AVAD, one of the custom integration industry’s leading distributors, is in the process of going through a major transformation, out from under the – some would say – clueless shadows of its previous owner, monster I.T. distributor Ingram Micro…to a more focused posture under new owner Kingswood Capital Management. Now being managed by CEO Tom Jacoby and President Fred Farrar, the company has begun a series of initiatives to transform their geographic footprint, business model, and push to higher revenues.
We spoke with new President Fred Farrar to find out what’s going on at AVAD…
Our discussion with Farrar took place earlier this week in the form of a telephone interview. Farrar has a deep baritone voice and he tends to speak in a slow, measured cadence…lending an air of gravity to the discussion. But without warning, he could calmly make a sardonic joke that would catch the listener off-guard.
What follows is a lightly edited version of our conversations.
Question: Why did Kingswood buy AVAD?
Answer: We bought this as a spinout from Ingram at the beginning of July last year. We bought it because of AVAD’s market position. And it’s our view, as a platform, that it had been under-invested by Ingram and therefore – with an engaged ownership team – good things could happen with that.
Q: Why did Ingram under-invest in AVAD? I mean, don’t they have more money than God?
A: You know, it’s hard for me to speculate. But if I were to give a reason, I really think that Ingram’s business is high-volume, low-touch, and AVAD’s business didn’t match that very well. It was lower-volume, and more engaged selling process with the dealer base.
Q: In perusing LinkedIn, it seems as though your background was predominantly finance, wasn’t it?
A: No, you know my first career was in financial planning. And in 1989-1990 I went to work for two of my clients that bought multiple businesses. So from 1990 through 2014, I basically went to work in the same place, but worked on different businesses.
One of the businesses we bought was the Klipsch loudspeaker company. At the time it was doing $13 million in sales out of Hope, Arkansas, and we grew it to a market-leading position. [According to Farrar’s LinkedIn page, they grew Klipsch to revenues of $220 million, with 480 employees and 2 manufacturing facilities]. They sold it to Audiovox in 2011.
I was the CFO of that company, but I had in operations of a retail jewelry chain and a publicly traded real estate investment trust. So I’m one of those guys who is really as to title. Give me a business with an opportunity that makes sense and you can call me chief cook and bottle washer.
[For AVAD, as President, Farrar is the day-to-day guy, hands-on with all operations of the company. The company right now is around 190-200 total employees.]
Q: How did you end up locating your headquarters in Scottsdale, Arizona?
A: There was a base of accounting services here [already established for AVAD by Ingram Micro]. And it’s a climate that I feel I can attract people to.
Q: So what was your thinking regarding the AVAD footprint. It seems like a couple were closed, and now you’ve leaped forward with 11 new locations?
A: Actually, when we bought the business, we bought it with a plan to restructure the footprint. The old AVAD model under Ingram was built at a time before shipping is as prevalent as it is today. The Internet tools were a little different.
But all the locations ranged from 15,000-35,000 sq.ft., and those were too big a footprint. So our negotiated purchase with Ingram was that we would only sublease the space. The initial phase of the business was sitting down with the management team and strategize on how we would address the market in a handful of models.
But the intent was always to reposition the real estate – and so through today, I have moved 19 branches – which was part of our plan. I did 9 back in November – I did two hubs…and I did another 5 and a corporate office in March. And I’ve got another one relocating next week. I have 1 more that was not a lease assumed by Ingram that I will reposition in the Fall.
But substantially the physical location transformation is behind us. And, as you know, we’ve started adding brands. We added Integra and LG and Planar and Hivision and Seura…and there’s more to go.
[NOTE: All of these moves, Farrar told us, was in existing markets. They have not moved into new markets yet…although they may happen in the future. “The important thing when you look at it, is that it was all part of the plan from the beginning,” Farrar told us.]
Q: Was there another strategic angle to reshaping the footprint of each of the locations? You said the older model was just too large of a footprint. So I assume the new model is a smaller footprint, but was there any business model change that accompanies that? Or was it just too much floorspace?
A: So a lot of the locations had a retail-type showrooms and as you know this is not retail business. So we eliminated those in many cases. But it really was a function of the will-call business being done in each specific market that determined the size of the branch and the amount of inventory that I keep.
With a hub and a mini-hub I have six locations that can ship anywhere in the country in 24-48 hours.
Q: Can you define what a “hub” is and what a “mini-hub” is?
A: Well, a hub is primarily focused as inventory. And a mini-hub is – and example would be my facility in Van Nuys – which does a very strong business in the market, but it then supports the branch in Irvine and the branch in San Diego as well. So it really has to do with the geographic footprint.
My two mini-hubs are in L.A. and Ft. Lauderdale. And my hubs are in Baltimore, Phoenix, and Chicago – and one in Toronto.
Q: Is market expansion in the cards?
A: At the right time, of course.
Q: You mentioned that you were also adding brands. Was it your feeling that AVAD was under-assorted?
A: Our feeling was that the old AVAD was over-assorted…but less relevant in terms of the brands. As a distributor, we are focused on carrying market leading brands, and providing our dealers with brand choices.
And you should recognize that, even though we are a national distributor, many of our brands have manufacturer’s authorization or approval. So just because AVAD carries something, doesn’t mean anybody off the street can come in and buy it. They have to be approved dealers and our platform is accustomed to handling that dealer/vendor requirements and making the product available in 22 markets.
Now when you ask about expansion – clearly if I’m in 22 of the top 50 markets, I’m missing 28…other than on a ship basis. And if you go across my product portfolio, you’ll find similar issues as well.
But we will continue to refine it to match the changing marketplace.
Q: So are you dropping brands?
A: We want to provide our customers with a good, better, best strategy. So in that model, in every category, I might have as many as three or four brands to support it.
Q: Are you maintaining positions in both residential and commercial markets?
A: Look, AVAD’s history has been one of educating the integrator away from just basic home theater. And one of our strengths has been our design group that will help residential dealers cross over into the SMB commercial space – so digital signage, restaurants and bars. We’re really not in the boardroom multimedia space…but we’re supporting both the categories [residential and commercial].
Q: At one time, AVAD made a big thrust into the security business. Are you remaining in the security business?
A: Well, we have some security offerings for those of our dealers who take advantage of it. I wouldn’t say it’s a focus today. Ingram was a little more focused on security.
The current incarnation of AVAD uses the security as an extension of the whole house control process – not necessarily as a business in and of itself.
Q: Do you envision expanding into new categories? Or are you focused on optimizing the businesses you’re currently in for the foreseeable future?
A: Well, I think the business cycle in various categories ebbs and flows. And we continually look at ways to refine our product offerings and match what the market wants. So I wouldn’t rule anything out in the longer term. In the near term, it’s getting our line card in a position to match up with our current dealer base…and expand that.
Q: What about online sales…is that a focus for you?
A: We’re investing heavily in our web presence and a portal, that process takes time. But part of it is making sure that we’re actually serving the dealers needs. So those dealers that want online should be able to get it in a very robust and accurate fashion with certainty of their order and of their product delivery.
And those that want to talk to a live associate will always get to talk to a live associate at AVAD who can help them both plan and complete their projects efficiently and productively.
Q: Zooming out to 30,000 feet, what is your assessment of the state of the industry? Is it healthy and growing? Is it declining? What do you see?
A: We believe there will always be a need for the integrator. It’s a function of how they do their business. So there’s a wide range of dealers that do business with us – the guys that do multiple installs across the country, to the guy who’s just a local referral in his marketplace, doing kind of the man in the van.
While there is some product that a do-it-yourself aficionado might take on – we still think there’ll be continuing demand for do-it-for-me because there’s just too many things to put together.
Q: I have heard that the new strategic plan for AVAD is to take on SnapAV. Is that true?
A: No. You know Snap came from the loudspeaker space. Snap develops proprietary products and does not have market presence locations. Snap is just one competitor and we don’t target ourselves against competitors. We actually focus our effort on what our dealer base and the targeted new customer base we want…needs – as opposed to trying to be something else. We’ll always be AVAD, not Snap, not Wave, not ADI…we’ll be AVAD.
Q: Is there anything else we need to know about AVAD?
A: You know AVAD is a market leader with long-tenured sales associates that are focused on being the local dealer’s solutions provider. And we think it’s a great platform with a great future now that its been unbridled from the large Ingram lack of focus.
Our thanks to AVAD President Fred Farrar for sharing with us what AVAD’s current plans are to refocus the organization.
Learn more about AVAD by visiting www.avad.com.