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In Depth: Residential Market Expected to Top $3.2 Billion by 2009

Price wars, lower installation fees reducing profit margin for residential systems




SAN ANTONIO — As the demand for the construction of new homes goes up in the coming years, so will the demand for home security. However, the mass marketing of home systems, the increasing sale of “do-it-yourself” systems and price wars are putting a dent in the profits of service providers.

That’s the conclusion of a new report by market consultant Frost & Sullivan on the residential security market. Called “U.S. Residential End-User Security Market,” the report says the home security market should be generating $3.21 billion in sales by 2009. The report cautions, however, that the rate of growth in the residential market won’t be as dramatic as many had hoped after 9/11.

“The market is not increasing by leaps and bounds,” says Frost & Sullivan analyst Deepak Shetty. “It is right now a $2 billion market and growing at about a 9-percent annual growth rate.”

Shetty says holding down the profits are the end users themselves, who he says may opt for an off-the-shelf product, rather than going through a contractor, to save costs. “A single family can get it themselves at a hardware store. Single families are just trying to save costs.”

The Frost & Sullivan report says that while falling prices have boosted demand among end users for home security, those lower prices — including not charging for installation — are resulting in lower profits.

“It has to stop somewhere, and it’s reached a point where it can’t go any lower,” Shetty says of offering zero-cost installations. “You can’t reduce service fees. You need to try to bundle other services along with it to make a profit.  A company needs to offer a solution that makes it stand apart.”

Still, the old adage “you get what you pay for” may weigh on end users’ minds. It’s no different than other arguments for home products between doing it yourself or having a professional do it. For example, for less money a person could paint their house themselves, but they also know the job would be done better by a professional painter. Because of the need for a professional installation, contractors and integrators will see plenty of profits ahead.

Vinny Barber, president of St.Cloud, Fla.-based security contractor AVI eConsulting LLC, jokes that he had to eat “a lot of corn bread and macaroni and cheese” when he started up his business in 1999, which had first-year sales of $63,000. Now, his company is coming off $728,000 in sales in 2003 and is on track to eclipse $1.4 million in 2004. Barber says part of the secret toward gaining better profits in the residential market is building a relationship with the end users and showing them how much they need a professional installation.

“The biggest thing is whenever you’re on a sales call, if you’ve succeeded, you’ve succeeded in gaining their trust,” says Barber. He adds another key to greater profit is integrating security installations with other installations. In the case of AVI, Barber says they not only handle a wide variety of installations — ranging from audio to video to central vacuum systems — but even sell home entertainment equipment like televisions.

“If you’ve already conquered the obstacle of building their trust, they will want other products from you,” Barber adds. “The construction market may slow down, but if you’re diversified, these people you wired may be looking for a TV and they know who to go see. You’ve instantly become a hero and you just need to show that you can leap tall buildings.”

 


Article Topics
Business Management · Systems Integration · Vertical Markets · Frost & Sullivan Research · Industry News · Industry Research · New Homes · Residential · U.S. Residential End-User Security Market · All Topics
Frost & Sullivan Research, Industry News, Industry Research, New Homes, Residential, U.S. Residential End-User Security Market




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