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First impressions mean everything in the home service industry, even among service providers. Contracts are inked because of trust and vision, not just inventory or warranty. When the colossal CE retailer Best Buy first looked at the California-based custom firm AUDIOVISIONS five years ago as a potential partner, it was just dipping its toes in the high-end home systems sea, and not yet ready to dive in.
When AUDIOVISIONS president Mark Hoffenberg shared his company’s business practices and key points of his growth plan, however, he created a tempting offer that Best Buy couldn’t refuse. “We made more of an impression than we realized at the time,” he said. “[When] we re-engaged years later, they had a much clearer idea of what they were looking for, and things progressed pretty rapidly.” The acquisition was finalized in November of 2005.
As president of AUDIOVISIONS (which has two California locations), Hoffenberg wants to scale his company’s national profile. Tapping the resources and expertise of Best Buy will surely help him do that. The company is putting the finishing touches on a brand-new showroom and demo facility to prepare for the next stage of growth.
On the other half of the marriage, Best Buy hopes to synergize with AUDIOVISIONS by examining its successes providing business packages with emotional and personal connections. The parent company also hopes to learn from the custom firm’s scalable business model and extend its market reach into the high-end arena. In addition to his lead role in AUDIOVISONS, Hoffenberg serves as a Best Buy VP, and from that seat he is “involved in a number of Best Buy initiatives involving our services segment.”
A Short History of a Big Business. Best Buy began in 1966, when founder Richard Schulze opened the first Sound of Music store, an audio components retailer, in St. Paul, Minnesota. In the 1980s, he expanded his inventory into video products and appliances, adopting the name Best Buy in 1983. In 1985 Best Buy went public, and in 1989 it pioneered a superstore concept that placed all inventory on the sales floor and featured non-commissioned product specialists to handle sales and customer service (now sometimes called “the blue shirts”). The Best Buy brand expanded to Canada in 2002, and the first global sourcing office opened in Shanghai, China, in 2003. Recently, it has been bringing other brands under its umbrella, like Magnolia and Geek Squad, and now AUDIOVISIONS.
Battling the Best Buy Bias. Many in this industry view Best Buy unfavorably, if not as the Custom Nemesis, at least as lacking the high-service boutique sensibility of a specialty shop. Specifically with HD video sales, many custom companies feel, it’s important to spend time with customers, guiding them through terminology and hardware options. But education and trust aren’t the first things that come to mind in a high-volume, large retailer like Best Buy. Hoffenberg admitted that, “When someone in our industry compares the level of service and expertise available at a Best Buy store with the level of service and expertise available at a typical CEDIA boutique, there certainly will be a difference, and there should be!”
However, he also believes that if you compare the knowledge and customer service at a Best Buy to another competing big box retailer, Best Buy compares favorably, and its dominant market position clearly demonstrates that.
Hoffenberg added, “One of the reasons Best Buy acquired AUDIOVISIONS is to capture a segment of the market that Best Buy does not cater to, and that is the high-end customer that requires a much higher level of service, attention, and expertise.”
Paul Self, AUDIOVISONS director of marketing, also maintains that Best Buy did not acquire AUDIOVISIONS to transform them into another Best Buy or to impose a corporate culture. Best Buy purchased the firm because there are currently no dominant, national brands in the market, and it is dedicated to being a major player. Also, because AUDIOVISIONS’s unique and scaleable business model is attractive, as is the company’s culture and specialty expertise. “We focus on cradle-to-grave customer loyalty,” Self added.
Post-Purchase Operations. AUDIOVISIONS’s day-to-day operations are quite similar to its pre-acquisition life, especially from the employees’ standpoint. However, the company now has more immediate resources. For example, it is now completing renovations on its improved showroom, and upgrading its proprietary business management software solution.
Better still, the Best Buy acquisition has created a larger pool for employee benefits, such as retirement plans, health care, and insurance—still considered uncommon within the CEDIA channel, especially upstarts and new-to-the-industry “trunk slammers.”
“We have the opportunity to deploy our business plan, so our growth initiatives have accelerated,” Hoffenberg added. “Our staff has probably noticed an increased focus on training, and our human resources capabilities have improved.”
Self concurred and said that the acquisition has helped fortify AUDIOVISIONS’s programming and engineering department significantly, which allows them to continue innovating and looking forward. Even the company’s new motto reflects their emphasis on best-in-class client service. “We’ve changed our motto to ‘Technology for Life,’” he said.
Furthermore, Hoffenberg says that the acquisition has not altered his company’s strategy, it has simply enabled it. However, there are some changes to its plan based on the synergistic opportunities available within the Best Buy Enterprise.
Hoffenberg’s day-to-day is slightly different than before, as he is spending more time on strategic implementation and less time on daily operational issues. He also interfaces more with Best Buy management.
Currently, shared market opportunities are largely untapped, but AUDIOVISIONS and Best Buy plan to cross-market and share strengths in the future. “There are strong opportunities between the Best Buy Brands,” Hoffenberg said, “including Magnolia, Pacific Sales, Geek Squad, Best Buy for Business, and Best Buy for New Homes.”
Forecasting Trends. Recent data from Parks Associates suggests that custom systems sales will surpass $8 billion next year. At last month’s CEDIA EXPO in Denver, Colorado, 28,000 attendees were hungry for news, education, and new products. But there are still numerous hurdles for broader industry growth.
The sales plateau experienced by many companies—often at the $3 million mark—is tough to climb incrementally. The distributor AVAD has more than 10,000 resellers, yet the trade association CEDIA only represents 3,000 companies. Why? Demand exceeds supply, yet to grow from a $1 million-size company to an $8 million proves almost impossible without funding for a fleet of vans, employee insurance, computer networks, and other necessary tools.
For “human capital” there is also a barrier. “There is a growth plateau [in this industry],” Self stated. “You either company-hop or you jump ship and start your own company. Management options are limited.” Therefore, consolidation, or “rolling up,” not only expands the gross revenue to overcome the plateau, it offers new opportunities for internal upward mobility.
For the past several years there has been loud chatter about consolidation in the CEDIA industry. On the manufacturer side this has come to fruition—Nortek folding in Niles and ELAN, for example. Also on the retail side this has proven true. But besides the efforts of New England’s Signature Media Group, Best Buy’s purchase of AUDIOVISIONS has been one of the first major moves on the systems integration front. Hoffenberg suspects that the success of this purchase may inspire further consolidation activity. “Our growth plans require bringing in new talent into our industry from other areas, and that requires recruiting and training,” he said. “I believe this will be a positive for all areas of our industry.”
Margot Douaihy (margot.douaihy@gmail.com) contributes to Residential Systems from her base in London, England.
