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John Sciacca Writes...

Features, Reviews and a Blog by John Sciacca

Random Thoughts (Blog)

Random Thoughts (Blog)

Are we becoming Amazon showrooms?

Posted on August 23, 2011 at 12:45 AM

When I first joined Custom Theater and Audio back in 1998, my partner and I thought our competition was a local alarm installer who kept trying to break into distributed audio. We would see him on jobs and be told that we were competing against his bids. Occasionally he'd do a mid-sized home theater system, but, again, ultimately time took his business on a different road.

Then we heard that Best Buy was going to be coming to town and we thought, “Oh, no! Now they are going to take away all those small, walk-in jobs, and flat panel TV sales, and quick, 1-day theater installs.” But it turned out that having them around just raised awareness the overall awareness about A/V and caused people to do a little more shopping and research. And when they got around to comparing the experience of talking with US to the experience of talking with THEM -- generally manifest as a rookie, hourly-waged Blue Shirt -- well, we came across actually looking like we cared and knew what the hell we were talking about and didn’t come up short too often.

But, a recent article brings out what could be a very real and lasting bit of competition to not just my shop, but to the entire marketplace. An article in The WSJ, or just “The Journal” (that’s what us cool kids call it; OK, that’s what my double-MBA holding brother calls it) by Andria Cheng  a couple of months back examined the growing change of dynamic in the marketplace. It went on to explain the reasons why stores – specifically electronics retailers like Best Buy and HH Gregg – were in danger of continuing to lose more and more market share to on-line uber-tailer, Amazon.

Not very surprisingly, Amazon’s pricing was often cheaper than their brick-and-mortar competition; an average of around 11% cheaper. Not surprising because they don’t have to deal with pesky little things like hiring knowledgeable sales people or paying their insurance or the expense of having a showroom that is outfit with any display models. You know, stuff like that. And the discount increased as the people bought more and more items because of savings on shipping. Also, the biggest pricing advantage was on items over $20. (Items over $20…hmm, I wonder if anything I sell is even UNDER $20...Maybe a random y-cable or a 1meter analog audio cable or like 15-feet of speaker wire or a pair of Monster Banana Plugs. But not much else.)

Cheng cited an analyst who wrote, "The price-comparison risk for Hhgregg is a particularly high concern because of the high average ticket, and 84% of the overlapping items are available at lower prices.” Best Buy, has 69% of product overlapping with Amazon, which has a roughly 12% price discount advantage on identical items.

George Anderson followed up on that story in July in with a Forbes article titled, “Retailers fear becoming Amazon’s ‘Showroom.’” Anderson’s article began, “A growing number of consumers had taken to going to Best Buy to test consumer electronics and then going online to get them at a cheaper price. As Greg Melich of ISI Group and others have pointed out before and since then, Best Buy appears to be in danger of turning into Amazon’s ‘showroom.’”

And I wondered; forget about Best Buy…am I becoming an Amazon showroom? And moreover, what can I do to defend myself against it from happening?

Retailers losing sales to on-line shopping has been a concern for a long time. People have always been price conscious and now that comparing pricing literally all over the world takes only as long as it does for someone to type the model number and hit search, it has made it much easier for people to let their fingers -- and their computers -- do the walking.

Now, the custom install world often combated against this by dealing in items that were very exclusive in nature. We prized ourselves with having items that couldn’t be found anywhere else. But the fact is, even with manufacturer assurances of policing Internet sales and crackdowns on non-authorized dealers, there are still VERY few products that a determined consumer couldn’t locate on the Net. Now, might they get burned in the process? Might they buy something that turns out to be warehouse-vaporware and never arrives at their door? Or purchase something that turns out to be a B-stock or used-and-returned item? Maybe. But then they can let Visa or AmEx slug it out with the retailer. People are used to shopping and buying on line now. Not only used to it, they are very comfortable with it and, many people actually prefer it to the flesh-and-blood encounter with a real person. And the threat about the big, scary Internet and getting ripped off on-line is really not that intimidating any more.

The CI world’s next defense was to deal primarily in items that were not very consumer, DIY, installation-friendly. Runco puts a logo on their projector boxes that says “Installer Dependent” letting the customer know – well, if they ever actually saw the box that is – that the install part of this is an important part of the equation. Housewide audio was often so labor – and even programming – intensive that this served as its own DIY deterrent. Even if you DID want to crawl all through your attic and run wire and you DID want to retro and cut in speakers and controls and you DID want to terminate and connect all the wiring, well you probably STILL couldn’t get access to the programming and configuration software/hardware. This was a way that manufacturers protected not only their installers, but themselves as well. If you have a bunch of half-assed, non-working systems out their, it is going to quickly be damaging to your reputation. And when it comes to automation systems like Control4 or Crestron or Lutron, well, they require SO much training and experience in the programming and configuration department that they will probably ALWAYS be ensconced in the custom install safety zone.

With larger projects – where you are selling complete systems that require many components to work cohesively together – this Amazon-shopping is not really a problem. Could someone try to take your proposal and piecemeal shop it all over the Internet to save a few bucks? Sure. In fact it actually happened to me. “You want to buy this system from a bunch of vendors and then just have a bunch of random boxes show up? Because if that is the case, I have to tell you that our company won’t be interested in handling your project or assisting you with the installation.” Usually people figure out *very* quickly that the installer/programmer is every bit as crucial a component to the system’s success as any amp, controller, or processor.

But on smaller jobs, this is a real issue. On those single day, quick-in-and-out jobs, say, a lower end surround system or a TV and a sound bar. The stuff that helps “grease” those financial wheels in between the large projects, and where you don’t really have a chance to develop that strong client-installer bond over multiple interactions. And as tech quality improves, and high-end technologies – and budgets – continue to move downstream, what can we do to prevent someone for coming by our showroom to get a full hands-on demo AND education on the product and technology that best serves their needs without also arming them to just go back home and then click their way to the lowest price?

When you’re talking about something as simple as setting a TV on a stand and plugging an HDMI cable into it, service and support become a tough sell against free shipping, no sales tax (legally or otherwise) and a lower price.

I know that many integrators are moving away from having a showroom or don’t concern themselves with TV sales at all, taking a “You go buy whatever you want elsewhere and I’ll put it in for you” approach, but for those of us that aren’t, sometimes Amazon can seem like a pretty scary and imposing jungle. And I’m not absolutely sure that the disappearance of Best Buy from the landscape would really help the overall CE industries greater good.

Categories: August 2011, CTA, Electronics

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1 Comment

Reply Matt
5:52 AM on August 23, 2011 
So what's the answer?