Showing Off: Retail Showrooms For Home Integrators

The new space, the vision of Alvin Hellemans and Mitra Home Technologies, is a key element in the digital home integrator's strategy for growth. Most consumers simply aren't familiar with all that is possible in home automation, so Mitra decided to build the showroom to help educate prospective customers on the possibilities of today's digital home technologies, Hellemans says.

"Giving customers a physical space to touch, feel and see all that is possible in home automation today is the only way to truly sell them on the concept," says Hellemans, general manager of the integrator he founded in 2002. "This showroom will also prove to them that we are capable of delivering on what we promise."

A few blocks away, Jay Bakaler, owner of digital home integrator Prime ECS, is coming to a different decision. Bakaler's company teamed with the developer of One Embarcadero, a high-end waterfront high-rise condo project, to use one of the model apartments as a showroom. The relationship was beneficial for both Prime ECS and the developer, Bakaler says, but it didn't convince him that he needs a permanent showroom.

While the showroom did help sell many of the One Embarcadero condo buyers on digital home technologies for their new apartments, other prospective customers haven't shown a lot of interest in visiting, Bakaler says. "We live in an area where people shop on the Internet and buy things sight unseen," he says. "Most of our customers are really too busy to spend an afternoon in a showroom. They come to us for our expertise and they trust us to make the decisions for them."

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Across the Golden Gate Bridge in upscale Marin County, Home Technology Solutions of Marin, Larkspur, Calif., has opted out of the retail business entirely, says founder Mike McEvoy. Focusing on the home networking and PC side of the business, Home Technology Solutions advises customers on product selection, but it doesn't sell products at all. "We really wanted to be seen as a trusted consultant, and didn't think we could do that if we were selling the products," McEvoy says.

For Southern California-based Genesys Audio and Video, there was no decision to be made in regard to its retail strategy, says President Bill Anderson. Genesys opened in 1976 selling records and "mid-fi," he says. As the area around him grew more upscale and sophisticated, the business evolved with the community. Genesys now focuses on custom home theater, home automation and home networking, Anderson says.

Despite taking different directions, all of the businesses are tackling an important question for today's digital home integrator: Is a retail presence a necessary element of the business given the high costs of building and maintaining a showroom?

Integrators' opinions are as varied as the dizzying array of products available to consumers. Some are going forward with retail showrooms open to anyone who walks in. Others are opening appointment-only showrooms, targeting home builders, interior designers and the wealthiest of consumers. Still others are eschewing the retail approach altogether at this stage of the game.

The strategies of the different integrators are often indicative of the roots of the business. For startups new to the space, the choice depends on the focus and the customer base, integrators say. Businesses focused on home automation and home theater may be more inclined to have a showroom than businesses that focus on home networking exclusively, they say. And companies with roots in home audio and video often began as retail establishments and continue with the strategy as the business evolves.

For startup Mitra, which focuses on new custom home construction and complete renovations, the choice was clear: an appointment-only showroom. "We have been using a few past customers' homes to demonstrate our capabilities to the customers who want to experience what we do up close, but the plan has always been to have this showroom," Hellemans says. "You can tell customers that they can control lights, security systems, HVAC and entertainment systems through an integrated control system, but nothing compares to showing them how it works. When you sit down to watch a movie and a screen pops up showing you who is at the door, the effect is much stronger than a conversation."

While a lot of customers come to Mitra looking for a home theater system, they end up buying complete home automation systems, he says. "A lot of these people just don't know this technology exists. But once you show it to them, they want it." Counting on that "touch and feel" factor, Hellemans says his company is investing "a few hundred thousand dollars" in its showroom. "It's quite a lot of money we're investing, but we expect sales to quadruple at least," he says.

Mitra decided the showroom would not be open to walk-in customers without an appointment because the overhead involved wasn't worth the investment, Hellemans says. "We are talking about very expensive systems," he says. "It's not the kind of thing someone walks in and buys off the shelf."

A typical installation for Mitra will include a home theater system, whole house audio, and some level of home automation and integration with telephone and security systems, he says, and will average about $250,000. Virtually all include a home network, distributing a broadband connection to various rooms in the house over structured wiring. Many jobs now also include remote access via the Web, allowing the customer the option of controlling home systems remotely. That feature is particularly popular among customers with vacation homes in Tahoe, who want to be able to turn on the heat and lights in their ski homes before they arrive, he says.

For Prime ECS, most of its business comes from architect and builder referrals. "Our showroom helped establish us in the market," Bakaler says. "It was a great place to bring architects. But the homeowners don't need to touch and see an audio server. They are not buying products. They are buying our service." In fact, Prime ECS bids all of its projects at a fully installed price, including products and integration.

Bakaler says his customer base is the top 10 percent of the top 10 percent of the wealthiest people in the nation who happen to be in the process of a $1 million-plus renovation. "This is not your average customer," he says. "And you won't find them hanging out at Best Buy."

Still, Bakaler admits that the lure for these customers is usually television. "We often joke that we help rich people watch better TVs," he says. "That is usually how it starts, but when we make them aware of what we can do for them, they buy an entire system." That typical system averages about $250,000, Bakaler says.

The typical installation for Prime ECS includes home theater with an audio server, and a home LAN, Bakaler says, but the company stays away from selling or servicing PCs. "We provide the LAN and we'll set it up, but we are not PC guys," he says. "That isn't our business."

Bakaler often brings prospective customers to previous customers' homes for demonstrations. "For our customers, it's not about seeing it or touching it, it's about experiencing it," he says. "And they want to do that in a real home, not a showroom."

Since 1997, Genesys, Irvine, Calif., has been operating a high-end showroom for custom home theater, distributed audio and home automation that is open to the public, Anderson says. "If I had started this business in the last five years, I may not have done it the same way," he says. "But we have always had a retail presence in this community, so it wasn't a question."

While the showroom is staffed to handle walk-in customers, they do not walk in to a typical "hi-fi" store. "When you cross the threshold, you see a fireplace with a fire burning and two large home theaters," Anderson says. "It doesn't bring in someone looking for a new receiver." It does, however, bring in customers willing to invest in home theater, he says.

Many customers in his area are taking advantage of rapidly increasing real estate prices by refinancing their mortgages and investing the extra cash in their homes.

While the bulk of Genesys' $5.25 million in annual business comes from customers with appointments, walk-ins are willing buyers as well, he says. "We recently had a walk-in who bought a $38,000 home theater system in less than an hour," Anderson says. Another walk-in customer, he adds, just spent $200,000 on a home theater and home automation system. Annually, about $900,000 of Genesys' business comes from walk-ins. "That's enough to cover the overhead of a retail operation," he says. Across the country in West Palm Beach, Fla., another former audio retailer is taking a different approach.

Audio Advisors, which began as a car stereo operation in the 1970s, evolved into a business with both a retail store and an appointment-only showroom for custom installations. The showroom is designed to look like a multimillion-dollar home, complete with furnishings and decor, says company President Jeff Hoover. With the focus on the very high end of custom home theater and home automation, "you can't just let people wander through it," Hoover says. "There is a big difference between both selling and shopping for a $7,000 system and a $100,000 system," he says. "We now have the facilities to accommodate both."

Audio Advisors' 1,800-square-foot retail store still focuses on the high end, but is largely a cash-and carry audio video store. The design center features custom home systems ranging from home theater to home automation, as well as home networking, including PCs. "We are showing fully integrated secure computer networking in the design center," Hoover says, but the company hasn't embraced PC-based audio and video. "We still use PCs as PCs," he says. "We haven't found a PC-based audio or video product that is really up to the quality standards we require." Instead, his company sells a digital audio server from Audio Request, for example, which retails for about $3,000.

Entering the market from the PC side of the business, Home Technology Solutions eschews the audio/video side of the business as well as the retail presence, says McEvoy. The company builds wired and wireless networks for its customers, advises them on security issues and maintains their PCs. But the business is being pulled into the digital convergence wave, he says. "It started from the music end. People have all of this music on their computers they want to play on their stereos."

Now, Home Technology Solutions teams with a local home theater integrator to handle the PC and networking aspects. As the digital home technology convergence progresses, Home Technology Solutions' business model may evolve, but right now, its decision to stay out of the retail business is working, McEvoy says.

Every business has to make the decision individually, Bakaler says. "With my customers, I don't need to show them a box. But I'm aware that there are certain parts of the country where people simply will not buy something they haven't touched. You have to look at your business model and your customers and make the decision for your business."