HTSA Dealers, Vendors Juggling Rising Costs, Shortages, Recurring Shutdowns

Nice/Nortek Control was “just starting to catch up” on its power product inventory, “getting back to three-four weeks from three, four, five months out,” Peter Arnold, regional sales manager, told us, but that morning he heard that shipments of a home automation product that were due to arrive in May were delayed four to six weeks. Receivers and amplifiers have been particularly hard hit, he said.

Nortek's touch panels were on delay for a period because they used the same chips as Apple iPhones, Arnold said: “We were pretty low on the totem pole.” Its position changed after Italian automation company Nice bought Nortek (see 2110130059). Combining the two companies “gives you more buying power,” he said.

Nice/Nortek’s priority is to “take care of the dealer,” Arnold said. “It’s never good to lose business, but at the end of the day, they have a business to run so if they’ve got to go to other places to do what they do, we’ll help them and try to make integrations work,” he said. That includes developing software drivers for products that aren’t in the company’s driver library, he said. “Putting the dealer first is really important right now; we don’t want to lose dealers.”

David Young, president of The Sound Room, Chesterfield, Missouri, was “the most committed” Integra dealer for 15 years, “and then all of a sudden there was a year when there wasn’t any product,” he told us. He switched to Marantz for AV receivers, which also struggled to fill orders. “Integra was our go-to, but if you don’t have product, you can’t go to it,” he said. Though "very loyal" to vendors, Young had to change that philosophy. It costs money to switch due to additional training, resources and inventory, but he had to do it “because some of our stand-by reliable vendors haven’t been so reliable.”

Matrix switches for audio distribution systems are a crucial piece in the multiroom audio chain. The Sound Room had been buying them from Control4, which had supply problems, so Young changed to Pulse-Eight switchers. So did a lot of integrators, “and then they ran out,” so he added AudioControl as a vendor “because it was a piece that you have to have to make your system work.” Customers don’t care about brand for a “box that’s going to sit on a rack in the basement,” Young said.

Product shortages forced The Sound Room to “overstock the hell out of the staples,” such as TV mounts, brackets, Sonos gear and amplifiers “because one small part can hold up an entire job,” Young said. The business is carrying more inventory than it ever has: “We’ve been burned by not being able to deliver complete systems because we’re waiting on one $200 part,” he said. The Sound Room was “caught short” of TVs and receivers in Q4 2020, Young said: “We lost a lot of deals because people had to have them for Christmas.” For 2021, the store ordered “way more receivers and TVs so we wouldn’t lose those deals again,” he said. “We bought stacks and stacks of TVs and receivers from whoever we could back in September to have it in December.”

Reliable inventory is one of the biggest challenges dealers face, Jason Sloan, Sonance chief sales officer, told us. “If you’re waiting for an AVR to button up the project, it doesn’t matter what kind of AVR it is at some point because that’s where the last 10% payment is going to come from.” Manufacturers can try to be transparent with dealers while “knowing that it’s going to be wrong.” He can tell a dealer he expects a product within 60 days, “but the world changed in the last 30 and that impacted it,” he said. “The more transparent we are about what’s going on, you have the best shot of providing something that your customer can use with their clients.” He expects supply chain problems to continue until "later in 2023."

Product development at Sonance is taking longer because travel bans meant products that teams would have gone over in person now have to be shipped. Shipping can be from China to the U.S., or multiple points within the U.S., or from Mexico. “You lose time because of that,” he said. The product development process is still happening, “but it’s slower than it has been in the past.”

RoseWater Energy Group “took the risk” and ordered a lot of parts in advance of the chip shortage “because I thought it would be advantageous,” CEO Joe Piccirilli told us. Though inventory is solid, his product development cycle was crippled: “I’ve had a new product in development for a year,” he said. Getting it built is difficult, “not to mention trying to get it accurately priced,” Piccirilli said.

RoseWater’s biggest challenge during the COVID-19 period has been delays caused by construction, saying he has end customers that put down a deposit on one of his $100,000 power management systems two years ago, “and the project’s still stalled” due to materials and labor shortages. Prices quoted for projects from two years ago are obsolete, leading to change orders “because everything is 30% more expensive,” Piccirilli said. “I don’t care how much money you have, 30% is a big number, so they delay the project because they think the prices will go down,” he said.

The Sound Room is getting new price sheets every week from vendors, Young said, with increases “across the board.” The business had to narrow the acceptance policy on its proposals from 30 days to 15 “because prices are going up so fast that 30 days later the same product would be more expensive." So far, customers haven’t pushed back or scaled back projects, Young said: “I haven’t seen someone say they’ll switch to a 65-inch TV from a 75-inch TV” to save money.

The CE industry is “preconditioned” for products to get better and for prices to go down, Young said, “but I’m not sure that our customers think that way.” Customers don’t buy new home technology products or systems every year, or even every three or even 10 years, in some cases; they don't know what things cost, with TVs as a possible exception, he said.

Young has to make sure his company stays on top of rising costs, as prices for products, labor, fuel and expenses continue to increase. “We have to pass the increases along or we’re going to get squeezed,” he said. One Sound Room customer didn’t respond to a proposal eight months ago and then came back recently, ready to go. “When we re-did the proposal for the same thing, it was over $10,000 higher than it was the first time,” Young said. The customer said, “I get it” because prices on just about everything have gone up, Young said. If dealers don’t manage cost increases, “you could be upside-down pretty quick.”