Installing systems contractors are evolving from years-long recessionary tumult and a ravaged housing market better adapted to overcome challenges in a fast-changing residential marketplace, according to a recently released study by the Custom Electronic Design & Installation Association (CEDIA). The results of “Size and Scope of the Residential Electronic Systems Market in the U.S.” feature data gathered from 770 contractors, detailing characteristics of companies working within the residential market, the current number of installation companies in the industry, the size of the workforce, trends, forecasts, and the economic impact of the industry.
While the overall pace of growth noted in the study is modest, CEDIA Market Research Manager Erica Shonkwiler says that likely works to the favor of many companies that are emerging from the economic collapse as much leaner organizations.
“For a long time people experienced such great success in this industry that they didn’t have to focus on running really lean companies. They didn’t have to worry about what they were doing back of house,” she says. “What the last few years have taught them is no matter how much business comes in the front door from here on forward, they are going to run an efficient, strong, durable company. Slow growth after that lesson will help the industry to be more prosperous in the long run.”
Participating dealers included electronic systems contractors (ESCs), security installing contractors, electrical contractors and IT professionals. An “other” segment included remodelers, etc. The report, now in its second year, was conducted with the help of Dallas-based research firm Parks Associates. Although compiled and released this year, the data was gathered in 2011 and is a follow-up to the inaugural report excerpted last year for 2010.
Among notable conclusions from the report, the surveyed contractors anticipate a 5% gross revenue increase and a 17% increase in the number of projects in 2012 compared to 2011. Moreover, installing contractors report a greater percentage of projects in existing homes than ever before while indicating they are expanding into new product and service offerings.
Overall Revenue Picture for Dealer Segments
CEDIA estimates there are between 20,000-22,500 contracting firms in the U.S. that install at least one type of technology from the association’s portfolio of 20 residential product categories.
In total, this assemblage of dealers was estimated to have earned annual revenue between $13.5 billion and $14.5 billion in 2011, which marked an increase of 3.5%-3.9% compared to 2010 results. The largest dealer segment in CEDIA is ESCs, which represent about 42% of the total among all dealer channel types. Revenue earned by ESCs — which CEDIA defines as custom electronics-A/V installation companies — accounted for as much as $8.7 billion in 2011. Installing security contractors are the second-largest grouping with an estimated 5,300-5,900 firms, earning revenues upward of $2.5 billion in 2011. The estimated size and revenue totals for additional dealer segments are: electrical contractors, 1,750-1,950 and $600M-$700M; IT professionals, 3,200-3,600 and $45M-$48M; and “other,” 1,400-1,600 and $1.6B-$1.8B.
CEDIA’s market research projects revenue growth for all types of installing dealers in 2012 except for security companies, which are expected to see revenues decline 4% from $2.3 billion to $2.2 billion. However, when the margin of error is considered into the survey response results, earnings could actually be about the same as the previous year, according to CEDIA and Parks Associates. The survey revenue numbers factor in equipment sales and installation fees, but not recurring revenue for monitoring services. Reasons for an actual slight decline in revenue may include competitive pressures, as well as the assumption that security dealers are taking a lower price point for equipment and installation and instead focusing on creating recurring revenue.
“After a few years of discouraging data, this year’s report when it came back was, for me as a data cruncher, optimistic. It showed some growth. It showed that [installing contractors] were feeling as though they could take a breath and start to take some risks again,” Shonkwiler says.
Survey results show that while there are still project categories that remain stagnant, on the whole companies have started to hire again and revenues are improving as project wins increase. Those are encouraging and positive signs compared to what survey participants forecasted in CEDIA’s first study in 2010.
“In some areas their optimism actually didn’t even come close to touching how good 2012 is looking to end in areas such as mobile device integration, home networking, outdoor installation,” Shonkwiler says. “We knew we were going to see growth in some areas that was promising, but the growth ended up being greater than we even expected it to be.”
Mobile Drives Mass Adoption
Going forward, dealers across the board report they plan to increase their portfolio of product categories as a means of driving revenues, including for upselling and seeking business with new clientele. Let’s take a close look at some of the results among individual product categories.
Mobile device integration — A whopping 90% of dealers that install control systems are integrating a mobile device for control, with 33% indicating it is the primary control device. This likely won’t come as a surprise but Apple’s iOS dominates as the most common mobile platform in use. In fact, a large majority (86%) of those providing mobile device integration are selling docking stations as an add-on for such devices as iPads and iPhones. Notably, 41% of all dealer channels indicate that clients are increasingly expressing interest in control systems with mobile device integration.
“The mobile device integration is extremely encouraging. It lets us know the company owners that are doing this type of work are adjusting to product changes,” Shonkwiler says.