Specialised Audio and Video Equipment Retailers in The UK

Loud and clear: Retailers have moved online to keep up with rapid changes in technology
IBISWorld Industry Report G47.430
Specialised Audio and Video Equipment Retailers in the UK

June 2011 Craig Shulman
2
2 2 2 2
About this Industry

Industry Definition Main Activities Similar Industries Additional Resources
12 Major Markets 13 Globalisation & Trade 14 Business Locations
21 Annual Change 21 Key Ratios
22 Jargon & Glossary 16 Competitive Landscape

16 Market Share Concentration 16 Key Success Factors 16 Cost Structure Benchmarks 17 Barriers to Entry
3 4
4 4 5 7 9
Industry at a Glance Industry Performance

Executive Summary Key External Drivers Current Performance Industry Outlook Industry Life Cycle
18 Major Companies
18 Richer Sounds plc
19 Operating Conditions
19 Capital Intensity
11 Products & Markets

11 Supply Chain 11 Products & Services
21 Key Statistics
21 Industry Data
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Specialised Audio and Video Equipment retailers in the uK June 2011
About this Industry

Industry definition
Companies in this industry retail electrical equipment such as stereo systems, TVs, portable music devices and other hi-fi products. Retailers in this industry differ from department stores as they specialise in selling these products only.
Main Activities
The primary activities of this industry are Sale of audio equipment Sale of video and TV equipment
The major products and services in this industry are Digital video players Headphones Portable music players Speakers Stereo systems TVs
Similar Industries
G47.410 retail of Computer and Gaming Products in Specialised Stores in the uK With the roles of computer systems and home entertainment systems increasingly converging, computer and gaming products are becoming more relevant to audio and video equipment consumers. G47.540 Electrical Household Appliance retail in the uK These retailers specialise in other household electrical products such as whitegoods and small appliances. G47.591 Musical Instrument retailers in the uK This industry deals in musical instruments and equipment, which are often complementary to audio equipment.
IBISWorld writes 100s of UK industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.co.uk
Additional resources
For additional information on this industry www.statistics.gov.uk Office for National Statistics www.soundandvisionmag.com Sound & Vision Magazine www.whathifi.com What Hi-Fi
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Industry at a Glance
Specialised Audio and Video Equipment retailers in 2011-12 Key Statistics Snapshot
revenue
1.4bn
Profit
2.6% 75.9m 136.8m 1,267

wages businesses
Revenue vs. employment growth
5 3.0 1.5
Annual Growth 07-12
-3.4%
Annual Growth 12-17
Market Share
Real household disposable income
Richer Sounds plc 8.2%

% change
% change
0.0 1.5 3.0
Year 04 Revenue
p. 18
10
06
08
10
12
14
16
18
Year
06
08
10
12
14
16
18
Employment
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Products and services segmentation (2011-12)
Key External drivers

real household disposable income Competition from department stores IT and telecommunications adoption Leisure time availability
Speakers
8%
Headphones
5%
Other
9%
38%
TVs
Stereo systems
10%
Portable music players

p. 4
10%
Digital video players

SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.CO.UK
20%
Industry Structure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Mature Medium Low Low Low
Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level
Light Low Medium Low High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIx ON PAGE 21
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Industry Performance
Executive Summary
The recession in the United Kingdom had an adverse effect on specialised audio and video equipment retailers. Consumer confidence and spending fell and retailers discounted products to encourage sales. Competition from diversified retailers and department stores compounded national economic problems. Industry revenue is expected to fall by an average 3.4% per annum over the five years through 2011-12. However, new products are still being released and some measure of consumer confidence is returning. As such, industry revenue is forecast to grow by a marginal 0.2% in 2011-12, to 1.4 billion. These issues have served to speed up the emergence of online retailing in the industry, which potentially offers lower labour costs, more efficient stock management, broader geographical
Executive Summary | Key External drivers | Current Performance Industry Outlook | Life Cycle Stage
reach and lower property rents. Many retailers currently operate both shopfront and online selling channels, with online selling expected to increase in importance over the next five years. During the five years through 201617, industry revenue is expected to increase by an average 2.6% per annum, to 1.6 billion. This industry is driven by technology and benefits from innovations such as LCD TVs, Blu-ray Discs and the introduction of digital TV broadcasting to the United Kingdom. Technology is also enabling the rise of online retailing and numerous new online retailers are expected to emerge in the next few years as the economy shows signs of a recovery. A minor shakeout is expected soon after, with a handful of stronger players emerging in the online marketplace.
Key External drivers
Real household disposable income Audio and visual equipment is generally seen as a discretionary purchase, and the frequency and size of purchases made by consumers partly relates to their levels of disposable income. Competition from department stores Specialised retailers of audio and visual equipment sell many of the same products that are available in department stores, and are therefore competing for the same customers. Growth in sales of
Real household disposable income
3.0 1.5 0.0 1.5 3.0
audio and visual equipment in department stores would generally be a bad thing for specialised retailers. IT and telecommunications adoption New innovations in audio and visual technology can make meaningful differences to the level of expenditure by consumers on industry products. The release of products such as Blu-ray Disc players, mp3 players and LCD TVs has compelled many consumers to upgrade their old equipment.
IT and telecommunications adoption
88 80
Percentage
06 08 10 12 14 16 18
% change
72 64 56
Year
Year 03
05
07
09
11
13
15
17
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Key External drivers continued
Leisure time availability An increase in the amount of leisure time available to consumers is likely to
increase the priority placed on audio and visual equipment.
Current Performance
The Specialised Audio and Video Equipment Retailers industry has been through turbulent times in the five years through 2011-12, due to technology changes, imposing discount general retailers, the ongoing rise of online retailing and the financial crisis. Revenue is expected to decline during this period by an annualised 3.4% to 1.4 billion, reflecting the difficulties that operators experienced during the recession. Industry employment and wages have also fallen since 2006-07, with weak economic conditions coinciding with increased interest in online retailing. Industry revenue for specialised retailers of audio and video equipment is forecast to grow by 0.2% in 2011-12. Establishment numbers have declined marginally during the past five years, with the recession expediting the exit of some small players from the industry. There have been isolated instances of
Weak economic conditions coincided with the rise of online retailing to reduce demand for industry stores
merger activity, but the industry continues to consist largely of small retailers. Vigorous competition from diversified retailers and department stores has also played a role in the industrys fortune, with the larger buying power of major electronics chains making life difficult for specialised retailers. At present, specialised retailers of audio and video equipment are believed to account for less than half of total revenue for audio and video equipment sales in the United Kingdom, with department stores, diversified retailers and discount variety stores accounting for the remainder.
The economic blues
Operators in this industry have encountered challenges over the past five years that have largely been outside of their control. Previous to the financial crisis, consumption was one of the main drivers of the United Kingdoms economic growth. Consumption volumes grew by 2.8% per annum, outperforming most OECD countries until 2008, with technology being one of the star sectors. However, the start of the recession in 2008 changed this. With consumers less certain of job security, money increasingly stayed inside their pockets. As a result, retailers had to discount more deeply and more often to attract customers. This reduced the revenue slide to some extent, but it came at the expense of the profit margins that the industry previously enjoyed. Industry
profitability is estimated to be 5.5% in 2011-12. There has been considerable variance between companies operating in the industry due to differing niches, market positioning and the impact that the recession has had in local areas. Consumer confidence began to show signs of recovery in mid-2009, with no major setbacks in the nine months that followed that time. Retail spending during the Christmas 2009 period was stronger than the previous year, but major doubts lingered over a number of European economies, including Ireland and key trading partners Spain and Italy. British consumers do not appear to have regained the ability or the desire to spend since the economy began to recover. UK consumer confidence in April 2011 was rated at 43 by Nationwide,
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The economic blues continued
still showing signs of pessimism that have failed to dissipate since the financial crisis. Inflation is now higher than GDP growth, thus leading to negative real GDP growth. Consumer expenditure has been further curbed by rising food and energy
prices, weak pay growth, stagnant employment, the VAT increase and other fiscal tightening measures. Lower interest rates are the only light on the horizon, and are expected to remain low for the remainder of 2011-12.
New technology driving sales
To a significant extent, the fortunes of this industry are aided by the release of new technology onto the market. The emergence of Blu-ray Disc players during the past five years has driven sales in the video segment, while the increasing affordability of large LCD and plasma TVs has broadened their appeal to the mass market. The United Kingdom is part way through the process of introducing digital TV signals across the nation. The transition to digital TV has created demand from many consumers for flat panel displays and digital set top boxes. The release of the current range of video games consoles from Christmas 2005 onwards has created greater use of home entertainment systems, the benefits of which have flowed through to specialised audio and video equipment retailers, particularly with 3D TVs. Digital radio sales continue to grow, accounting for 26.5% of all radio listening as of early 2011, according to Radio Joint Audience Research. While consumers display a high priority towards owning core audiovisual products such as TVs, these intentions do not translate as easily towards audiovisual accessories. Thus the long shelf life of core products helped lead to the drop in revenue. Despite this, the most active area of growth within audiovisual device consumption has been headphones,
New technology drives consumers to upgrade their equipment and thus increases industry sales
experiencing 69 consecutive months of growth as recorded by GfK in March 2011. This is due to portable devices with audio capability carrying poor quality headphones or none at all when purchased, thus driving consumers to purchase replacements. Portable music players have also spurred a revival for the clock radio market due to innovations in device docking. The increasing penetration of smart phones in the market has not been good news for specialised audio and video retailers, as increasingly multifunctional digital music players incorporated into these devices are cannibalising portable digital music players in the eyes of many consumers. Generally speaking, the industry has not witnessed a gamechanging device such as the original release of the Apple iPod around the turn of the century. However, the advent of Smart TV may provide this change after much hype surrounding the much anticipated Youview.
The emergence of online retailing
During the past five years, online retailing has built its presence in the industry. Specialised online sellers have emerged, though the majority of sales have continued to be made through bricks and mortar outlets. Many established
companies in the industry are expanding into online retailing to complement their store-front retailing and to keep their options open as the terrain changes. Online retailing brings with it the potential benefits of reduced labour intensity, more
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The emergence of online retailing continued
efficient inventory management and reduced property rental costs. In early 2009, major industry player Richer Sounds acquired the website of collapsed former rival Empire Direct and announced plans to integrate the operation into its own business. Indeed,
the recession created opportunities for established shop-front retailers to purchase distressed assets in the online retailing area and use these acquisitions to smooth the companies transitions towards new ways of connecting with customers.
Industry Outlook
Economic conditions caused the past five years to be unpleasant for the Specialised Audio and Video Equipment Retailers industry. Although the next five years are expected to be better, the recovery will not be a miraculous one. During the next five years, industry revenue is expected to increase by an average 2.6% per annum, to reach 1.6 billion in 2016-17. Many consumers in the United Kingdom postponed purchases of audio and video equipment during the past couple of years due to employment uncertainty and turbulent asset values. As the economy stabilises, consumer confidence will begin to recover and more feet will be walking through the doors of specialised audio and video equipment retailers. This will drive revenue growth. IBISWorld expects that establishment numbers will increase in the next few years, as online retailers spring up in the attempt to gain a slice of the recovering economy. However, there will be a shake-out of online retailers in 2013-14,
Industry revenue
5
% change
Year 04
10
06
08
10
12
14
16
18
with stronger and larger competitors gaining traction in the marketplace. The increase in online retailing is expected to limit employment growth due to the lower labour intensity of online business, though wages are anticipated to increase at about the same rate as revenue, as relatively low-cost showroom roles are partly replaced by IT-intensive specialised roles.
New tools to the audiovisual arsenal
The introduction of digital TV signals to the United Kingdom is already underway and is expected be completed in 2012. This process will occur in tandem with the switching off of analogue TV signals, meaning that those consumers who have older TVs that are unable to receive digital signals will be forced to upgrade. This is good news for the industry, with sales of digital set top boxes and flat panel TVs expected to grow strongly. The transition of Blu-ray Disc technology into the middle market for electronics consumers is expected to
generate sales, as will the arrival of the next generation of video game consoles late in the coming five-year period. These consoles are likely to sell briskly, generating demand for TV and home theatre upgrades to maximise the new technology. The increasing integration of digital music players into smart phones is less welcome news for the industry, with most of these devices being sold by telecommunications companies and diversified retailers as opposed to specialised audio and video equipment retailers. It is expected that sales of
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New tools to the audiovisual arsenal continued
standalone iPod music players will decline during the next five years, with a transition towards products such as the iPhone and other smart phones. The advent of Smart TV, which enables home theatres access to on-demand content from the internet, is expected to
bring the industry further revenue and highlight the flipside to the technological convergence trend. While many devices, in particular videogame consoles and Apple TV, already achieve this to a degree, the product has only recently started to be promoted heavily.
The future is online
The challenge for specialised retailers of audio and video equipment to continue to be competitive against diversified retailers and department stores will increase in the next five years. Further consolidation of the industry will occur, including growth of chain stores and buying groups, but the major emerging opportunity for specialised retailers is online retailing. Online retailing is not a new innovation, but with the vast majority of Britons now connected to the internet and more frequent mainstreaming of online selling, it is an increasingly lucrative way of doing business. There are numerous benefits of retailing audio and video equipment online. For existing bricks and mortar retailers, online selling offers the chance to connect with new customers often outside of the stores immediate geographical areas. By offering more than one way for customers to interact with existing retailers, there is the potential to improve customer satisfaction. For start up businesses in the industry, there are definite advantages to operating solely as an online retailer. By bypassing the traditional retail model of leasing high profile (and hence high cost) retail premises, an online retailer can improve
Online retailers have better cost structures and can reach more customers
their cost structure and competitiveness. The opportunity to sell directly to customers nationwide means that specialised retailers of audio and video equipment are able to serve a niche online that may not be financially viable in a single location shop-front. Controlling inventory out of a single warehouse and dispatch facility can also be done more efficiently than would be possible with multiple retail outlets. The lower start-up costs and relative ease of retailing online is expected to coincide with an increase in establishments in the industry. Many of these small online businesses may not be full-scale operations and may not survive in the long term. The challenge of creating credibility as an online retailer is a considerable one, and IBISWorld expects that a small number of recognised retailers will emerge in the industry, eventually squeezing out some of the smaller, less-reputable players.
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Life Cycle Stage
Revenue growth is closely tied to consumer confidence The emergence of new technological products is helping the industry Competition from diversified retailers is strong
% Growth of profit/GdP
30
25
Company consolidation; level of economic importance stable
Maturity
Quality Growth
High growth in economic importance; weaker companies close down; developed technology and markets
Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilise; M&A stage Established technology & processes Total market acceptance of product & brand Rationalisation of low margin products & brands
20
15
Quantity Growth
10
Many new companies; minor growth in economic importance; substantial technology change
Shake-out
5
Specialised Audio and Video Equipment retailers

Musical Instrument retailers retail of Computer and Gaming Products in Specialised Stores Electronic & Potential Hidden Gems Telecommunications Future Industries Equipment wholesaling
0 5 10 15 20
Electrical Household Appliance retail decline

Crash or Grow? 5
Shake-out
Time wasters
Hobby Industries 25 30
10 10
% Growth of establishments
SOURCE: WWW.IBISWORLD.COM
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Industry Life Cycle This industry is Mature
While the past five years have seen industry revenue hard hit by the state of the economy, average annual revenue and value added growth in the 3% to 4% range is anticipated to occur during the next five years. The nature of audio and video products is ever-evolving, with new technological innovations bringing customers back to upgrade their equipment. The introduction of digital TV to the United Kingdom is a good example of this. Despite these innovations, the fundamental functions that the products perform do not change as rapidly as it may seem. Strong competition exists from diversified retailers and department
stores, many of whom sell audio and video equipment in their stores. Specialised retailers tend to emphasise customer service quality, serve niche segments, or are conveniently located to customers. The mature life cycle stage of this industry is characterised by mergers and consolidations, which are expected to continue as the initial flourish of online retailers plateaus and then rationalises. Store-front retailers are expected to lose some ground to online retailing, though many companies operate a combination of store-front and online retailing, and hence may not experience major changes to their revenue.
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Products & Markets

Supply Chain | Products & Services | Major Markets Globalisation & Trade | business Locations
Supply Chain
KEy buyING INduSTrIES

r90.010 Performing Arts in the uK Many forms of performing arts rely on audio and video equipment, either in the performance itself or in the production process. Consumers Private customers buy a large proportion of the products sold by this industry, generally for personal use in the home.
Z99
KEy SELLING INduSTrIES

G46.520 Electronic & Telecommunications Equipment wholesaling in the uK Companies in this industry supply wholesale audio and video equipment to retailers.
Products & Services
TVs are the highest selling product category of this industry, and sales have recently been driven by many consumers upgrading from old CRT TV technology to modern LCD and plasma screens. Many consumers are currently upgrading to equipment with built-in digital TV tuners, which will enable them to receive the digital TV signals that are being phased in across the United Kingdom between 2008 and 2012. The generational change in TV technology has caused this product segment to swell in size over the past five years. Digital video players are also a significant product category and largely comprise DVD and Blu-ray Disc players. Blu-ray Discs are to be the successor to DVD technology, which has been on the market for over a decade. Blu-ray Discs
offer higher resolution images that are able to be seen on new high definition (HD) TV screens. While digital video players are relatively inexpensive, the lifespan of each generation of technology is generally shorter than that of TV screens. Stereo systems account for about 10% of industry revenue, and increasingly relate to theatre installations in the home. Stereo systems were generally more popular in the marketplace a decade ago, but the emergence of iPods and computer systems geared towards music playing in the home have chipped away at their market share. Portable digital music players such as the iPod have proliferated the marketplace, but are commonly sold by diversified shopfront and online retailers. Speakers and headphones are
Products and services segmentation (2011-12)
Speakers Other
8%
Headphones
5%
9%
38%
TVs
Stereo systems
10%
Portable music players
10%
Total 1.4bn
Digital video players
20%
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Products & Markets
Products & Services continued
purchased for a variety of personal and professional uses. The sales of headphones have been boosted by the popularisation of the iPod and higherquality digital music recordings. Speaker dock products have been devised that allow iPods and other portable digital music players to plug directly into a speaker system for use in
the home or workplace. Many consumers who would have previously purchased a stereo system with a built-in CD player are instead purchasing speaker dock products. Products included in the other category include professional soundrecording equipment, cabling and video-editing equipment.
Major Markets
The major markets for specialised retailers of audio and video equipment can be identified as domestic audio equipment customers, domestic visual equipment customers, and professional customers. Domestic (personal) consumers are collectively the key market for retailers in this industry, estimated to account for over three-quarters of total industry sales in 2011-12. Advances in technology influence shifts in the size of each market from year to year, with the release of new generation products in a market segment generally coinciding with increased sales in the couple of years following. An example of this has been the transition of LCD and plasma TV screens from luxury products to mass-market products during the past five years, bringing with it a large number of domestic consumers who have upgraded their screens. An additional factor has been ongoing growth in the Major market segmentation (2011-12)
penetration of video game consoles into homes, with a growing number of avid gamers driving demand for larger and better-quality screens. The transition from DVD players to Blu-ray Discs in coming years is likely to coincide with domestic consumers upgrading their video equipment. The market share for audio products has been largely reactive to the visual products segment, as fewer major innovations have taken place. The growth in purchases of portable digital music players such as the iPod has been strong in recent years, although the highest volume retailers for products of this type have generally been non-specialised stores. In future, the incorporation of digital music players into new generation smart phones is expected to reduce sales volumes of standalone portable digital music players. Professional users of audio and visual
Professional customers
23%
Domestic visual equipment customers
48%
Domestic audio equipment customers
29%
Total 1.4bn
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Products & Markets
Major Markets continued
equipment have been upgrading their equipment in the past five years, with many users making the switch to HD recording and display technology. This HD digital equipment is becoming cheaper as the technology matures,
subsequently compelling more users to upgrade. Generally speaking, professional quality audio and video equipment has become considerably more affordable in the past decade, thanks in part to more efficient production facilities in Asia.
Globalisation & Trade
As a retail industry selling primarily to residents near to store locations, the industry is not highly globalised in a true sense. While the majority of products sold are manufactured in Europe and Asia, the international trade involved in getting these items to market is undertaken at the manufacturing and wholesale levels. Some high-end manufacturers (such as Danish company Bang & Olufsen) primarily sell their products worldwide through self-branded
stores, of which there are many in the United Kingdom. There are limited examples of UKbased online retailers selling audio and video products to overseas customers, however most countries have similar online businesses. A foreign customer would be likely to only purchase from a British seller if there was a major price advantage, or if it was for a particularly obscure piece of equipment that was difficult to locate elsewhere.
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Products & Markets

business Locations 2011-12
SCOTLANd
6.9
NOrTH EAST
NOrTHErN IrELANd
3.0
3.5
NOrTH wEST
10.1
yOrKSHIrE
7.0
EAST MIdLANdS
5.8
wEST MIdLANdS
8.1
EAST OF ENGLANd
8.5
wALES
3.4 22.4
LONdON SOuTH wEST

7.2
revenue (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
SOuTH EAST
14.2
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Products & Markets
business Locations
The higher than average level of disposable income in the London region is a key factor that shapes the regional revenue figures for this industry. While London only accounts for 12.4% of the United Kingdoms population, about 22.4% of industry revenue is sourced from this area. The size and concentration of the population in London enables large specialised retailers to operate, and these retailers often serve other parts of the country via online retailing arms of their businesses. As a result of the over-representation of the London area in industry revenue figures, the majority of other regions in the United Kingdom are underrepresented in industry expenditure share compared with population share. The only other sizeable exception to this is the South East region, which has a higher than national average level of disposable income per household.
Distribution of revenue vs. population

30
Percentage
20
10
London
Wales
North East
East Midlands
East of England
North West
Revenue Population
Northern Ireland
West Midlands
South East
South West
Yorkshire
Scotland
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Competitive Landscape
Market Share Concentration | Key Success Factors Cost Structure benchmarks | barriers to Entry Market Share Concentration
Level This industry has low concentration, meaning that the four largest players in the industry account for less than 30% of total industry revenue. It is estimated that concentration is about 16%, with much of the industry being comprised of smaller niche retailers serving specific geographic areas. Industry concentration has been increasing, with companies such as Richer Sounds expanding their retail networks. Some merger and acquisition activity has been taking place, which has coincided with weak economic conditions in the United Kingdom between 2008 and 2010. It is expected that concentration will continue to increase in the future, with larger companies being better able to compete on efficiency and price with department stores and other nonspecialised retailers.
Concentration in this industry is Low
Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Having a good reputation As a specialist store, reputation for stocking quality products and offering expert advice contributes greatly to business success. Ability to quickly adopt new technology As an industry that is technologyfocused, it is crucial that retailers acquire, stock and advise on new technology quickly after it is released.
Attractive product presentation A bright, modern showroom enables the products to be displayed well. This will create a better impression with customers, and will lead to more sales. Experienced work force Staff members with thorough product knowledge and extensive sales experience will increase customer satisfaction, leading to return business.
Cost Structure benchmarks
Retailing audio and video equipment is a competitive game. Like many retail industries, purchases comprise the greatest share of revenue, with many of the products stocked by retailers costing hundreds of pounds to purchase, even at the wholesale level. Companies with multiple retail outlets will tend to use centralised distribution centres as hubs for their stock purchasing and warehousing. With a strong focus on customer service and advice, particularly in Industry Costs and Average Sector Costs
Industry Costs (2011-12) Average Costs of all Industries in sector (2011-12)
specialised stores, wages also account for a significant portion of industry revenue. Retail staff are required to be on the floor of shops, assisting customers and ensuring that the store remains well presented. For companies who concentrate more heavily (or exclusively) on online retailing, labour costs tend to be lower per dollar of revenue. Poor economic conditions in the United Kingdom in recent years have caused rental costs to fall in many cases.
Profit rent utilities depreciation Other wages Purchases
Profit
2.1 1.3 4.8
Profit
3.51.2 5.5 9.2 10.0

0
100%
68.5 53.1
41.0
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Competitive Landscape
Cost Structure benchmarks continued
Leases that are up for renewal are often able to be negotiated with reduced rental rates due to the soft commercial property market that is currently prevailing. Depreciation costs for the industry relate primarily to store fitout, IT equipment and point-of-sale systems. Industry profitability has also been hit by the recession, with retailers having to discount more heavily and more regularly
than normal in order to aid sales volumes. While the industry has always relied on volume selling at modest margins, specialised high-end retailers are in some cases able to command considerably higher margins than average. A response to the lower-than-normal margins in the industry has been for numerous retailers to shift more towards online retailing, which is seen as a way to reduce costs.
barriers to Entry
Level & Trend
Barriers to Entry in this industry are Medium and Steady
The barriers to enter this industry are at a medium level, with considerable capital expenditure required to open a retail space and to acquire stock. Items of upmarket audio and video equipment can often cost thousands of pounds. Competition in the industry is also high, with many established retailers being situated in major population centres. Strong competition from department stores and other retailers who sell a broader range of products also exists. This level of competition means that margins are often slim, particularly on lower and mid-market products. Difficulties in securing high-quality retail premises in key centres can also act as a barrier for new entrants. Another barrier to entry is the ability to find skilled staff, with extensive product knowledge required for some roles. The pre-existence of distribution networks between operators and suppliers may in some cases be viewed as a barrier to entry. Prospective operators planning to enter the industry should be mindful of the long-standing relationship existing players have with
barriers to entry checklist

Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance
Level High Low Mature Low Low Light Low

suppliers and consumers alike. Potential entrants should also ensure that relevant trading licenses are obtained; however, in most cases this is not a formidable barrier to entry. Growth of the internet over the past decade has created new opportunities for specialised retailers of audio and video equipment. The ability to have just one location for all inventory enables webbased companies to manage stock more efficiently. The nature of the internet also allows full national coverage for retailers who would not have previously had the scale or resources to create a national shop-front network.
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Major Companies
richer Sounds plc | Other Major players
(Market share)
91.8%
Other richer Sounds plc 8.2%
Player Performance richer Sounds plc Market share: 8.2%
Richer Sounds is one of the United Kingdoms leading hi-fi and TV retailers, with about 50 stores operating throughout the United Kingdom. The company is owned by entrepreneur Julian Richer, who opened the first Richer Sounds store at London Bridge when he was just 19 years old. In addition to the physical stores, the company operates an online store. In the year to May 2, 2009, company revenue grew strongly, rising by 38.0% to 116.2 million. Pre-tax profit experienced greater challenges, declining by 8.0% to 3.4 million. In February
2009, the company purchased the brand name, web architecture and databases of collapsed electricals retailer Empire Direct. The purchase was made with the intention of expanding Richer Sounds range of products into small and large electrical appliances. Revenue for 2007-08 was about 84.0 million, up from 75.0 million in 200607. During this period, the company employed 375 staff. The profitability of the business has remained quite stable over the past five years, remaining constantly in the 1.0 million to 4.0 million range.
Other Companies
This industry is predominantly comprised of small retailers who cater to geographic or product niches. With a few exceptions, they are generally not part of large-scale franchises or store networks. The role of non-specialised sellers of audio and visual equipment is relevant to this industry. Retailers such as Currys.digital and Comet have retail networks across the United Kingdom,
retailing hundreds of millions of pounds worth of audio and video equipment annually. Stores of this nature will generally stock home appliances, cameras, computers and kitchen appliances in addition to audio and visual equipment. Furthermore, department stores such as Debenhams and Marks and Spencer stock a range of audio and visual equipment.
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Operating Conditions
Capital Intensity
Level Like many retail industries, specialised audio and visual equipment retailers are generally labour intensive. Labour costs for the industry are incurred through the need to hire staff to serve store consumers. Labour costs or wages account for a significantly larger share of the daily running costs for operators compared with capital expenditure, making the industry labour intensive. In 2010-11, the ratio of capital to wage costs was 1:8.3, which means that for every pound spent on capital expenditure, just over 8 was spent on labour. Capital expenditure for this industry comes in the form of display shelving, cash registers, fixtures and fittings. During the past decade, capital expenditure has been made by most operators to introduce computerised stock systems, digital cash registers and the scanning of barcodes during purchase. The results of this have
Capital units per labour unit 1.0 0.8 0.6 0.4 0.2 0.0 Economy Wholesale and Specialised Audio Retail Trade and Video Equipment Retailers
Capital intensity
The level of capital intensity required is Low
Dotted line shows a high level of capital intensity
included more simple labour tasks, fewer employee mistakes and better stock control. The other significant capital investment made by numerous industry operators in the past few years has been the development and maintenance of an online retailing presence, including
Tools of the Trade: Growth Strategies for Success

New Age Economy recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Capital Intensive
Labour Intensive
Traditional Service Economy wholesale and retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.
Musical Instrument retailers
Specialised Audio and Video Equipment retailers

retail of Computer and Gaming Products in Specialised Stores
Old Economy
Electrical Household Appliance retail Electronic & Telecommunications Equipment wholesaling
Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Change in Share of the Economy
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Operating Conditions
Capital Intensity continued
payment systems and a full web interface. With the reduced labour requirements but increased capital requirements of selling via the internet, the industrys level of capital intensity
has increased during the past five years. While the capital intensity remains low overall, further moves towards online retailing are expected to increase the level in the future.
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Key Statistics
Industry data
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 revenue ( million) 1,820.6 1,721 1,726.5 1,696.5 1,637.9 1,494.5 1,413.2 1,363.3 1,376.7 1,379.4 1,396.7 1,441.3 1,486 1,527.6 1,568.8 Industry Value Added ( million) Establishments 276.9 2,310 258.3 2,218 260.7 2,198 256.3 2,199 249.8 2,078 197.4 2,087 171.7 2,035 160.3 2,008 174.3 2,041 183.7 2,071 193.7 2,112 202.9 2,094 205.4 2,080 206 2,067 209.9 2,031 Enterprises 1,435 1,376 1,363 1,361 1,284 1,280 1,248 1,229 1,248 1,267 1,291 1,296 1,289 1,282 1,265 Employment 8,631 8,665 8,604 8,467 8,365 8,123 8,000 7,832 7,863 8,021 8,117 7,995 7,851 7,922 7,930 Exports ---------------Imports ---------------wages ( million) 155.3 157 158.7 157.3 156.4 152.7 142.7 138.7 135.3 136.8 139.4 142.7 148.3 153.5 158.9 domestic demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Annual Change
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 revenue (%) -5.5 0.3 -1.7 -3.5 -8.8 -5.4 -3.5 1.0 0.2 1.3 3.2 3.1 2.8 2.7
Industry Value Added Establishments (%) (%) -6.7 -4.0 0.9 -0.9 -1.7 0.0 -2.5 -5.5 -21.0 0.4 -13.0 -2.5 -6.6 -1.3 8.7 1.6 5.4 1.5 5.4 2.0 4.7 -0.9 1.2 -0.7 0.3 -0.6 1.9 -1.7
Enterprises (%) -4.1 -0.9 -0.1 -5.7 -0.3 -2.5 -1.5 1.5 1.5 1.9 0.4 -0.5 -0.5 -1.3
Employment (%) 0.4 -0.7 -1.6 -1.2 -2.9 -1.5 -2.1 0.4 2.0 1.2 -1.5 -1.8 0.9 0.1
Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
wages (%) 1.1 1.1 -0.9 -0.6 -2.4 -6.5 -2.8 -2.5 1.1 1.9 2.4 3.9 3.5 3.5
domestic demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Key ratios
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 IVA/revenue (%) 15.21 15.01 15.10 15.11 15.25 13.21 12.15 11.76 12.66 13.32 13.87 14.08 13.82 13.49 13.38 Imports/demand Exports/revenue (%) (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
revenue per Employee (000) 210.94 198.62 200.66 200.37 195.80 183.98 176.65 174.07 175.09 171.97 172.07 180.28 189.28 192.83 197.83
wages/revenue (%) 8.53 9.12 9.19 9.27 9.55 10.22 10.10 10.17 9.83 9.92 9.98 9.90 9.98 10.05 10.13
Employees per Est. 3.74 3.91 3.91 3.85 4.03 3.89 3.93 3.90 3.85 3.87 3.84 3.82 3.77 3.83 3.90
Average wage () 17,993.28 18,118.87 18,444.91 18,578.01 18,696.95 18,798.47 17,837.50 17,709.40 17,207.17 17,055.23 17,173.83 17,848.66 18,889.31 19,376.42 20,037.83
Share of the Economy (%) 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Figures are inflation-adjusted to 2011-12. Rank refers to 2012 data. 2012 dollars.
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Jargon & Glossary
Industry Jargon
bLu-rAy An emerging new form of digital media. The Blu-ray Disc is a high-capacity digital disc predominantly seen as a successor to the DVD. HIGH dEFINITION (Hd) The majority of video equipment sold today is high definition, which offers a sharper, more detailed moving image.
rAdIO-FrEQuENCy IdENTIFICATION (rFId) The use of an object (an RFID tag) applied to a product for the purpose of identification and tracking using radio waves.
IbISworld Glossary
bArrIErS TO ENTry Barriers to entry can be high, medium or low. High means new companies struggle to enter an industry, while low means it is easy for a firm to enter an industry. CAPITAL/LAbOur INTENSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as high, medium or low. High is a ratio of less than 3 of wage costs for every 1 of depreciation; medium is 3 to 8 of wage costs to 1 of depreciation; low is greater than 8 of wage costs for every 1 of depreciation. dOMESTIC dEMANd The use of goods and services within the UK; the sum of imports and domestic production minus exports. EArNINGS bEFOrE INTErEST ANd TAX (EbIT) IBISWorld uses EBIT as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOyMENT The number of working proprietors, partners, permanent, part-time, temporary, casual managerial and executive employees. ENTErPrISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. ESTAbLISHMENT The smallest type of accounting unit within an enterprise; it usually consists of one or more locations in which it operates. EXPOrTS The total sales and transfers of goods produced by an industry that are exported. IMPOrTS The value of goods and services imported with the amount payable to non-residents. INduSTry CONCENTrATION IBISWorld bases concentration on the top four firms. Concentration is identified as high, medium or low. High means the top four players account for over 70% of revenue; medium is 40% to 70% of revenue; low is less than 40%.
INduSTry rEVENuE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INduSTry VALuE AddEd The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTErNATIONAL TrAdE The level is determined by: Exports/revenue: low is 0% to 5%; medium is 5% to 20%; high is over 20%. Imports/domestic demand: low is 0% to 5%; medium is 5% to 35%; and high is over 35%. LIFE CyCLE All industries go through periods of growth, maturity and decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with growth and decline at 15 years each. NON-EMPLOyING ESTAbLISHMENTS Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set up by self-employed individuals. VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: very high is greater than 20%; high volatility is between 10% and 20%; moderate volatility is between 3% and 10%; and low volatility is less than 3%. wAGES The gross total wages and salaries of all employees of the establishment.
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Specialised Audio and Video Equipment Retailers in The UK

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Loud and clear: Retailers have moved online to keep up with rapid changes in technology

IBISWorld Industry Report G47.430

Specialised Audio and Video Equipment Retailers in the UK

About this Industry

12 Major Markets 13 Globalisation & Trade 14 Business Locations

21 Annual Change 21 Key Ratios

22 Jargon & Glossary 16 Competitive Landscape

Industry at a Glance Industry Performance

11 Products & Markets

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Specialised Audio and Video Equipment retailers in the uK June 2011

About this Industry

Specialised Audio and Video Equipment retailers in the uK June 2011

2.6% 75.9m 136.8m 1,267

Annual Growth 07-12

Annual Growth 12-17

Real household disposable income

Richer Sounds plc 8.2%

0.0 1.5 3.0

Products and services segmentation (2011-12)

Key External drivers

Portable music players

Digital video players

Mature Medium Low Low Low

Light Low Medium Low High

Specialised Audio and Video Equipment retailers in the uK June 2011

Key External drivers

Specialised Audio and Video Equipment retailers in the uK June 2011

Key External drivers continued

increase the priority placed on audio and visual equipment.

The economic blues

Specialised Audio and Video Equipment retailers in the uK June 2011

The economic blues continued

New technology driving sales

The emergence of online retailing

Specialised Audio and Video Equipment retailers in the uK June 2011

The emergence of online retailing continued

New tools to the audiovisual arsenal

Specialised Audio and Video Equipment retailers in the uK June 2011

New tools to the audiovisual arsenal continued

The future is online

Specialised Audio and Video Equipment retailers in the uK June 2011

Life Cycle Stage

Company consolidation; level of economic importance stable

Specialised Audio and Video Equipment retailers

Electrical Household Appliance retail decline

Specialised Audio and Video Equipment retailers in the uK June 2011

Industry Life Cycle This industry is Mature

Specialised Audio and Video Equipment retailers in the uK June 2011

Products & Markets

KEy buyING INduSTrIES

KEy SELLING INduSTrIES

Products & Services

Products and services segmentation (2011-12)

Portable music players

Digital video players

Specialised Audio and Video Equipment retailers in the uK June 2011

Products & Markets

Products & Services continued

Domestic visual equipment customers

Domestic audio equipment customers

Specialised Audio and Video Equipment retailers in the uK June 2011

Products & Markets