2009 State of the Industry: Survival of the Fittest

"Overall, CE business looks bleak in our market area." "Times are getting tough right now." "Business is down 20 percent."

Those are just some of the comments supplied by integrators as part of the 2008 CE Pro Annual Readership Study.

For the first time ever, integrators reported lower average revenues than those from the previous year. However, the spirit of the industry remains high, with bullish integrators predicting small growth in 2009.

Analysis of the data can be enlightening for integrators looking to gauge their own businesses. The goal of this report is to help dealers guide their companies while using industry averages as an informational resource.

Among the key areas analyzed in this year's report are:

• Projects -- The number of installations per company has increased by 21 percent (from 111 to 134) as integrators seek out smaller, repetitive installations.
• Employees -- The average number of employees fell for the first time, from seven to five (including the owner).
• Revenue -- Dealers report a -9.1 percent decline in revenue in 2008 ($1.09 million) over that of 2007 ($1.2 million).
• Prices -- The average price of an installation has fallen by 25 percent since last year to $8,164 per job. This can partly be explained by better technology that allows dealers to offer repetitive installations rather than starting every installation from scratch, as has been the tradition in the "custom" world.
• Markets -- Dealers are increasingly turning to commercial and residential retrofits in lieu of new home construction (kind of a no-brainer.)
• 2009 Predictions -- Integrators anticipate an increase of 5.7 percent in revenue in the year ahead.

A Positive 2009 Outlook and Expansion into Commercial

In the big picture, the news is not so bad.

Since 2003, the median revenue for a custom installation company has increased 75 percent, from $624,000 to its current level. So, in terms of the market's macro growth, 2008 is just a blip.

There are no indications that the year's revenue numbers represent the home theater market going DIY. Moreover, the bankruptcies of retailers with installation operations, such as Circuit City and Tweeter, will likely boost the future prospects of custom dealers as consumers seek other installation options.

More good news: dealers are still positive about 2009. With Wal-Mart and Costco pushing flat panels, someone has to install those TVs. Recent data from OnForce, an online marketplace for installations, showed a sharp increase in installation activity in the third quarter of 2008.

Likewise, commercial work is becoming a much bigger part of dealers' offerings. There was a 13 percent increase in the percentage of dealers doing commercial jobs in 2008 (69 percent) than those in 2007 (56 percent).

In the commercial arena, restaurants, bars and clubs are the No. 1 source of work, followed by retail stores, schools and colleges, houses of worship and hotels.

New Construction Slowdown Boost Retrofit Business

Overall, the housing slowdown has greatly affected those integrators closely tied to new construction.

According to the CE Pro Readership Study:

• 79 percent of integrators report that they are still working in the single-family new-construction arena, compared to 83 percent in 2005
• 71 percent of dealers are working in the existing home/retrofit market, jumping sharply from 63 percent last year
• 52 percent of dealer revenue is now coming from existing homes, up from 40 percent four years ago

More Expensive Homes Keep Luxury Strong

In the single-family home field, there continues to be a movement toward expensive homes.

In previous years, we've seen dealers reporting a "sweet spot" for installations in homes valued in the $500,000 to $750,000 range, which is a mid-priced home in many areas of the country. That sweet spot has migrated higher in the last year.

There has clearly been a move that shows dealers are now concentrating on homes valued $1 million and higher.