Let’s begin with The Problem. Over the past 18 months, the financial and business worlds have completely altered. Economic fundamental changes mean that the audio/video industry is forced to change how we do business—in a big way.

I am constantly speaking to dealers about how they are coping with the new financial market. Recently, for the first time, specialty dealers have begun to talk about changes in the market that are more than just low prices and over distribution. Many dealers are talking about the basic changes in how products are being sold to consumers: using less retail floor space, having lower overhead and not competing with the mass merchants on low-priced product. One of the realities of this change is that the market is going back to the 60s and 70s version of TV retailing, where the TV market was owned by non-specialty retailers doing business by price alone and specialty retailers may choose not to compete.

Other changes are also evident. Many of our customers have bought their flat screen and, like a kitchen upgrade, they live with the system for many years until it breaks or they move. There are few hobbyists in the video world.

I believe that Jon Myer of the late Myer-Emco recognized many of these issues, and determined that he couldn’t adequately compete using the model of his existing retail business—many larger stores covering the Washington, D.C. metro area. You need lots of retail traffic to make it work.

Although Jon was quoted as saying that credit was one of the problems, I don’t believe credit was the problem. Credit can be a solution (only short term) for those with low or no profits, but why do these low or nonexistent profits exist? They exist because sales are lower and, for most, expenses are higher or not manageable enough to compensate for the lower revenue. The business model for brick-and-mortar store fronts includes rent, HVAC, personnel to cover the floor, etc. Without a flexible landlord, the only way to lower your rent on a long-term lease is to declare bankruptcy.

Today, dealers are being forced to talk about the real problems: the issues of business growth and how to get it. Where is the future in connecting with customers? Does the role of the “trunk slammer” become the solution for customers looking for custom integration? In many consumer-service industries, the trunk slammer is king. For example, electricians and plumbers both use a similar business model. They first visit the work site and evaluate what products are needed to perform the work. Next, they go down to their local supplier, pick up their parts, return to the job site and go to work. A very efficient business model that requires limited inventory investment for the installer and virtually no costs in displays and showrooms.

So what’s a custom retailer to do?

For some thoughts on approaches to the market, I contacted Wally Whinna. Years ago, Wally served as a manufacturer’s representative in the Chicago market calling on many of the larger accounts in the specialty audio/video segment of the market, including United Audio (purchased by Tweeter in the 1990s). With his partners, Wally formed a distribution company, Allnet, and became part of the AVAD network of regional distributors. Until recently, Wally was vice president of sales and marketing for AVAD. Upon leaving AVAD in spring of 2010, Wally has returned to being a manufacturer’s rep. His thoughts on the current audio/video industry, why it it is where it is and what the future holds is of particular interest to the custom retailer.

Wally’s biggest concern is revenue. He commented that consumers may not be growing in large numbers and, therefore, marketing to your existing base is vital. He questions how many dealers are talking to their customers about technology changes such as Blu-ray and 3DTV. How many are becoming the custom integrator that introduces camera surveillance to consumers?

Wally notes that over the past eight months, AVAD has been making a concentrated effort to bring in products that make it easier for their customers to supply security and cameras to the end user. The availability and practical nature of these products and kinds of technology make it essential that the custom retailer market these products. Despite this clear potential consumer niche, Wally has not seen a great marketing effort made by the installers and custom retailers to promote these technologies and services to the end user.

Wally’s comments are very valid. As I have mentioned in past columns, I see a remarkably high number of proposals from integrators and retailers. I find that the proposals are not as exciting and dramatic as selling the goods. The last two I saw were for a whole-house system for the managing partner of a medium-sized law firm in New York City. Talk about boring. They could have been written six years ago. No wonder the customer is not jumping up and down with, “Let’s get this, it’s great!”

The basic strategies of upgrading consumers’ systems, bringing them newer technologies and showing enthusiasm in what we are selling is getting lost or not even being presented. iPod integration, game users, HVAC control convenience and energy management are just a few things you can talk about and, if not, all you will hear is a yawn. What happened to selling “the experience”?

Wally doesn’t see many of the custom integrators and retailers using even the traditional ways to sell customers more merchandise and make more money. Instead, dealers are in survival mode. They are not taking any risks and are getting few rewards.

On the business operations side, Wally’s perspective as both a distributor and specialty manufacturer’s rep is unusual. As an example, he believes that in tight credit markets it makes good business sense for dealers to buy their second or third line speaker brand through distribution and save the carrying costs of holding inventory. Since many sales are deliveries, the time exists to get the product from a distributor to the end user.

Throughout our conversation, we discussed the best way to generate revenue in a down market. We identified many possibilities on how to succeed in today’s economy—with special offers, system upgrades, new technologies and service, service, service. This requires managing a database of your customers.

In Wally’s experience, the custom guys are not leading the way in understanding the data collection piece. In many respects, security providers have better data as they have recurring revenue from their customers. Get your customer database up to speed and work your existing customers for all they are worth, even though it may be less than what it was two years ago. There still is a pot of gold with these customers…you just have to mine it to get the revenue.

You have to create some excitement, get up to speed with database marketing and generate sales. Revenue is the problem and the solution. CR