What happened to the credit crunch?

The UK has taken a financial battering throughout 2008. Its stock market, banks and currency are seriously wounded. So what about the audiovisual industry? It’s certainly not business as usual, but it’s still business.

When British bank, Northern Rock sought help from the Bank of England on September 14, 2008 the term “credit crunch” could be heard in the odd news report, the occasional conversation and every so often in speeches by politicians and bankers. By February 2008, when the bank was officially nationalised, the term was well established along with an increasing awareness that the country was facing a banking crisis and possible down turn in economy.

But a lot can happen in a year, and with banks, stock markets and the pound experiencing turmoil and uncertainty “credit crunch” doesn’t seem to cut it any more. However, are we ready to accept a full-blown recession yet?

“The recession that people are now admitting is just around the corner is actually here already,” says Gordon Innocent, chairman of Hungerford, UK based audiovisual distributor, RGB Communications. “Ever since Northern Rock and the beginning of the ‘credit crunch’ the market has been flat for us”

Although Innocent says the company has grown with new products it has taken on board in the last 12 to 18 months, he takes little pleasure in events since August 2008. “It was disastrous really in terms of what we were hoping for and I think ever since August the lack of confidence out there has really started to hit people.”

RGB’s core business; equipment for boardrooms, meeting rooms and lecture theatres, for the private and public sectors, is now struggling. The residential side of the business has been hit as both new-build and refurbishment projects have effectively been put on hold.

Innocent says now is the time for change: “Battening down the hatches and riding the recession out, business as usual, would be foolish.

“The areas that for us are thriving are the ones you can cost justify the use of audiovisual equipment. Things like digital signage, audio conferencing and, in terms of individual markets - oil and gas, are doing very well.

“We are adapting our approach to fit in with the lucrative areas. Conveniently we had already started to do that. [We] launched our digital signage division at the beginning of the year and had started to focus very heavily on what we call visualisation, [for example] control room applications.

“Having already started the ball rolling and seeing what was happening in the market we’ve just put more effort and resource into these areas. We’re still maintaining a reasonable amount of business in the old core areas but it’s not as good as it was.

“We’re making a lot of changes internally; restructuring the sales force, focussing on key customer groups and making sure we do a good job for them.”

With lack of credit an increasing problem, Innocent says he’s seen a few dealers go out of business. “Dealers are finding it harder to pay us on time and we’re having to do a better job at keeping on top of these people.

“We’re being as flexible as we possibly can with them. Where people just can’t afford to pay the whole bill then we’re agreeing payment plans with them. It’s in our interests to keep them in business. We don’t want to see them go bust.

“There will be a lot of companies going under in the next three to six months. Principally because if they’re not financed correctly and they don’t have a strong balance sheet the banks aren’t going to renew their overdraft limits. They aren’t going to increase them. It will be those people who have just got their head above water, done okay doing that for the last 10 years, they’ll be the people who will suddenly find themselves not understanding why the bank says ‘sorry you can’t have your overdraft anymore’.”

The banking crisis has seen the collapse and sale of financial institutions throughout Europe and America. British banks that have been bought or partially bought by the UK government include Northern Rock, Bradford and Bingley, Royal Bank of Scotland, HBOS and Lloyds TSB. International banks that have collapsed have premises, staff and clients in the UK. It’s not just a lack of credit, or confidence or even investment security that’s affecting the audiovisual industry. These collapses have a direct impact.

“We had several opportunities related to the city banks,” says Innocent. “One was with Lehman Brothers which has obviously been scrubbed out now.”

In regards to public spending Innocent says the education market isn’t as lucrative as it once was. “The government were spending a great deal of money on whiteboards with projection to go with them. About a year ago that money stopped and, despite the authorities talking about releasing more money in the future, there isn’t a great deal of evidence of a fantastic opportunity in the education market at the moment.”

Innocent also warns against relying heavily on one market.

“Do you remember Maverick’s ProInstall division? They had lots of employees in lost of vans doing installs mostly in the education market. The spending stopped – and the division went bust.

“But as an industry we’ll weather the storm. As I said before, a number of companies will disappear but they will be the weaker ones.”

Looking to the future Innocent says: “3D is starting to take off with people who are in manufacturing. 3D imaging is very good in that it offers cost saving on the development of a product. With modelling they can have a look at something in real size.”

He says the industry is going to face a shake-up. “There are a lot more traditional IT re-sellers getting involved in AV and that means buying patterns are changing and the re-sellers are changing. If we were just relying on traditional AV companies being the bread and butter of our business for the future then I think we’d be idiots. The IT resellers are becoming a much stronger force and selling a lot more AV equipment.

“It won’t happen overnight and its already been happening in the last few years, I just don’t think a lot of AV companies have realised it. They’ve had their head in the sand thinking how on earth can an IT company sell the products we sell – they don’t know anything about it. But in actual fact the IT re-sellers are far more savvy than some of the AV companies give them credit for.”

Despite establishing the company in 1991, the beginning of the last recession, Innocent doesn’t believe he has a head start on what to expect. “Having started in a recession there is no where to go but up. This is the first recession we will have to go through”

And despite some having lived and worked through one or even two recessions in the past, this is the first financial crisis of its kind they will have encountered. The problems and opportunities we face today are unprecedented and the script is re-written on a daily basis.

By the time this magazine goes to print there is no doubt the financial climate in the UK will have changed. Innocent’s most important message is the companies who survive must change with it.

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