18-store chain Al & Ed’s Autosound –the Southern California retailer that pioneered the “free install,“ it claims–now charges $125 an hour for labor, about 30 percent or more above many other retailers.
As the car audio category matures and profits on car radios shrink, (and competition with Internet discounters shrinks them further) some or many retailers are weighing the merits of flipping business models to generating profits almost entirely on installation. Labor, after all is a service that Internet retailers and most mass merchants can’t provide.
Al & Ed’s has already made the shift and says it works.
Purchasing manager John Haynes at the recent KnowledgeFest show, said high end mechanics get $180 an hour on labor and car stereo installers get $40. “Come on guys. You trouble shoot, perform system design, wood working, fiberglass and plexiglass custom fabrication. You guys are the best installation technicians in the world. 40 bucks an hour?”
Al & Ed’s President, Gabi Mashal added, “Our brand is our labor. We make our money with labor.” When the stores shifted to charging for labor, and then to charging even more for labor, he said, “unit profit dollars went down but store profits went up. We’ll sometimes make a small amount of profit on the actual item, but charge full labor. I‘d like to see product sold at full price, but that‘s not always available in today’s market” he said.
The move to charge $125 became policy about a year ago. It was a gradual shift that began at one store catering to a high end clientele. The chain eventually found that stores in less affluent areas did just as well with the new policy.
“With one busy installer, a shop can make $800-$1,000 a day and with two installers it can bring in up to $50,000 a month, at $125 hour”, said Mashal. Even at full margin, a store has to sell $150,000 to $200,000 per month in product to attain the same amount of gross profit.”
On the converse side, the chain moved to a price matching policy on its web site about a year ago. Haynes noted that Southern California has lost about 30 percent of its retailers in recent years. Three online discounters in Southern California alone bring in $35 million in revenues a year.
Haynes, who presented a seminar on helping retailers set up a web site on the Internet and adapt to social media, said 59 percent of people shopping online start on a search engine, and 93 percent of those are seeking out a low price.
We want them to be our customers, and not someone else’s customers. It’s a choice we made,” said Haynes. “We have to acknowledge the consumer’s shopping power, and understand that some products are so commoditized that you either match price, or lose the product sale.”
He recognizes that the new model may not work for every store.
Mashal said there is also a matter of customer service. “We were tired of getting angry calls, because a product is $5 cheaper than we sell it for…We were losing business every day to the Internet. The reality is most people who are shopping look online first and more are looking for price. It’s a fact. I didn’t make it up. I, we made a decision.”
Al & Ed’s does not discount a price protected line and encourages its suppliers to protect their lines. “We don’t have to offer discounts on lines that are tightly controlled,” they said. “On a controlled product line, “market price” is often “full price”.”
Also, most of the discounting on the web clusters into deals of the week on certain core products. So Al & Ed’s checks the specials each day.
“You’ll find most of the discounting only happens on some core models. If you know this week Brand X is getting it on line, but not Brand Y, then you tell your staff this week, we’re pushing Brand Y,“ said Mashal.
Source: CEoutlook
@ Joey
In my opinion you have a couple of options> 1) Wait him out as free labor will not pay the bills forever, and up your service level and reviews online so any search will be a no brainer that you are the better shop and your prices reflect that. 2)have you talked with the other shop and joined forces on raising labor rates? it would help you both at the end of the month. Sounds crazy, but I’m sure if he’s giving away labor that he is not golfing in Hawaii right now.
I agree with Virgil on the “no one walks” policy, and I do very little advertising because referrals are so high.
What do you do when the only other shop in town is STILL doing FREE installs! My Shop is currently charging $45 hour. I’d love to get more money for labor… And I think my time is worth more then $45hr. But with only 2 shops in a small town… And the competition is giving away labor Free. It becomes very difficult to charge at all. I even believe most people in the area know that we are a better shop. But a lot of people only shop price! Someone needs to tell the other shop “It’s not 1990” stop giving away FREE installation!
Selling widgits of any kind esp electronics has never become more challenging.
Fortunately, our buisness model has shifted toward more integration than selling stereo gear. Integration is more of a “black art” and as a result is much more profitable. It all depends on thhe nature of the job and the complexity of the vehicle. In this economy if I tell someone $125 to install a $89 kenwood in a corolla they may walk. sometimes it is better to design some labor pricing on a flat rate and other things hourly if it is a complicated car with customization. When we opened our shop back in 1999, we assumed there would be a decent margin in selling gear. That has completely been erroded due to a flailing economy and internet sales. Nothing worse than showing the customer a product and the next thing you know he is snapping a pic of the barcode with a smart phone. Yes, labor rates have to increase but I am trying to operate from a “no one walks” policy because every customer you close with positive feedback leads to referrals. Better than any advertising you can do.
At our shop in northern California we have just increased all of our labor rates approx 18-20%. Decks were $50, now $60…BT deck is $70. We focus on $80+ p/hour and pay special attention to which vehicle before installation to acknowledge if extra labor will be needed, (ie 2007 civic). We also charge 50% more if the customer brings in product, customer supplied deck is $90. It sounds easy to say don\’t install \"anything purchased online\", but how can you really know? Unless you ask every customer, we have people get product from friends, or have it stockpiled for months before coming in. Our 50% increase for customer supplied products sometimes persuades them to purchase from us, because in the end they may save $50 buying online, but will get so much more service if bought from us…and for only a little bit more. A small comparison could be like a corkage fee….you can bring in your own item, but we charge more to open it.
@ Ralph Salyer:
We got together with our Franchisees and set up a labor chart that is posted in every location, showing a labor fee per installation type (amp, in-dash navi, component speakers, etc) based on an agreed upon \"average car\". At the bottom of the chart is the disclaimer for \"some cars require additional labor….etc\". The hourly rate is quoted at $125.00/hour.
This might be high in some areas. Each retailer has to look at their own local market and decide what is attainable, BUT we are worth at least as much as the R&R line mechanic at the local Toyota dealership.
What if the customer starts walking out the door? You\’re still in a position do to a \"Hey, you know what?…What if I throw in the dash kit for you\" or some other save.
All we\’re suggesting is to take a hard look at what you\’re worth and adjust your pricing up…you\’ll make more GP$, and that\’s what really matters in the end.
I have never liked to give away labor. People pay our installers for their knowledge just like you pay a mechanic or a doctor. It doesn’t matter if it takes 10 minutes or an hour they still pay for the full hour rate. Our stores have always charge a premium on labor for items not purchased at our store. It is an insentive for the customer to buy locally. Currently we charge $55/hour and $70/hour for items not purchased from our location. Raising the rates wouldn’t be a bad idea since sales as well as profits are shrinking. As for not installing items purchased on-line, that crazy because if we don’t install the product then someone else will.
When you charge by the hour, do you bill for actual time worked or do you have some type of time table? Let’s say 1 hour for a head unit,1.5 for an amp or how ?
We started charging that hourly labor rate 2 years ago to combat people who would come into our store and shop,let us sell the produot,then buy it on the internet.We offer a reduced rate for purchases of our merchandise.
Jo-Di’s in COnnecticut will seriously be discussing these issues at our Manager’s Meeting next week. We currently operate at $60.00 for our own products and $75.00 for Customer’s own products.
It appears time for an increase on both. Applause to Al & Ed’s for making us all take notice here. Now we all need to address our “fair market value” for Labor rates in our own areas.
that goes for the xxxxx at installer net as well.
We have been charging $40.00 per hour labor for many years now,after reading this we will be looking hard at our labor rates and most likely raising them.
I agree with the move, but I think a much stronger move for the industry as a whole would be to flat our refuse to install anything purchased online. If we could unite under this motto as an industry it wouldn’t matter how cheap they could buy stuff online if no one was willing to put it in.
We’ve been thinking about something similar. Not quite as drastic, but maybe $80/hr. Most dealerships around here are in the $80-$110/hr range. I’d love to hear more thoughts on this. We currently charge $40/hr if you buy the product from us and $60/hr if the product is not bought from us. I’m thinking of moving to $55 from us and $80 not from us. I can’t afford health insurance for my guys and am having trouble retaining the best guys without it…
I 100% agree with this move! We cant keep offering our services for pennies on the dollar! Its insane to me and a slap in the face to except anything less, period! Our overhead has only gone up & I don\’t see any relief in sight! For any shop/store these days charging anything less is insane in my eyes. My attorney has increase his rate, why not us?