Best Buy, ADT, Vivint Take Different Paths to Success
Best Buy’s Geek Squad/Magnolia/AudioVisions couldn’t be more opposite in their approach to ADT and Vivint, but each method succeed.
There is an adage that “It takes money to make money.” In the case of the largest companies on this year’s CE Pro 100 list, that is certainly true. It’s how they use that money that’s intriguing.
Best Buy’s Geek Squad/Magnolia/AudioVisions integration divisions (total estimated $680 million in integrated systems revenue in 2011) couldn’t be more opposite in their business models than big security-based players ADT (estimated $162.5 million) and Vivint (verified $51.14 million), but both methods succeed. The common denominator is that all three have extremely strong financial backing.
In the case of ADT and Vivint, the financial fortitude allows them to subsidize the installation of entry-level home automation systems. For Best Buy, the financial size of the company has enabled them to build an unequaled market presence for their services due to a ubiquitous retail brand.
All three companies are attempting to morph from previous consumer identities. ADT and Vivint don’t want to be known as low-end alarm companies, which is why both are making strong pushes for their integrated solutions that combine security, thermostat and lighting control with surveillance cameras. Best Buy is transforming itself from being known as the mass retail reseller of consumer electronics to a more upscale integration firm.
Best Buy: Battling Walmart, Web Too
For many independent retailers and custom integrators, Best Buy and Circuit City were “the bad guys” in the A/V space for years. Circuit City disappeared and consumers did not turn to independent retailers to fill that gap, nor have they turned to Best Buy. Instead, the market has shifted to warehouse stores, Walmart and the Internet to purchase their electronics. Installation service is not an option with most of those providers.
So Best Buy’s villainous status has been softened as the company turned part of its focus to offering installation services through its Geek Squad, Magnolia and AudioVisions divisions. It has taken time, but those three entities are picking up steam in terms of offering integrated installations and for the first time Best Buy has entered the CE Pro 100.
Certainly, Best Buy has had some chinks in its armor with the recent announcement of a $1.7 billion quarterly loss, but that is primarily due to competition to its pure retail play from the Internet and other sources. The company’s home theater installation business via Geek Squad, Magnolia and AudioVisions is not the source of its recent financial troubles.
As a public company Best Buy does not specifically break out data on installation revenue for these divisions. CE Pro has gleaned its estimates for the ranking based on SEC filings and annual reports. In today’s world where stock prices rise and fall on rumors and speculation, any wild estimate for the official CE Pro 100 ranking could have consequences for Best Buy. So these are clearly educated estimates from CE Pro.
We could try to dissect the individual installation divisions of Best Buy using industry norms, but the best indicator as to how much Best Buy earns from highly profitable installations can be found in the annual report as well as some statements by the investment community.
Overall, Best Buy’s domestic income in 2011 was $37.186 billion. According to the annual report, 6 percent of its income is from “Services,” which is primarily Geek Squad computer repair and home theater installation. That equates to $2.23 billion of total revenues. But the vast majority of that Geek Squad business is from computer repair, which is not applicable income for the CE Pro 100 ranking. However, Geek Squad has become the primary home theater installation arm for Best Buy.
At the same time, Best Buy operates six stand-alone Magnolia stores (and 280 inside Best Buy), which specialize in installing home entertainment systems. Magnolia’s revenues are not broken out..
Finally, the company owns AudioVisions, a high-end integration company founded in 1989 and based in Lake Forest, Calif. AudioVisions designs, engineers and installs ultra high-end integrated systems. The company was purchased by Best Buy back in 2005. At the time, AudioVisions did about $7 million in revenue, but has grown substantially.
Today the company has offices serving three California markets: Southern California (Lake Forest location), Northern California (San Rafael location), and Desert Communities (Palm Desert location). At the time of acquisition, AudioVisions had approximately 50 employees, and the vast majority of its business came from one Southern California location. Today, the company has 80-plus employees.
With all that as background, according to Wikinvest, 4 percent of Best Buy’s total domestic revenue stems from offering home installation through several venues: Best Buy in-store employees, Magnolia Audio Video stand-alone stores, and Magnolia Home Theater centers within Best Buy stores.
“Most of Best Buy’s installation sales come from consumers who desire installation services for their newly purchased home theater products such as flat-screen TVs and surround-sound audio systems. Home installation, like Geek Squad sales, makes up a very small portion of total revenue (less than 4 percent) but is a high-margin business,” says the investment website.
With that as a guidepost, it means the estimated cumulative installation revenues for home entertainment from Geek Squad, Magnolia and AudioVisions for Best Buy could be as high as a staggering $680 million. Using the CE Pro 100 average revenue per job, that’s an estimated 119,500 installations.
Jason Knott is Chief Content Officer for Emerald Expositions Connected Brands. Jason has covered low-voltage electronics as an editor since 1990, serving as editor and publisher of Security Sales & Integration. He joined CE Pro in 2000 and serves as Editor-in-Chief of that brand. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He has been a member of the CEDIA Business Working Group since 2010. Jason graduated from the University of Southern California. Have a suggestion or a topic you want to read more about? Email Jason at firstname.lastname@example.org
Follow Jason on social media:
NewsCEDIA Find: Cellgate’s Cell-Based Access Control with Streaming Video; Control4 Integration
People & Places: Ui Supplies Event; Azione Canadian Dealers; Atlona, ETA; Environmental Lights
Product Briefs: Metra at Nationwide; Kenny Wayne Shepard, Dolby Atmos; EPV Partners with D&H
Escape CEDIA Expo! First-Ever Delos Wellness Pavilion Offers Biophilic Refuge
Tiny Soundbar Solution Solves Tricky Audio Project
View more News