Radical changes up ahead

24 Dec 08

Leading security distributor Norbain SD Ltd has announced an ‘unprecedented level’ of product launch activity. The six month initiative centres on its key suppliers, its own brands, Vista, plus the new Xeno range to cater for the previously un-addressed entry-level market.

It will focus its financial and marketing resources away from events such as IFSEC, which Norbain will miss as an exhibitor in 2009 to ‘fluid tactical promotion’ of the products which will place a heavy emphasis on direct marketing, both traditional and web based.

Says Alun John, chief executive of the Norbain Group: ‘Despite the uncertain nature of the economy, Norbain finds itself in a positive position with these product launches playing a key role in our continuing success.

‘The decision not to exhibit at IFSEC 2009 wasn't taken lightly given our commitment over the part 25 years. However the pause in our participation fuels our ability to ensure these key products are launched on time, with maximum effect and benefit to our customer base.’

Organisers UBM Live are now working with Norbain on a high end networking event at IFSEC 2009.

John outlines his view of the state of the industry below...

Where are we now?

From our point of view we're envisaging pretty tough times ahead for everybody. Back in July I thought the market was going to become increasingly tough and a lot of people we spoke to said it wasn't going to affect the security industry and we didn't feel that was the case.

We took the view that the market would change, and quite radically.

The idea that any industry is not going to be affected by the world crisis is stupid.

The reality is the world is in the worst state it's been for 30 years. Whatever happened in the past is no guide to whatever will happen in the future.

We think that if you want to prosper in this environment then you've got to be prepared to throw out the old and be able to change flexibly, quickly to whatever the environment is …and listen to customers.

Very strongly in the past six months we've been seeing pressure down the chain. End users who would have bought a high end brand a year ago are coming back to installers and saying 'We know we'd have used this product in the past but we want it cheaper and you either take out ten/twenty percent or you put something else in.'

So we're seeing price pressure moving very strongly from the end user level down to the installer and therefore on to us as well and on to manufacturers. We're seeing a lot of downward pressures for people to get things cheaper.

Certain sectors, such as the building trade, have been devastated in the last year.

If you look at the top end there are huge areas vacant and our assumption is that at some point that is going to impact on high end CCTV systems.

We don't see this as an environment for the next year or so where people are going to be making ambitious decisions on capital expenditure. The sort of trend we see is an overall slowdown followed by a pressure on people to down-trade in product or get the same product cheaper.

Fall of the pound

The fall of the pound against the euro and the dollar is going to affect this industry very strongly because most of the supply base in CCTV is in euros and dollars. The dollar today is 30 per cent down from a month ago and the euro is twenty per cent stronger so a number of people in this market place have got to make some radical decisions on how they manage their business.

Companies that are exclusively importing their product range in dollars are going to have to put their prices up by 25 per cent or disappear. I just can't see how they can do it.

We're probably 20-25 per cent of the UK CCTV market. We'll be affected by the overall state of that market and anybody who's a significant player will be affected.

We're scaling back our plans for the future and our expectations for the market. It doesn't mean you're going backwards, it means you have to address those issues. We're committed to giving best customer service but we're also committed to maintaining a high, fair level of profitability.

At the moment nearly everybody who's any part of the supply chain, the whole message is that they want it cheaper. That's today's reality.

I think we're well positioned with our Xeno launch.

If prices go up I suspect that people who were going to buy eight cameras will buy six or seven. People will downscale the system. They'll probably buy a cheaper DVR. Everything will either become a bit smaller or move down a peg, which brings down the size of the industry. Maybe the industry turnover will stay roughly the same but the amount of product being installed goes down.

A lot of companies in the last four or five years have done quite well by taking risks and the risks have maybe been passed on to the installers and then on the end users. A number of suppliers have not done what I think you should do as a quality supplier and people have been happy to take it because when you're in a buoyant environment you can get away with it, but not when suddenly things go bad.

As Warren Buffett said: "You see who's been swimming naked when the tide goes out".

Xeno and the low cost sector

Over the last two or three years a number of companies have grown to exploit the low cost product area. We think it's been done to varying degrees of quality. Some of the players have done a pretty good job and have reasonable product ranges and continuity. Others have acted like bags of bits suppliers and sourced whatever was available at the lowest price on the day so there was no continuity of product or service.

But there's clearly a demand for entry level product so one of the things we are doing is aggressively launching a new low cost product range called Xeno.

We've been supplying this product range into a number of contracts and customers. We said this is a reliable product. It hasn't got the bells and whistles, the features of, say, our Vista product range, but it fulfils the need.

What we want to bring to the market is a price point which enables people to fulfil a segment of the market but without compromising on the reliability of the product.

It's specifically targeted at small systems where people don't require the premium surveillance.

We would expect, in the coming year, to radically grow our share of this market. Those companies that inhabit that area at the moment are going to be faced with a 25-30 per cent price increase because they're of dollar-based purchasing and the Xeno range will probably not be showing the kind of price increases they'll be looking for. So we'll be one of the lowest priced entry level providers, but with the reliability of service. What we're targeting here is people who want 6-8 cameras in a shop or office block where people just leave it recording. They don't want all the sophisticated stuff you get with the more expensive systems.

A sector of the market has opened up for entry level products and we estimate it to be maybe 15 per cent of the market.

Some installers specialise entirely on the low end product but there are also some of the bigger companies who say: I've got a job here, it's not critical surveillance, I want a camera to look at the reception area. I don't care whether its got good low light performance, we just want to know there's a picture there and it's going to work.

What we will give installers is hotline telephone support. What we won't be doing is going out involving ourselves in design. We'll be offering a product that will be reliable. It includes DVRs, cameras, internal domes, vandal domes. There's no intention to put in a fully functional high speed dome because we don't think you can make a fully functional high speed dome and get the reliability which people want at that end of the market at a low price.

Pressure on installers

We are the main suppliers to some of the biggest installers in this industry – we understand what's happening from them and we can see the pressures that they're under from the end user market.

We see it as our job to try to match our offering to what the market demand is, so we're saying let's try to offer products which people are going to be forced into but where they don't take the risk.

We have to compromise on certain things and this one is, we're not saying it will work with any product we sell. We're saying it's a small systems product. It will work. It will do what it says on the box but you don't get all the systems niceness that you get with the Vista product range.

The future for IP

Our message has been that the top end systems are going largely IP, although not exclusively. They're either IP or hybrid, very few are solely big analogue.

We also see a lot of low end IP where people are sticking a camera in a server room and it's not what I call professional CCTV.

But that mid market for analogue CCTV I do not see changing rapidly. Given the current economic environment, I think it will slow down the uptake of IP on the basis that people have got less money to spend and are going to be far more cautious about how they spend it.

I think that the Onvif forum is really positive, what they're doing, but that counts as only one of the customer objections. At the moment despite what people say – that you've got this universality – nothing is further from the truth. There are closed systems on IP today.

We're a big buyer of IT – you don't want to buy something proprietory that you can’t stick other peoples’ equipment on. We want flexibility we don't want to be locked into a particular vendor. So why should anybody else in CCTV want to be locked into a particular vendor? The number one thing facing any business at the moment is how we deploy cash more conservatively and how we reduce risk in our business.

The bloodbath hasn't started yet, but if people are still buying equipment their number one conversation is not How can I get much more out of this system, How can I be a pioneer? It's How can you bring my costs down? How can you guarantee I get the minimum I require?

We've probably been involved in at least a third of the big projects of IP in the last year and a lot of those will continue, but the reality is there's going be a lot less built to stick these things into in two or three years time.

We listen to what customers want

There'll be a slowdown purely because there'll be a move to price and IP is currently dearer than analogue and therefore, unless you've got a specific reason for needing IP, I think that people will make the decision to take that one.

We put a lot of investment into bringing out a suite of IP but the important thing for us is trying to deliver what customers want. We're not here to say This is what you should be doing, this is how you should do it. We like to listen to what our customers want and then try to supply what they need. It could be hybrid, could be analogue. There'll be a lot of pure IP at the high end still but I suspect that market segment will say it's going to slow down.

What's happened now is that IP is becoming mainstream, albeit a small part market, because you've got all the big players offering IP. We made a decision not to attend IIPSEC 2009.

I always sound like I'm being anti-IP and I'm not, but I think it's been over hyped.

We speak to an awful lot of installers and end users and a lot of the issues raised with us are not the ones that are sold as the big buzz points on IP.

Reaching our decision on IFSEC 09

The IFSEC decision was driven by the general economy, Xeno and also wanting to invest in the e-media engine, which is significant.

The people who are closest to us have just said we understand your decision.

The people who constitute probably 80 per cent of our purchases understand exactly what we’re doing. This isn't just driven by an economy. It's no single decision, what we need to do is invest a lot more money in a particular area.

We've got to operate within the constraints which we're setting ourselves so something had to give.

I did say the word 'pause' and we see it as a pause.

We will be doing things at IFSEC. We've just done a major customer survey on attitudes to IFSEC, Norbain Live, the media and some of the events we do throughout the year.

There was actually a very positive response about IFSEC in that survey and how people use it and our involvement, the decision to attend for 25 years.

We would like to do things at IFSEC within the constraints of what you can do at IFSEC if you're not an exhibitor.

It's positive reasons – the need to invest in more e-media and the accelerated product launches.

Installers' credit lines

Everybody's under pressure on turnover, but between Norbain and our largest competitor we probably provide, in the form of trade credit, funding for half the industry.

We're providing significant amounts of money to help fund the security industry.

We're seeing, in many areas, that companies that have been good companies and have been well run, the banks are halving their credit lines. They're doing it on the ones who can afford to take it, and also take an interest rate hike.

So if you're in the middle ground and you're relatively solid, the banks will be charging you more money for the benefit of doing business with them. That is triggering real issues with a number of our customers.

Opportunity or risk?

The opportunity is that we get more business.

Distributors typically give you a much better credit facility than the manufacturer so there'll be a pressure on a lot of those installers to move some of their purchases from manufacturers on the credit facility grounds into distribution.

The other thing, is that the risk profile changes. So your bad debt profile could change.

Therefore one of the concerns for us is, do we pick up the opportunity and the credit risk – bearing in mind that one bad debt will wipe out four or five years sales value?

We're already acting as a bank. Do we want to take the risks that the banks don't want?

Web-based marketing

One of the things we'll be investing a lot of money in is, how we do web- based marketing? We're investing in a new engine that will give a seamless catalogue, web and material support to the installer.

Two years ago probably 80 per cent of the installation base wanted a hard copy catalogue and didn't want an electronic catalogue. Today it's probably 60 per cent. So we're seeing a strong transition. I think we'll always be doing a hard copy catalogue but we're definitely seeing a change between paper and e-media.

We're putting a lot of money into developing this e-media in the next six months which will support that change.

Plans for Vista include new products that are not scheduled to launch until April. This new e-engine is going to be very important in the way we handle that communication. We get the most enormous traffic via the Norbain website. Certain bits of information are accessed a million times a month.

There's a transition. Whereas people were very ‘anti’ five years ago, probably in a year or two there'll be a tipping point where most people will access their information in an e-form.

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