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Big-Box Custom Installs?

I'm writing this in the waning days of July, and two hot stories that just crossed the wire moments ago detail how both Best Buy's Magnolia division and Circuit City will attempt to capture a bigger piece of the custom residential installation business.

I'm writing this in the waning days of July, and two hot stories that just crossed the wire moments ago detail how both Best Buy's Magnolia division and Circuit City will attempt to capture a bigger piece of the custom residential installation business.

My first reaction to both releases is simply to laugh, given the mass-market approach both stores take: pushing everything from AV receivers and flat-screen TVs in their cavernous stores. For these guys, it's all about getting the best price from manufacturers and then pushing the product through the door.

But it's getting more difficult to survive on that business model, as Tweeter found out last Christmas. The company went into Chapter 11 bankruptcy and was only recently bought in a $38 million deal with Schultze Asset Management, a privately held portfolio company in New York. The new company will be known as Tweeter Newco (how imaginative!) and apparently the strategy will be to concentrate on luxury AV products and installations.

In the first story from TWICE, Magnolia's president, Jim Tweten, was quoted as saying that going forward, new Magnolia design centers would operate from 3,000-square-foot showroom/design centers located next to Best Buy stores and Magnolia AV locations, targeting architects, luxury home developers, and affluent consumers.

Apparently, the strategy is to take the company's substantial market clout and develop a three-tier retail position, from walk-in AV sales to custom installs. By doing so, Magnolia hopes eventually to capture 15 percent to 20 percent market share in custom AV and home theater installs.

Given that the chain sells about one in every four flat-panel HDTVs these days, there's an excellent chance it can pull it off. Its buying power and price-setting clout was quite evident during the 2006 holiday selling season, where it was reported that Best Buy asked major HDTV manufacturers to let the Minneapolis-based retailer set their own MAPs.

Tweten was also quoted by TWICE as saying, “… [The big-box retail store] doesn't have a bright future within the TV business. You've got to change from a brick-and-mortar model or you're dead.” Apparently, Best Buy thinks it can retrain its employees to function more as design consultants, not just register clerks and salespeople. On-going efforts to do just that are being tested now at a couple of locations.

What about Circuit City? According to Multichannel News, CEO Phil Schoonover is talking about partnering with companies like Comcast and Ethan Allen (yep, the furniture guys) for a “seamless multiplatform buying experience.” By that, I have to assume he means more of a department store approach that includes a design element, allowing customers to select AV, appliances, and furnishings all at once.

Circuit City will have 38 concept stores open before the end of the year, partnering with service providers to sell TV, broadband, and telephone services. Customers will be able to sit in sample rooms to see how TVs, receivers, and furniture can be put together, and sales associates will have interactive tablets to sketch sample room layouts, coming up with preliminary costs for equipment and installation.

The Multichannel News story also quoted Schoonover as describing both the retail TV and cable businesses as “being on a burning platform” and that both industries could work together “to get off that platform.”

That may sound like a ridiculous analogy, but look at Tweeter — it stayed on the platform too long and got toasted. Apparently, financial analysts seem to buy into the description, too. Cable TV behemoth Comcast recently reported its second quarter financials and although net income was up 31 percent, the company's stock price actually dropped 4 percent on the news.

Why? Because analysts want to see “the next big thing.” Apparently it's not enough that Comcast has the lion's share of TV and broadband subscribers in many markets. And a combined retail initiative with a nationwide chain like Circuit City could lead in that direction.

Does this mean the days of the small, independent custom installer are numbered? Probably not — for now. However, there a couple of technical innovations lurking on the horizon that, coupled with trends towards big-box store custom design and install, may make things difficult for the little guy.

First off, it's a done deal that anything that can be computerized can be continually refined and simplified and sold for lower and lower prices. In the not-too-distant future, complex AV programming jobs for a custom install could instead be selected from a series of pre-programmed software macros, fine-tuning as needed for specific brands of components. The growing trend towards IP interfaces will ensure that it happens.

Second, expect to see more and more devices in a room work with universal high-speed wireless systems, such as WiMax. As wireless speeds increase, it will be possible to place literally every function in a bitstream, right alongside program content, and send it anywhere in a room, or even a house. The architectural parts of many jobs will be minimized — or eliminated altogether — as a result.

TVs, AV receivers, lights, drapes, thermostats, and intercoms could all be equipped with wireless adapters that quickly configure themselves on a network using DHCP, or a variation of it. All the installer would have to do is to install and place AV components, furniture, drapes, carpet, etc. And that's easily done by a big-box brick-and-mortar retailer.

Think this won't happen? Look how easy it is now to hook up a wireless network at home, linking, for example, desktop PCs, laptops, printers, scanners, and even media centers. The prices are low, there's plenty of competition, and the big-box stores can help you get through the tricky parts with their Firedog and Geek Squad services.

Yes, there will always be a customer who wants the best of everything and is willing to write a blank check to get it. However, my guess is that the number of customers like that will dwindle as more and more products become plug-and-play, making it harder for small installers to get the full range of installs from simple to complex that they need to survive.

A slowdown in the residential construction market isn't helping either. June showed a 6.6 percent decline in new-home sales, which is one of the largest drops seen in many years. Easy credit and too many sub-prime mortgages are the culprits, not to mention higher interest rates and the country's ever-growing foreign trade imbalances.

Will Best Buy and Circuit City pull it off? I wouldn't bet against them. Look at all of the small mom-and-pop furniture stores that have gone out of business in the past three decades, replaced by national chains such as Ethan Allen and Raymour and Flanigan. Even Sears might opt to get into the act, because it has such a strong retail presence and also sells home furnishings and appliances.

It will be interesting to see who will have the last laugh.

Pete Putman is a contributing editor for Pro AV and president of ROAM Consulting, Doylestown, Pa. Especially well known for the product testing and development services he provides to manufacturers of projectors, monitors, integrated TVs, and display interfaces, he has also authored hundreds of technical articles, reviews, and columns for industry trade and consumer magazines over the last two decades. You can reach him at pete@hdtvexpert.com.

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