The Installing Dealer channel has grown dramatically over the years – witness the double-digit growth in attendance at trade shows such as CEDIA, EHExpo and NSCA and the recently established TechHome Division of CEA. However, trade show attendance or growth in association membership measure one dimension of the channel: participation â€¦or interest in participation. How much product does the channel move?
Our clients have asked us about the volume of product sold through the Installing Dealer channel and, until recently, we at Parks Associates didn’t have sufficient information to make a reasonable estimate. Two years ago, we began building an online research panel designed to gather information about the channel that would help manufacturers better understand the dynamics of this innovative, diverse, entrepreneurial group of integrators, installers and resellers. In addition, monitoring the size of the channel helps give dealers more clout with their suppliers, bankers and business partners.
Today, Parks Associates’ Installing Dealer ePanel is comprised of principals from more than 800 installing dealerships across the U.S. who have agreed to participate in periodic surveys focusing on the products they are supporting, those they’re not, and the rationale behind their decisions. In addition to product-related research, Parks Associates profiles participating dealers with the goal of understanding how their business models are changing.
This channel eludes a succinct common definition, so we ask participants questions about their business and what products they are selling and who they are selling to. We then categorize dealers by size, product categories installed, specialties, region of operation and several other characteristics. This profile information coupled with periodic surveys focused on various aspects of their business and the markets they serve provided us with the basis for our estimates of the size of the channel.
We estimate that there are approximately 2,900 installing dealers in the U.S. serving residential markets; most are selling to commercial markets as well. In addition, there are those selling exclusively to non-residential markets. Not all are members of the Custom Electronic Design & Installation Association (CEDIA), a trade association of companies that specialize in planning and installing electronic systems for the home, but CEDIA members typify the residential installing dealer.
As shown in Figure 1, Parks Associates estimates that sales through installing dealers in 2002 totaled $5.3 billion. Analysis of feedback from installing dealers indicates that on average dealers generated about $1.8 million each in sales in 2002, 70% to 75% from custom installation projects, 80% of which were for residential customers.
In July 2003, we asked dealers how their year was shaping up in light of sales for the first half of the year. More than half expected to see business in 2003 grow more than 10% over 2002; only 9% expected to see a decline. From this feedback coupled with some additional research and analysis, Parks Associates estimates that sales through the installing dealer channel will grow 8% in 2003 over 2002 to $5.7 billion. Approximately $3.2 billion will be generated from residential installation projects. On average, over all product categories, half of that will be for installation services and half for equipment.
Figure 2 breaks down sales by major product category. Whole-house audio, home controls and home theater lead all other product categories in terms of revenue – each generating well over a billion dollars annually. Other major categories include structured wiring, lighting, security systems, PC networks and power quality/surge protection.
Whole-house audio systems are installed by over 90% of all installing dealers, but only about two thirds of all dealers consider this to be one of their top three product categories. In 2002, the average installed value of a whole-house audio system was just over $21,000 and a typical dealer specializing in custom audio systems put in two per month.
Over 90% of dealers also install home theater systems, but only about 60% consider them to be one of the top three product categories that they install. These systems had an average installed value of more than $28,000 in 2002 – not including seating, room construction and popcorn maker 🙂
It’s important to note when reviewing our estimates of volume through the installing dealer channel that these are estimates for sales only through installing dealers. For example, some products, such as security systems, are sold by only half of the dealers and only 20% of dealers consider security systems to be a focus of theirs. Therefore, the installing dealer channel accounts for only a fraction of the total value of security systems installed in the residential market annually.
Our estimates for sales through installing dealers in 2003 may be conservative in light of our most recent survey just completed this week [November 12, 2003]. Nearly 60% of dealers now see 2003 growing at better than 10% over 2002 and only 7% expect any decline at all. And next year? Almost 70% see growth in sales for 2004 surpassing those of 2003 by more than 10% and only 2% expect a decline. The arrow is definitely pointing up!
What will drive growth? Consumer demand spurred by a healthier economy and a raft of exciting new products. Media servers are a good example. The next generation of media servers is arriving and we expect to see them become the next must-have component for high-end entertainment systems. Internet-connected audio and video systems will help fuel demand and installing dealers are poised to capitalize on the opportunity.
For information about Parks Associates’ Installing Dealer ePanel, click here or call 972-490-1113.
About Parks Associates: Parks Associates is a market research and consulting firm focused on all product and service segments that are “digital” or provide connectivity within the home. The company’s expertise includes home networks, digital entertainment, consumer electronics, broadband and Internet services, and home systems.
Founded in 1986, Parks Associates creates research capital for companies ranging from Fortune 500 to small start-ups through market reports, multiclient studies, consumer research, workshops, and custom-tailored client solutions. Parks Associates also hosts two executive seminars, both part of the Fall Focus series, and co-hosts CONNECTIONSâ„¢ (in partnership with the Consumer Electronics Association) each year. www.parksassociates.com.