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COMMENT: What Are The Implications Following Shock Klipsch Move?

The termination of Qualifi as the distributor of Klipsch Group products is the dawning of a new era for the Australian audio market with several industry executives tipping that Sound United the owner of the Marantz, Denon and Polk brands as well as their recently acquired Bowers and Wilkins is set to follow Klipsch Groups lead in 2021 and set up a local subsidiary.

The Klipsch decision is all about growth and their global battle with archrival JBL and Harman who have witnessed dramatic growth in Australia ever since they formed their own local subsidiary. Both US audio Companies sell similar products and the battle going forward is set to be intense.

Michael Henriksen the CEO of Qualifi who was given 90 days’ notice of termination by the Klipsch Group grew the local business from $5.7m net sales in 2017/18 when they took the brand over from South Australia based Powermove to over $11.5 in 2020/21 – with 20% growth this year compared with 2019/20.

So why dump Qualifi and what are the implications for current Klipsch dealers and the wider audio industry.

Klipsch have seen what happens when brands set up a subsidiary in Australia, they have seen Harman triple their JBL sales in Australia with new Harman Kardon products set to be launched next year.

The prior distributor Convoy International reported $6M in losses after they lost the Harman consumer business which they had struggled to grow despite a heavy investment in instore marketing and questionable promotions for the JBL product range.

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Control 4 has also seen significant growth as a subsidiary after they parted Company with Advanced Audio.

The Klipsch Group have multiple brands and while the Klipsch brand is exclusive to Harvey Norman in the mass channel it will be offered to JB Hi Fi and The Good Guys in 2021.

And despite a lot of huffing and puffing from Harvey Norman management who have had a lot of success with the brand they will continue to sell the brand.

The only downside is whether another brand such as Bowers & Wilkins who now have the resources of the Sound United Group to call on can deliver a similar range of products to replace the Klipsch brand at Harvey Norman who have been pocketing a high ASAP from the brand due to their exclusivity.

Currently the Klipsch brand is sold at both Harvey Norman and via the specialist channel who have been heavily funded by Qualifi who have acted as a bank for several struggling dealers.

This could all change in 2021 with Klipsch set to want to set their own financial agenda with several dealers facing the reality that they could be dropped as the Klipsch Group realign their sales partners.

It will also mean that dealers who have been funded by Qualifi could face having to repay Qualifi especially if Sound United move into the Australian market.

The problem for CE and audio distributors is that if they are successful, they face losing the business to a subsidiary, if you are struggling you also face losing the business because of poor sales with the unlock appearing to be the middle ground between success and struggling.

The bombshell decision to terminate Qualifi as Klipsch Group’s Australian distributor with 90 days’ notice is not surprising especially as Klipsch is part of Voxx International which is a share listed Company looking for growth.

The last 12 months has been tough on the group due to COVID-19 supply issues, Qualifi has struggled to get stock and this was compounded by sound bar quality problems.

Last week Qualifi who has one of the best warehouse distributions systems in the business landed eight 40′ containers of overdue soundbars, allowing them to finally fulfill backorders.

During the past 8 months Qualifi has taken back over 1000 faulty Bar-40 and Bar-48 soundbars resulting in dealers questioning whether they dump the Klipsch product for an alternate soundbar from another supplier.

One thing that Klipsch is going to have to do is immediately do a lot of confidence building among retailers following their move to a subsidiary model.

While the Klipsch Group were secretly poaching Qualifi staff the Melbourne based retailer was struggling to get R100SUBs and R120SUBs in the quantities they had ordered.

Currently they have over 300 complete 5.1 speaker packs which will not go out this year.

11 years ago, Klipsch group sacked Alex Encel then Interdyn business and Qualifi ended up discussing the forming of a joint Venture.

At the time Klipsch wanted 51% of the JV and Qualifi 49% Qualifi rejected the deal and instead acquired their biggest competitor Audio Products Group in 2013 which saw them secure the Denon, NAD, PSB and several other products.

This made them the largest A/V distributor in Australia.

In 2016 Qualifi undertook a ‘house cleaning’ exercise, getting rid of more than 15 minor brands (including the speaker brands: Tannoy, Boston Acoustics, M&K and PSB) so they could concentrate on brands such as Denon Marantz and Klipsch.

Now there is real risk for several distributors with Qualifi now looking to either acquire a distributor or move onto another brand to replace the loss of Klipsch.

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