdicating these particular job responsibilities to customizers. “Integrators offer home theater, security, central vacuum and sometimes even whole-house control and networking,” he says.

“Some builders have tried to offer these things on their own in the past, and have had bad experiences because they asked their electricians to take over low-voltage, and that doesn’t work. The high-voltage guys aren’t trained in low-voltage.

“Electricians typically use eight to 10 parts in a house—very basic materials. Low-voltage installers need to understand many more parts than that.”

“The typical goal of a builder is to go out of business as fast as possible,” says SpeakerCraft President Jeremy Burkhardt, explaining the fundamental difference in mindset between home builders and service purveyors on the consumer electronics side of the fence. “They want to buy the land, put houses on it, sell the homes and be done. So in the past, many have seen the A/V contractor as a nuisance, getting in the way of completing a home-building project in a timely manner.

“Recently, they’ve begun to embrace our industry. But builders won’t do anything to a house that they don’t feel they have to.”

THE INTEGRATORS SPEAK

Sean Fields is well aware of the legwork involved in forging lasting, mutually reliant liaisons with builders.

Fields is president of Laguna Niguel, Calif.-based Audio/Video Entertainment, which set up shop in 1986 only after establishing relationships with contractors—seven of whom Fields counts today as “major building partners”—as well as a few boutique builder partners.

Perhaps because his dealings with builders are so longstanding and deep-seated, Fields senses they have no “special preconceptions about the consumer electronics industry. They pretty much see it the way the public does—i.e., rapid change, confusion, complexity, et cetera. The only thing that helps builders’ awareness is experience working with quality integrators and the education we supply their workforce.

“Educating the builder workforce is a constant challenge which I predict will never change. The only way this relationship can work is for the integrator to spend a lot of time and energy educating the builders.”

Integrators who have arrived on the scene later than Fields did have had to determine, through trial and error, the best ways to navigate this terra incognita.

Gary Yacoubian, president of the Washington, D.C., area’s Myer Emco Audio Video retailing operation, has honed his approach to the builders trade to the extent that he knows just when to hold—and when to fold—in his dealings.

“It’s an important strategic part of our business that we approach from several angles,” he says. “We have an outside sales force as an outreach to builders. We have end users who get us involved with builders. And via our stores, we have interaction with them. Some come to us, and sometimes we go to them.

“We go in with our eyes open now. In fact, we terminated our largest builder relationship because it was not profitable. The builder was unreliable and they didn’t make payments. The other relationships we’re in, though, are all win-win.”

Yacoubian says one very wise decision, made around five years ago, helped entrench Myer Emco in builders’ minds: its purchase of a security company. But Myer Emco’s retail equity is perhaps its most valuable currency. “We are known in the market,” says Yacoubian. “We have the brand name, and the reputation of our bias towards providing great custom service work.”

Not only can a retail “brand” help establish credibility with builders, but builder relationships often can directly benefit retail sales.

Says Ted Hollander, vice president at Winter Park, Fla.’s Absolute Sound, “We have always had good working relationships with some of the top builders in our area.” The builders business, he adds, “accounts for 25 percent of the total sales of the custom division. It also has a positive effect on our retail business. [One way it does this is that] we work with custom builders in the area to make sure they’re pre-wiring their stock homes—that way, it has an ‘Absolute Sound infrastructure.’ Then, the builder sends the home buyer to us, to our retail store, which outfits them with equipment, which we still install. All of a sudden, we’ll get clients walking in, saying, ‘My house is wired. Tell me what I need.'”

Still, pitfalls may occur along the route to smooth integrator-builder relations.

C-tailers have had to disprove early preconceptions among builders about the CE business. Says Hollander, “For years, it was pretty negative. I can recall a house built for a local parade of homes in the early ’90s. The house was advertised as an ‘electronic home,’ and featured lots of technology—nothing that far-fetched, though. The house did not sell, and for quite some time the local builders ‘blamed’ the electronics system for the house not selling.

“In general, custom builders have been slow to embrace technology for their spec homes, even if their customers are having systems done for their custom homes. Due to this, for years, my builder business was exclusively with custom builders. They would have their clients come into Absolute Sound for a consultation, and from there, we would design a system for them. This worked very well, as it took the builder’s opinion of theater, lighting control, et cetera, out of the equation.

“It’s better now than it has been, though,” says Hollander. “Builders, it seems, have begun to accept technology, but are still conservative as far as pricing [of systems] goes. However, high-end builders bring in clients and give them to the A/V guy—which is me.”

It’s a mistake for installing retailers to look at builders through the same lens with which they view cash-and-carry trade, warns Hollander. “They can be slow to pay, and you can’t get the money up front, because they work within a different set of rules—those rules that apply to the kitchen cabinet guy, or the fireplace guy. You’re playing a different game with builders. To them, you’re just another subcontractor, versus being an A/V retailer; we’re used to getting paid right away. Retailers need to realize that, going in.”

Fields, whose company performs over 3,000 jobs a year, ranging from pre-wiring to large-scale projects with dedicated theater rooms and whole-house automation, observes that while builders may be slow payers, they conversely demand that “the integrator’s business [must] be organized around speed. Most integrator companies aren’t set up to run fast enough.”

Yacoubian prides Myer Emco on being “small enough to create custom programs for what builders want.” One such accommodation to builders’ needs has taken the form of turn-on-a-dime flexibility, as manifested by the recent formation at Myer Emco of an outside sales group unrelated to retail.

“The second thing,” Yacoubian explains, “is something from which we’ve recently realized a more subtle benefit. We formed an operations team just for dealing with builders. When builders now call and say, ‘The dry wall’s going in tomorrow; be here,’ we can, because the team is a dedicated one. Also, our project manager has the ability to hold lots of on-site conversations, so there are fewer surprises down the line.”

THE MANUFACTURER FACTOR

Most manufacturers who choose to plumb the builders market work proactively with the dealers and installers who handle their goods to tell the CE story in a way that connects with builders. Then, they help enable builders to tell home buyers that same story.

SpeakerCraft provides dealers with model-home programs whereby they can offer SpeakerCraft at 50 percent off when installed in new-construction homes, says Burkhardt. “We also prepare special sales-support literature for use [that is] consumer-oriented and appealing to women. Also, we’ve gone in with our dealers to builders [at the local level]. It’s a geographically driven business, and builders like to do business with regionally located people.”

Integra’s Weisenberg agrees: “Manufacturers approaching builders in their national headquarters and pitching a presentation historically hasn’t worked.” He says that when manufacturers try to deal direct to builders, they usually fail “because the selection, installation and servicing of these products needs to be done at a local level, and manufacturers haven’t been able to deliver those functions.”

“We don’t sell direct to builders at all,” says Witten of Sonance. “We sell through our dealer network or through our distributor network. We have show-model-home programs, those that let them get products into model homes. We work with our dealers, who, in turn, work with builders.”

Integra, whose business is “over 95 percent installed, with, I’d say, 99 percent of our products installed by a professional,” according to Weisenberg, “doesn’t develop builder relations directly, but through our integrators only. That’s a conscious decision we’ve made. Our integrators know how to canvass markets to find new construction opportunities, meet with local builders, present their services, product categories and whatever else they offer. Then, both parties can come up with a plan to increase the value of homes.”

Sony offers what Goldstein calls a multi-part “integrated solutions concept” geared at the builder market. One tier, which consists of pre-integrated, pre-racked solutions with programmed remotes whose elements vary depending on product configuration and TV selected, ranges from $7,000 to $30,000 and is aimed, he says, at “new homes from $350,000 to $400,000 on up. It provides a way to get a built-in entertainment solution, with all wires hidden. They’re getting a high-end custom installation experience delivered at a price point that a typical A/V integrator couldn’t deliver—and all mortgageable.

“We’ve taken the engineering and the integration labor out of the equation for the installer so they’re now in the sell-and-install business, as opposed to the engineer-sell-and-install business. That pulls a lot of the cost out of it for the consumer. We prototype the system, make sure it’s perfect and amortize the cost of engineering of that system over hundreds of systems where each time, the installer, traditionally, would go out and have to re-engineer a system.”

The second tier, he says, is a modular home-network approach trained on more entry-level home buyers, delivering “systems that are less custom and more reasonably priced”— more of a “cookie-cutter” approach. “This is an area that will become more interesting and profitable as time goes on,” says Goldstein. “At this level, you can put together a nice multi-room system—a home theater and two rooms—for, say, $5,000.

“I want to be very clear that these systems are being delivered through installers to builders. Although we are talking to builders about these products on a marketing level, we do not directly sell builders, and will continue to sell through our installer channel,” Goldstein says. “When you have a bathtub going into a home, you need an expert to install it. So it’s important, we feel, to have a qualified installation partner. We’re also sensitive to the builder’s project management needs as well—their need to close the home on time—so we make sure the products are where they have to be, when they have to be.”

BUILDERS AND THE FUTURE

Some manufacturers, however, deeply engage builders directly. Integrators and other manufacturers profess diverse opinions about such vendors.

“I’m not a fan,” says Hollander, but he admits that it could “raise the level of ‘standard equipment’ across the board.”

“It’s a non-issue for us now, but certainly on our radar screen,” says Yacoubian. “It could be a good thing to trumpet brand names. But the builder has no expertise. And we will not ever go in if we’re not providing the product. The real constrained resource now is the expertise.”

Says Fields, “For things like flooring, appliances, et cetera, I see no problem with it. When it comes to consumer electronics, however, it doesn’t work well. Consumer electronics are systems with many different components from many manufacturers. When a builder goes outside his relationship and mandates a certain product line, this creates massive problems for everyone involved, especially when it involves audio systems with proprietary wiring. I have yet to see such a relationship work.”

SpeakerCraft’s Burkhardt, himself an ex-installer, offers, “If a manufacturer tries to use dealers as a service channel and sell directly to a builder and pay the dealer to install it, any dealer considering installing things they didn’t sell would have to be brain-dead, and you can quote me on that. They’re doomed to failure.”

“There are several ways that manufacturers can relate with builders,” says Integra’s Weisenberg. “They can relate directly, deliver product and subcontract out the installation. But historically, that hasn’t worked in terms of receiving product, finishing and installing it correctly. Also, the selling of products in that type of relationship has often tended to be left to real estate agents, and they don’t know how to sell them.”

Opinions, while all over the map on the above issue, dovetail, however, when it comes to assessing the profit landscape ripe for mining by smart C-tailers and integrators.

“Any dealer not aggressively going after the tract-home and high-end builder,” says Burkhardt, “is missing a huge growth opportunity. Whole-house entertainment is something everybody wants.”