Editors Letter

May 1, 1997 12:00 PM, Larry Anderson

Dealers rule the distribution channels of electronic security equipment. Developments at the ISC West Show in Las Vegas - and one development since - offer ample evidence of this ongoing truism, which is critical to understanding the market for security systems.

One company's announcement at ISC West pertained directly to the importance of dealers in the industry's distribution network, and constituted a dramatic about-face by one of the industry's biggest players. The announcement concerned Sensormatic's new channel harmonization program.

As I understand it, this program came about because of feedback Sensormatic received from its dealers complaining because Sensormatic was competing against dealers by selling products directly to end-users through its Enterprise Accounts Division (EAD). In response to the feedback, Sensormatic is distancing EAD from its other divisions, and EAD will operate as a Separate Business Unit. The new dealer unit will conduct business completely separate from the manufacturing side.

The change is a sudden turnaround for Sensormatic, which is in effect abandoning the direct sales approach to concentrate on providing a stronger support program for its dealer network.

Sensormatic even hinted broadly at the possibility it might get out of the dealer business altogether by selling off the Enterprise Account Division. Specifically, Sensormatic is entertaining any reasonable offers that are in the best interest of (the company) and its employees, customers and shareholders.

There was another big announcement at ISC West. When Ultrak and Checkpoint announced a planned merger, it was the talk of the show. Everybody you met made a comment, and many people wondered out loud what the long-term ramifications might be. Mergers and acquisitions are much too common to ever be called shocking, but when the players are this big, people certainly pause to notice. For its part, Ultrak has been especially active in mergers and acquisitions during recent months. It is understandable that some among us might wonder:

What's next? In this case, the latest development is apparently that the merger is not going to take place after all. And here is the reason for the change of heart: perceived channel conflict with Ultrak's larger distributor/ installing network. Once again, issues surrounding dealers and distribution channels are directly affecting a decision by two of the industry's biggest players.

In making the original announcement, Ultrak took great pains to express its commitment to the existing distribution channels in the security industry. One Ultrak spokesperson offered the following assurance at the show: We will make a major commitment to our dealer base. According to the original plan - and as proof of the commitment - Checkpoint would divest its Alarmex subsidiary, which sells CCTV products direct to customers

The fly in the ointment here, according to Ultrak, came when Checkpoint's retail customers expressed much concern over the use of a distributor/dealer network, and wanted to continue to deal directly with Checkpoint during the sale, installation and servicing of closed-circuit television systems. It was a scenario Ultrak clearly was not comfortable with, and so the deal is off.

These developments serve to emphasize the important role dealers play in the security industry. In two cases at least, dealer issues are determining the course of the industry.

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