Azione Dealers, Vendors Seek Profits in Luxury Audio, But Challenges Loom

LAS VEGAS -- Mixed messages on the high-end audio front at the Azione Unlimited spring meeting point to the challenges custom integrators face as they try to embrace a luxury hardware category. The effort is part of an Azione goal to “elevate the customer experience” and generate more profit.

In a session on how to sell high-end audio and video, executives from Digital Projection, Bel Canto, Krell Audio and Meridian emphasized the need to sell the emotion of audio and high-end video, but it was to a dealer base that largely doesn’t have storefronts with listening rooms for demos. Vendors were hard-pressed to say how dealers without demo space could effectively convey the high-end audio experience to their clients other than to make house calls with the requisite gear. Meridian and Krell executives said they have willingly sent five-figure hi-fi equipment packages to dealers in return for freight costs to make a potential sale. If the customer doesn’t buy, dealers pay for return freight, they said.

But getting customers, who are accustomed to MP3s and cloud-based music on a smartphone, interested in audio at all is the first hurdle. That message was driven home during a keynote by Mark Valenti, CEO of Sextant Group, a technology design and consultant firm, who spoke of “de-materialization” that’s occurring as a result of cloud-based content access. “You suddenly don’t need physical things anymore,” Valenti said, saying the trend is away from owning physical content. “As a culture, we are ready to accept virtual ownership much more readily than ever before,” Valenti said. “For those of us who are in the business of selling things, there’s a problem there.”

With compressed music files now serving as the musical reference for many customers, a high-end audio demo in a controlled listening room is key to making an impression, said Ryan Donaher, regional sales manager-Meridian Audio. “You're not going to be able to bump those customers up unless you can let them listen,” he said.

P.J. Zornosa, president of Bel Canto rep firm TCAV Group, acknowledged it would be unlikely that most custom integrators would add an audio listening room in a business model that doesn’t involve a retail show floor. He said dealers should rely on the same acumen they use in selling control systems to a clientele that doesn’t want to have to do the homework to get a high-quality system. Clients who trust their integrator to make those decisions may also trust them to choose an audio system, he said. Customers will sense a dealer’s confidence in a product, he said. Jeff Galea, president of Boca Home Theater, Boca Raton, Fla., told us that in many cases, clients will send their “handlers” to review equipment that the integrator specs into a high-end home and don’t actively participate in the product selection process.

Don Dixon, president-Definitive Electronics, Jupiter, Fla., said his dealership transitioned to higher-end products because it could increase revenue “and lower expense” using the same amount of staff hours. Sending a warehouse technician and a salesperson at $25-$30-per-hour to deliver and install $150,000 or $200,000 worth of amplifiers and speakers -- versus lower-priced products -- is just smart business, he said.

It’s not easy to convince customers they need high-end audio, especially when they think they “can’t hear the difference,” Dixon said. Definitive is one of the few Azione dealers with an audition space for audio gear. After hourslong meetings discussing home automation and lighting control with clients, Dixon will ask for five minutes to give an audio demo. Four out of five times, the five minutes stretch to 30, and clients are amazed that they hear detail they've never heard before in music, he said.

Selling high-end audio requires a different approach with the top 1 percent of U.S. earners comprising Azione’s customer base, vendors said. The typical Azione dealer doesn’t have roots in two-channel audio, where most specialty AV dealers cut their retail teeth, and that adds a learning curve to the sales process for dealers who came to the market through electronics integration. George Walter, vice president of Home Cinema at Digital Projection, said high-end home theater and high-end audio have to be sold as luxury goods to the Azione customer base as “something you don’t need, but want.” Customers who buy Digital Projection projectors that sell for $4,500-$100,000 do so because it makes them feel like they've accomplished something, he said. Luxury is about creating an environment “where the customer feels special,” he said.

To sell luxury electronics, dealers need to have a “change of mindset,” said Donaher of Meridian. “Don’t sell from your own wallet,” he said, saying affluent customers are willing to spend extra money if they're sold on the value they're getting in return. Krell President Bill McKiegan said he'll willingly hop a plane, go to a prospective customer’s home and set up a five- or six-figure system for a customer if the value-added of having the company president calibrate a sound system will net a lucrative project.

The biggest challenge is getting customers to experience high-end audio and video in the optimum environment so they know what’s possible, dealers and vendors said. That has to be done with the kind of presentation a client is used to, said Galea of Boca. Galea has showroom space to demo the luxury AV experience and wouldn’t have it any other way. On the idea that a custom integrator would drag amplifiers and cables to a wealthy customer’s home for an in-home demo, Galea told us he felt “belittled” by the suggestion. “I wouldn’t expect an architect to come to my house to discuss a project,” he said. Citing the appearance of professionalism, he said, “I want to go to their office."

Azione Spring Meeting Notebook

Rutherford Audio, North American distributor of Thorens turntables, tapped Azione as its exclusive buying group, Norm Steinke, Rutherford’s sales director, told us. Rutherford handles 12 luxury product lines including Burmester and Genesis and has selected luxury European brands that have had little distribution in the U.S. “so that there’s very little in the used market,” Steinke said. In the high-end audio market, U.S. dealers haven’t been competing with each other but instead with “20 and 30 years of used product.” A high-end amplifier from the 1980s will bring in 50-60 percent of its original products “and it still works,” he said. The downside of that level of quality is “you can’t sell other products because somebody is buying a used one,” he said. To avoid that scenario, Rutherford has been choosy with its brands including Elac, which Steinke called Germany’s second largest loudspeaker company that hasn’t been sold in the U.S. and has no used market to compete with. The Azione dealer’s appeal comes down to “who has keys to the house,” Steinke said. A lot of Azione installers in upscale markets have gained trust with clients as the installers who have upgraded wiring, added satellite and cable service. “That guy has keys and trust in that house,” he said. “That should be our guy. We should nurture and teach him what we want to do.” Rutherford’s value to Azione dealers is to give them ways to be “unique and special” to customers as they face increasing competition in the home control market. Rutherford is seeing a revival in the two-channel market that’s being led by vinyl, he said. Citing Grammy winner Lorde who produced 40,000 vinyl albums because of the audio resolution, he said the increasing number of musicians choosing to provide a vinyl version of album “will help drive turntable sales.”