The economy continues to loom as Public Enemy Number One. As CNNMoney.com reported on January 26, nearly 2.6 million jobs were lost in 2008, the highest yearly job-loss total since 1945, and at least six companies from manufacturing and service industries announced cost-cutting initiatives that included slashing thousands of jobs. So how has this major economic downturn affected the companies in our industry?
“Altman has felt the downturn, and I'd be surprised if anyone hasn't. It's a trickle-down effect,” explains Mike Tucker, VP of sales for Altman Lighting. “In terms of receivables, everybody is doing what they can to bring money in. You have had relationships with people for 40 or 50 years in some cases, so there is some pressure but also compassion. It becomes teamwork with your dealers and distributors. You don't want to be too aggressive and ruin the relationships.” For Tucker, business is always cyclical: “It's an extreme juggling act, but we'll come out of this.”
A recent restructuring at Altman has meant that some factory people were laid off over the past months, yet there is an overall sense of optimism about the future. “Everyone is really on the same page,” says Tucker. “It's my eighth year here, and I've never seen anything like it. We have seen leaps and bounds in teamwork, as we learn to pull together and be lean, increase quality control, and become more efficient. The economic pie may be smaller, but that doesn't mean we can't have a larger piece of it.”
There is a slightly different scenario playing out at Strand Lighting, part of the Genlyte/Philips Group. Strand's general manager, Tom Folsom, reports that several Philips facilities in California are being relocated due to factory consolidation. “This came down in November 2008,” Folsom explains, pointing out that 2008 was the best year for Strand in over a decade in terms of sales and profit.
The Philips consolidation plan means that Strand's manufacturing of dimmers and controls will move to Dallas, but at least eight factory employees are moving as well; another 20 will remain in California. “We have a five-year lease and weren't planning on moving,” says Folsom, “but Philips wanted to consolidate wherever possible. Now we have the longest lease in California, and other people may be locating here. Most of the jobs are not going away. It will be a tough year, but we will survive it.”
Josh Weisberg, president of Scharff Weisberg notes, “We've tightened our belts, just like all the other shops, and we do see a number of designers with significantly less work than in previous years who are doing the same. We are also working closely with our clients to find ways to deliver more bang for the buck and have found many designers much more open to working with what is available than sticking with a stated requirement. This kind of collaboration appears to be crucial for all concerned at this point.” Weisberg adds that cancellations have occurred in the corporate sector, but activity in theatre, broadcast, and special events has been “pretty upbeat, albeit with intense scrutiny on all cost areas for every show.”
In January, Tom Stimson of The Stimson Group ran a survey to take the economic pulse of the audio-visual sector and discovered that the mood across most of the AV industry is still somewhat optimistic, but most firms seem to be reducing costs and reviewing their business development options. “Systems integrators are the most confident going into 2009,” he says, “as they have an existing queue of sold projects waiting to be installed. However, their pipeline of new business is starting to thin out suggesting a late Q2 dip in revenues. Rental-stagers are seeing mixed forecasts. A majority of the event companies I have spoken to this past month are pleasantly surprised at their projected revenues through February.
“On the other hand,” Stimson continues, “the East Coast, where financial services are a primary source of revenue, is seeing the biggest downturn since the late 1980s. Regional companies in depressed markets are already suffering. National event businesses seem to have flat revenues through Q1 compared to '08 but are relying more and more on winning regional jobs. AV manufacturers have the most to be concerned about as their customers refrain from discretionary inventory purchases. I expect that, by the beginning of Q2, most of the latent optimism will be exchanged with urgent cost-cutting.”
Cost-cutting was also a priority at Wybron, which issued a statement about its current cuts, saying, in part: “Here at Wybron, sales have slowed, but instead of laying people off, we've pulled together. To correspond with a reduction in work due to the struggling economy, we're reducing employees' hours by 20%. Everybody's making the same hourly rate they were before, but they're working fewer hours. We're still open five days a week, and we'll still provide the same quality service that our customers know they can expect from us. The response from Wybron employees has been awesome. When everyone found out about the new schedules, not one person left. Instead, everyone said, we care about this company and what we do, and we're going to do what it takes to ride out this economy. The reduction is not permanent; it's temporary until the economy improves.”
Nigel Sadler of Green Hippo is optimistic about the projection market. “At the moment, we seem to be doing quite well,” he says. “We have a number of exciting projects lined up, and we have expanded our distribution network by almost 100% in the last few months, so it looks good. So far, business is up on last year, but it is quite early to tell. December, for example, was very quiet, but November was our best month ever. Corporate is definitely down by a considerable amount, but we have found that permanent install is up by a long way while the other sectors for us seem to be quite stable.”
In terms of personnel, Sadler notes that they have recently hired two new staff. He adds that the economy has made customers be somewhat more careful about how they spend money, and they are tending to wait until the very last minute to place orders and confirm jobs — especially the large jobs. “We can see the corporate sector struggling, although for us, that can actually be quite good, as we are often seen as the cheaper alternative to large AV systems for corporate, so we are also seeing some new areas open up for us,” he says. “Business as usual at the moment — we have certainly put a few backup plans into action, but so far we have not yet had to act on any of them.”
At JBL International, part of the Harman Group, VP for tour sound David Scheirman explains that the company's global nature helps maintain a balance: if one market slows, hopefully another picks up. “You have to be mean and lean in these times,” he admits. “One of the most challenging things for a manufacturer is the price of raw commodities, such as wood, steel, paint, and adhesives. When oil was so much higher, raw materials went through the roof. This affects the supply chain. Things doubled or tripled in price, then, like oil, a lot of things dropped tremendously. If you cancelled your order and went to a lower-priced source, you may now be stuck with a lower quality vendor. At JBL, we are taking a close look at cost overhead structuring but have a commitment from our CEO that our entire R&D program will remain fully financed.”
At distributor Group One, president Jack Kelly reports that the touring end of the business has been holding up so far, “but only products that are firmly specified, and appear to have long lasting value are being purchased,” he says. “We haven't seen any tours cancelled or scaled back that wouldn't be in the same position even in the best of times. Local production companies are very careful with their money and are taking their time to make final decisions.”
This is good news for Kelly, who distributes the DiGiCo SD7 console, and for DiGiCo marketing director Dave Webster, who says his products are doing well. “With regard to employment, we have taken people on, not laid any off,” he says. “We have more projects in the pipeline in R&D and sales than in 2008. So we all feel pretty good right now.”
ESTA president Bill Groener says that, in terms of the association's members, he knows of several layoffs “mostly at manufacturers more than at dealers or production companies,” he says. “Many people ended 2008 as their best year to date but are looking ahead with uncertainty. Live production seems to be holding its own with the exception of Broadway, where many shows have closed, but some areas are doing even better as people decide not to take big vacations but stay home and go to a concert instead.” Groener adds that companies tied to installation and construction might see a downturn later this year when current projects are completed, and new ones don't get started. “The Obama stimulus package can help,” he says. “A lot of school projects fall into that infrastructure. There is also a new federal arts committee that could come up with some money, maybe even a 21st-century version of the WPA. There will be some fallout due to the economy. It's Darwinian. Weaker companies may succumb due to external pressures of the economy. We just don't know what that fallout will be yet.”