Mcintosh insidetrack5 schematic

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When D& M Holding s, the Parent Compa ny of ...

... Denon and Marantz, announce d its intention on March 11 to
acquire McIntosh from Clarion Corporation ... there were
clear indic ations that they are buyi ng a company on the upswing.
For one thing, fiscal year 2002 (which ended 3/31/03) marked
the second time since Clarion had acquired M cIntosh in the
summer of 1990 that the company achieved profitability on
worldwide sales, th at year , of $25 milli on. The only othe r period
where McIntosh was profitable during the nearly 13 years under
Clarion ownership was in fiscal 2000, when strong sales of the
special edition 50-year anniversary amplifiers had lifted world­wide revenues to $24 million.

McIntosh’s improvement was also reflected in the results of the
i.t. survey reported in Dec. ‘02/Jan. ‘03, where the company
finished first in sales performance in the Electronics Group, with
52% of participating McIntosh dealers reporting increases in
their McIntosh sales for calendar year 2002, and only 6%
reporting decreases. McIntosh was also one of the most
improved companies year over year on every one of the 10 core
parameters the survey me asures, with particularly spectacular
improve ments in JIT Order Management, Ease of Doing

Business, Appropriate Assortment, and Prompt Resolution of
Service, Return, Repair Issues. In fact, McIntosh finished in the

top 5 among 29 electronics companies on 6 parameters and
placed 5th Overall. These results are now further supported by
in-depth telephone interviews of 13 McIntosh dealers in late
March, during which most of these dealers characterized 2002 as
an “excellent,” sometimes even a “recor d” year with McIntosh
(more about the reasons for this a little bit later on).

fit greatly from access to core technologies for the home side and
the ability to take advantag e of the group ’s purchasing power.

HOW MCINTOSH FITS INTO D&M HOLDINGS

In an interview with i.t. on April 3, Merle Gilmore, the chair-
man of D&M Holdings, stated that “specialty AV and home

theater, including the CEDIA dimension, is a very attractive
market segment with growth potential and good profitabilit y for
both the manufacturers and the distribution channel.” D&M

Holdings, said Gilmore, is putti ng toget her a port foli o of comple­mentary brands, keep the sales, marketing and product manage­ment aspects entirely separate, “but bui ld an industrial company
behind the brands.” The industrial company will be made up of
technology capabiliti es, purchasing, logistics, and some level of
core manufacturing capacity. Each brand, Gilmore str essed, can

When asked about how they viewed the change in McIntosh’s
ownership, most of the d ealers said they felt positive, based on
published information they had read, a nd based on what they had
either heard or exp erienced with regard to how D& M Holdings
has handled Denon and Marantz thus far. Under the Clarion
ownership M cInto sh entered ca r aud io. T oda y, total car audio
sales are split 40% domestic/60% export, and McIntosh intends
to stay in this business. For home audio, the split is exactly
reversed: 60% is domestic and 40% is export sales. As part of
D&M Holdings now, dealers believe, McIntosh stands to bene-

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McIntosh President Charlie Randall at the Binghamton factory

“take those core technologies and utilize them in that brand’s
own unique way.”

Gilmore also discussed how the proper distribution can
contribute to the success of each brand and to the success of the
holding company overall. In terms of product positioning, he
pointed out, Denon and Marantz are relatively close to each
other, “therefore it is important to us that we have distribution
differ enti ati on,” which is achieved in this case because Denon
focuses predominantly on regional specialist chains, while
Marantz mostly targets the owner operated independent

specialist retail channel. ... In the case of McIntosh and Marantz,

the distribution channel (if not always the specific accounts) is
the same which, from the point of view of the holding company
is ok, since there is differentiation of product positioning (with
Marantz positioned below McIntosh). The holding company, in
other words, can maximi ze its object ives with both brands in the
same channel when the brands have different product

positioning. ...

As subsidiaries o f a public com pany Denon, M arantz and ...
McIntosh will, of course, be measured on the achievement of
certain numerical goals. But equally important, said Gilmore,
are strategic goals, suc h as tho se aimed at “str engthening the

brand, strengthening the strategic positi oning of the brand, and
strengthening the relationship with channel partners and end
users.”

VISITING AN AMERICAN I CON

Given all these developments, the timing seemed perfect for
accepting McIntosh President Charlie Randall’s standing

invitation to come see the factory. ... My first impression: Set

back from the road stands a relatively old building with the
distinctive McIntosh name over the door. As you enter and walk
beyond the reception area, you first see the honeycomb of
administration cubicles - accounting, marketing, etc. - with the
executive offices and conference room along one side wall.
Beyond that you step into a totally different world: that of a busy
and, intermittently, very noisy 45,000 sq.ft. factory. Production
lines are set up by product in dedicated cells, explained Randall
... With only two more working days to go, the production board
showed approx. 1/3 of the products to be built done, ... another
approx. 1/3 showed single digit, with the remaining approx. 1/3
requiring low to mid-double digit numbers of units still to be
built. For March that came to some 1,400 units built and tested,
said Randall, adding that the monthly average is ty pically ar ound
1,200, with the factory able to do 2,200/month or 100 unit s a day
in a 22 day month, at full capacity. McIntosh builds approx. 25
days of inventory of everything in home electronics, plus 2
months worth of car audio equipment, Randall said.

We all have cert ain preconceived notions about brands , bas ed on
our exposure to them. As it does for many people in the
industry, the name McIntosh, in my mind, evokes concepts such

as tradition, quality, craftsmanship. ... My very first “aha

reaction” happened as I ob served people ope rating machine ry:
Next to huge programmable CNC precision presses, next to a
programmab le (and very expensive) “water laser” from Ingersoll
Rand that does precis ion gl ass cut tin g, us ing an i ncredibl y for ce­ful water jet and ground -up garnet, stand positively ancient

looking - but perfectly functional - presses from Dreis & Krump
and a winding machine that has been in service “since Day
One.” (Given that McIntosh was founded in 1949 and has
occupied the Binghamton facility since 1951, that make s this
particular piece of machinery over 50 years old). Who services
the old equ ipment, I asked. “W e do,” was the answer. Clearly,
caring about product quality at McIntosh encompasses an
intimate knowledge of the too ls used to build the products, be
those tools old or new.

I also saw that most everything - cabinets excepted - is mad e in
house, from metal housings that move along a convoluted
conveyor system to be washed, dried, painted and then oven­baked - to extrem ely intricate looking semiconductor boards, to
the silk screening on the glass panels. And all along the way
product is inspected and QC-ed - at the level of the part and
again at the level of the finished product.

But I really knew that I could be nowhere else but at McIntosh
when I entered the Service Department and saw two rows of
equipme nt, anywh ere from 20 to 30+ years old , according to
Service Manager Jo h n Me ssemer, which their owners are insist-
ing on having fixed and b rought up to full functionality. Appa­rently, there are lots of consumers who’d rather keep their vin­tage McIntoshes than trade up to the newer version (and yet in
this case they can have their proverbial cake and eat it, too, be­cause old and new equipment will work flawlessly together).
Some 80% of repairs done at McIntosh are on out of warran ty
units, and depending on those units’ ages, this can take 3-4
weeks, “but we want to improve that,” Randall said. In-war-
ranty repair is usually handled within 7 working days, he added.

Many companies try to foster pride and te am spirit through the
wearing of team colors or a team “uniform.” Not so at
McIntosh. People here seem to be too Y anke e-individ ualistic
for that. But compliment an employee on the exacting
craftsmanship of a piece of equipment and you’ll hear, “Yes, we
are proud of it.” Th ere’s no ques tion that there is great lo yalty
to the company. In fact, in some cases first and second
generation members of a family are working here, and it’s not
because there are no other options for them, Randall noted. The
area has a number of high tech emp loyers. McInto sh curr ently
employs 150 peo ple at the Bing hamton facility, of wh om 68
(45%) work in production. Twenty-seven (18%) are in
engineering, while the remaining 55 are employed in sales,
service, warehousing, maintenance, quality assurance and
production engineering.

Toward the end of the tour I cau ght up with Chief Eng ineer
Larry Fish, who is set to retire this June. He reminisced about
hiring Charlie Randall back in 1985 straight o ut of co llege - in
fact, into a col lege /wor k study program - and setting him to work
designing and building test equipment . After tha t came work on
amplifiers, and a lot of traveling with Fish. “I always felt,” Fish
said, “that Charlie had a heck of a future ahead of him.” In
April 2001 Randall was made McIntosh president - the 6
president (including interim holders of the office) since Ron
Fone left in 1995. “What was your No. 1 priority as you started
in the position,” I asked him. “R estorin g de aler co nfide nce ,”
he replied. The revolving door at the top notwithstanding,
McIntosh always had a strong internal foundation, Randall felt,

th

“because everybody has been here foreve r, and no p rod uct is
ever compromise d, qualit y-wis e.” So Randall spent his first year
in the job traveling the country. “C harlie cam e out in the field
and asked t he ty pical questions: What does McIntosh need to do
better,” one McIntosh dealer recounted. “But then he not only
listened, he comprehe nded. And he acted on what dealers told
him.” “Since Cha rlie became presiden t, things have finally
stabilized again,” said another dealer. “The new product is just
very, very good. We are doing more business with them than we
ever did before. Things have really picked up under Charlie!”

And this is a dealer who is still debating whether to join
McIntosh’s Premier Dealer Program.

GROWING MCINTOSH BY HELPI NG DEALERS SUCCEED

To get the details about this program I called Director of Do­mestic Sales and Marketin g, Steve Mulnick. The Premier
Dealer Program was launched in January 2002 , he said , and it
was designed to give consum ers the ab ility to go to one place
and see a typical representation and demonstration of the
McIntosh product line. To maintain their Premier stat us, dealers
agree to have on display McIntosh home theater electronics, 2­channel electronics and loudspeakers. “Not everything,”
Mulnick stressed, “just a representa tion that en ables them to

present the various technologies that we provide in our
products,” and allow McIntosh to refer consumers to a Premier

dealership with confidence. ... Overall, the Premier program

requires an investment of approx. $36,000 at dealer cost, but
there is no requirement to back stock. Dealers are also asked to
purchase something from each of the 3 product categories at
least once a quarter, and McIntosh reps will, in fact, check that.
In return, Premier dealers earn an extra 5% margin, some very
long dating, and preferential treatment when it comes to getting
back-orders (if any) filled. They also get new p roducts first.
Going forwa rd, Premie r dea lers can earn a dditional reb ates in
each quarter where their sales exceed the previous year’s quarter.
Still, Premier is a n entirely voluntary program . “If it turns out

that it does not make sense for a particular dealer because he
can’t sell through the product, he can opt out,” said Mulnick.

... At the same time, McIntosh limits membership in this “club”
geographically, with the approx. 100 target Premier dealerships
out of the total 267 autho rized McIntosh dealers alre ady p retty
much filled. Meanwhile, McIntosh is adding additional
enticements and programs in typical traditional/innovative
McIntosh fashion.

Way back wh en, M cInto sh had an intern al adv ertising ag ency,
JRB, that supported dealers on direct mail advertising
campaigns, including list management. To bring this concept
into the 21st century, they have now contracted with WEBStores

of America, an organization that w as co-founded b y How ie
Diamond, an ex-McInto sher, wh o cut his Interne t teeth, so to

speak, at KnowledgeLinks/GetPlugged.com Both Goff and
Mulnik noted that “we recognize t hat people use the Internet as

a research tool. Therefore we think it is important that our
dealers have a website to market themselves on the web” - most

emphatically not to sell product - but to give the consumer the
ability to research the pro duct and to find out where he can
audition it close to home. Premier dealers who sign on early get
a “bio page” describing thei r businesses listed on the McIntosh
website. On th at page are c lickable links, “Ask the e xperts,”

“Arrange an audition,” “Request a proposal,” that generat e an
email directly to the dealer. Dealers also get their own 5-page
website, giving them not only a presence on the web, but al so the
ability to track and r etrieve visitors to their websites in concert
with McIntosh - even capture what those visitors were doing on
the site. McIntosh plans to collec t all consumer email a ddresses
(with the consumers’ permission) into a database per dealer, to
which the dealer can add other email addresses for an electronic
mailing list. Ultimately, McIntosh will be able to produce
customizable newsletters - creating, in effect, a “cyberspace
version of JRB.” Webstores of America charges $5,000 to
create these so-called Special Edition Webstores. McIntosh,
according to Diamond, “has budgeted funds to underwrite

$2,000 for a finite number of these, so Premier dealers getting
in early can get in a t only $3,0 00.”

How else can a manufacturer improve his success chances
through facilitating his dealers’ success? In a word - training.
McIntosh has always had strong technical training programs.
What they have added now is a series of presentations, to be
tailored to each deal er’ s si tuation, on how to successful ly present
and sell McIntosh to consumers. To do that, they have tapped
Ken Zelin, who used to co-own House of Music in San Francis-
co. Zelin’s store held the No. 1 position in domestic McIntosh
sales for 12 years running, and after a 1 year “trial run” doing
trainings for McIntosh as a consultant, Ze lin has no w sold his
store and as of April 1 has come on board with McIntosh as
Director of Sales Training and Dealer Support. “He is going to

teach our dealers the proven effective and efficient ways of sell­ing McIntosh,” Mulnik said. Zelin clearly believes in product
focus over a bewildering array of produc t choices. “In a sto re
that carries 5 brands of high end equipment, not only do the
salespeople not know everything about all the brands - it’s im­possible, I barely know everything about McIntosh, and I focus ­but it can’t all be in stock, either,” he said . “ And if the custo­mer wants the prod uct to day , you sell him dow n to w hat is in
stock.” Focus, knowledge, and the ability to demonstrate key

advantages of a product line - and why they matter - make a
dealer credible and successful, Zelin has fou nd. As an example,
he noted that within a few minutes a dealer can explain and
demonstra te what makes M cIntosh amplifiers fundamentally dif­ferent, better - and how the company has assured this: Dealers
need to explain and show why there is “Sentry Monitor Current

Protection,” “Power Guard Clipping Protection,” - “and why
McIntosh amps have meters,” and relate it to how that benefits

the custo mer. ...

So - at long last, things seem to be coming together for Mc­Intosh. Dealers continue to report strong improvement across
the board, part icul arly with respect to product avail abili ty. They
expect further i mprovements in the company’s ability to come to
market with new technologies and products in a more timely
fashion because of the association with D&M Holdings. Add to
that the new dealer support programs - Premier, We bstores,
Training - and you understand why C harlie Rand all said in h is
March 11 letter to McIntosh dealers, “I believe it is appropriate
to say that the future has never looked brighter.” McIntosh is
at (607) 723- 3512 or at www.mcint oshl abs. com on the Internet.

inside track Vol. XIX.07, April 8, 2003
Authorized for dissemination on www.mcintoshlabs.com