Custom Electronics Buying Groups Brace for Pinch From Tariff Uncertainties
Tariffs, economic volatility, fear of recession and a decline in housing starts has custom integrators shuffling to adjust, buying group executives told Consumer Electronics Daily. Housing starts fell 4 percent in July for the third straight month, according to Commerce Department data. Pending home sales fell 2.5 percent in July, reversing two months of gains, said the National Association of Realtors last month.
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Fear of recession has translated to less activity for integrators, more competition and lower pricing, emailed Richard Glikes, Azione Unlimited president. Overall, business is “okay,” said Glikes, but “the backfill on the pipeline is slowing.” Glikes’ message to dealers: advertise more for the business that's out there -- “advertise now before it gets worse, and we have some vehicles to help them.”
Home Technology Specialists of America dealers saw a backing off over the summer from their higher performance options when financial markets appeared "fairly volatile,” Executive Director Jon Robbins emailed. Project starts don’t seem to be affected overall by customer uncertainty, but the breadth of projects being specified was, he said: It “appears that clients are more financially cognizant than they were at this time last year.”
“In environments like we have now, where there’s a great degree of uncertainty, you can’t help but push the caution button a little bit,” ProSource CEO Dave Workman told us. Results at ProSource are mixed, with the custom installation dealers seeing “strong” orders and a solid pipeline. That side of the business continues to grow 5-10 percent for most dealers, he said. “Caution” is the sentiment for ProSource dealers’ retail businesses, which experience more “cause and effect relative to consumer confidence.”
Tariffs are beginning to take a toll on pricing, Workman said: “We’re starting to hear more and more from the vendor community” about price increases, he said. The 15 percent List 4A Section 301 tariffs that took effect Sept. 1 “pretty much cover everything," including TVs and speakers, he said. While trying to mitigate the impact of tariffs “as best they can,” vendors are “now finally communicating, if not the specifics, at least the intent, that they’re going to have to raise prices going into the season,” Workman said.
ProSource hasn’t seen “where somebody says they’re going to pass an 8 percent hike through now” but all products affected by the original tariffs have been “pretty much baked in,” Workman said. The tariffs affecting custom integration dealers -- on power management systems, remote controls and control boards for home control systems -- have had “some pain associated” with them in terms of profit loss, he said. But “once pricing was known, dealers were able to reflect higher prices in customer quotes," he said. He called those price increases “relatively small,” not 10-15 percent.
The “full force” of vendor tariff pricing adjustments is “just beginning to” affect project cost totals, said HTSA’s Robbins: “Many of our vendor partners who are facing serious tariff circumstances on products that they offer have been tremendously lenient by giving members the ability to purchase products that are subject to tariffs at pre-tariff costs,” absorbing the additional dollars, Robbins said. “That is about to end in many cases,” he said, heading into Q4. Affected categories are control systems, architectural speakers, surveillance cameras and surge suppressors.
Workman expressed concern that media reports over recession prospects are “forcing consumers into fear.” While not denying risk factors, he’s concerned reports will become a “self-fulfilling prophecy.” In a “normal environment,” he said, the economy would be viewed as on “pretty good footing.”
On the remainder of 2019, Workman said, “the holiday season will happen no matter what. I’m not saying there won’t be pressure points because of tariffs, but vendors will still be promotional through the holiday season.” Workman called ProSource’s custom business, which lives on the top 2-3 percent of the market, “recession-proof,” except for “a little slowing in the Midwest.” He forecast 5 percent growth for ProSource revenue in 2019, taking into account strength of custom and softness in retail.
TVs, Workman said, have been “extremely weak all year,” calling it a “sick business.” The TV category “breaks its neck finding ways to spend more to bring in less dollars.” Samsung still dominates, but TCL has been a “big winner,” said Workman, with “low-priced value sets.” There’s “less and less reason to spend extra when you can get pretty good for under $1,000.”
TV sales are slowing for Azione dealers, too, said Glikes, along with big jobs. But Azione’s new initiative in lighting is “growing quickly.” He expects the current 3 percent growth rate over 2018 to extend through the rest of the year. HTSA, bucking the trend with success in 75-inch and larger TVs, projects double-digit growth this year in overall HTSA purchases for a fourth straight year, said Robbins, who didn't give a revenue forecast.