Is ‘Irrational Group Behavior’ Killing the Industry?
“Margins - outside of speakers and headphones - have been compressed to near zero,” says Larry Pexton. “I don’t know where the [flat panel] displays of the future are going to come from.”
Indeed, in reference to lowering margins, Pexton dubs the current situation as “a mutual circular firing squad” and cites “irrational group behavior” by video manufacturers. In an interview with CE Pro, he also openly challenges custom installers (and CEDIA) to improve their selling skills and business acumen.
When Pexton speaks about these issues, it is from a position of authority. For the past 30 years, his company has been synonymous with the custom channel, opting to only sell through dealers.
“From 1990 on, you cannot separate Triad’s success from CEDIA’s success. Our growth rate and CEDIA’s growth rate are almost identical … right up to the peak year at Expo being 2007 and our peak sales year being 2007,” says Pexton. “Then the recession happened and CEDIA got a bit smaller and we got smaller, and life got harder. But I am happy to report that we’re now back into year-over-year growth and consistent profitability. So we are looking forward to keeping at it for a long time.”
Even with that diehard devotion, Pexton is openly challenging the industry. For example, he notes that distribution pressures are not new to the industry.
“There have always been big-box retailers, over-distributed product and disruptive forces in the pricing universe. It used to [be] mail-order houses and stereo discounters. The specialty guys have always had to figure out how to differentiate. I don’t think that problem has changed, but the democratization of information on the Internet has certainly accelerated margin reduction. That is the really profound problem that we haven’t figured out the answer to,” he says.
“Margins — outside of speakers and headphones — have been compressed to near zero. I don’t know where the [flat panel] displays of the future are going to come from, because every manufacturer in the display business is losing money. It’s a mutual circular firing squad.”
He adds, “It’s almost getting absurd how video manufacturers will over-produce their products and miss their forecasts and cut prices so they don’t lose marketshare. It’s completely irrational group behavior and gives consumers the expectation that everything will get cheaper forever, while removing the value equation from the distribution chain. It’s not clear how this can end happily.”
Industry Needs to Shun Compressed Digital Audio
Pexton also sees failings in the way the audio component industry has allowed the music industry to dictate the quality.
“The amount of entertainment software that is available now and the ease to which it is available dwarfs anything that was imaginable 30 years ago,” he says. “The quality of the playback has improved dramatically and consistently over time, but the music business has gone in a direction that has not taken advantage of it. Most of what’s out there on MP3 files is made with the same mindset that people used to have who put music out on AM radio … they want the track as loud as possible, which means it tends to be compressed and dull. And that’s a real concern. There is a little bit of a movement fighting that, but there is an awful lot of performance capability that simply isn’t being used or experienced by most of the world.”
Dealer Education Lacking
Meanwhile, Pexton cites his “greatest frustration” as the lack of education among integrators.
“The early generation of CEDIA was founded by a bunch of folks who grew up selling hi-fi,” he recalls. “They brought basic listening skills and selling skills that served them well if they got the necessary technical skills. A lot of the people coming in today don’t have that background. They don’t even have the basics of understanding speakers and acoustics. They may have the ability to sell systems, but they don’t necessarily have the skill set to install them in a way that gets everything they should out of them.”
“Where are the bright, young, up-and-coming manufacturers’ reps who will offer the right kind of education?” he asks rhetorically. “There is not a big hunk of them. So we’re not offering the right career path to people in the industry which will make this training model work. That points back to how important it is what CEDIA does in terms of training, such as making it available online.”
He continues, “Lack of business skills has been an ongoing issue forever. I would never characterize the CEDIA community as being filled with brilliant business minds. There are a few dozen guys who know what they are doing and run tight businesses. The industry is mostly intuitive folks who figure out how to share their excitement with clients and make it up as they go. If they survive long enough they kind of learn that they have to do better planning. Business management is still a weak point.”
Is Pexton right?