In the age of the iPod, Danish luxury audiovisual company Bang & Olufsen aims to recover lost ground by attracting younger customers and looking to the U.S.
www.bang-olufsen.com/ - CachedManufacturer of a complete line of audio and video products.
Bringing High Design to a Mass Market
Electronics Maker Bang & Olufsen Sees Room to Grow With Its 'Play' Range, Luxury-Car Accessories
"It was a very pristine, very aspirational brand," he says.
Founded in 1925 by Danish engineers Peter Bang and Svend Olufsen, the maker of high-end televisions and stereos is best known for its slick design and trademark brushed-aluminum finishes. One of its earliest successes was the 1929 Art Deco-style Five Lamper radio, which was sold for more than twice the annual income of the average Dane.
Position: chief executive, Bang & Olufsen
Time in job: one year and five months
2003-2011: Triumph Motorcycles
1999-2003: McKinsey & Co. Management Consultants
1997-1999: New York University/ Copenhagen Business School
And, Mr. Mantoni argues, the company's brand remains appealing. "Bang & Olufsen is a brand that is very intact across the world. It has a lot of respect for the quality, the design and for the acoustic performance," he says. "But there is no question that what has happened in the industry over the last 10 years in some ways has changed the playing field a lot."
The introduction of Apple products like iPods, iPhones and iPads has meant consumers can now own a well-designed gadget and load it with songs for a fraction of the price of a Bang & Olufsen product. The high-end speakers and CD players of yesteryear are no longer must-haves for style-conscious music lovers. To add to Bang & Olufsen's woes, the recent economic turmoil in the euro zone has contributed to a decline in sales.
At the height of the financial crisis, between 2008 and 2009, the company's annual net turnover dropped to 2.8 billion Danish kroner ($486 million) for the fiscal year 2008-09, from 4.1 billion Danish kroner for 2007-08. At the time, it was making 75% of its money in the euro zone. The company was forced to shed product lines, make changes to top management and cut hundreds of jobs.
Appointed in March last year, the 37-year-old Mr. Mantoni has been tasked with turning Bang & Olufsen around.
He has, he says, led a corporate soul-searching exercise to identify "all the things we can do and all the things we are good at," asking "how do we get the most out of it and use that to build a strong and a sustainable business?"
Last summer, Mr. Mantoni launched a strategy aimed at bumping up annual sales to between 8 billion and 10 billion Danish kroner and an earnings before interest and taxes margin of at least 12% within the next five years. It is too soon to say whether the strategy will work in the long term but the early signs are promising.
In May, Bang & Olufsen posted a stronger-than-expected rise in fourth-quarter profit following the launch of new products. Pretax profits surged to 77 million Danish kroner ($13.4 million), roughly 10 times higher than in the same period the previous year. Shares in the company rose 11% after the results were released.
"That reduced some of the risk but it is still a high-potential, high-risk case," Mr. Mantoni says of the fourth-quarter numbers. The company will post results for the first quarter of this year on Oct. 10.
Mr. Mantoni is no stranger to turning businesses around. During his time as chief executive of British motorcycle maker Triumph, he managed to revive the brand and increase flagging sales.
His strategy for Bang & Olufsen has three key elements: identifying new drivers of growth as sales of the company's traditional products dwindle; moving into growing markets, namely the U.S. and China; and speeding up the process of developing new products and bringing them to market.
"There is still a long way to go," says Lars Topholm, an analyst at Carnegie Investment Bank AB in Copenhagen, on the strategy. "Same-store sales grew 11% in the last financial year, which is a positive development. This is the second-highest growth I have seen since 1987 when I started covering the company. But the risk is that consumer demand is still weak and the company hasn't been successful in penetrating markets outside Europe."
Sales of Bang & Olufsen's traditional high-end product range fell during the financial crisis and are still far below pre-crisis levels. Last year, revenue in its high-end Audio and Video business was 45% lower than in 2007-08.
With that in mind, Mr. Mantoni has identified two main drivers of growth in the short term: a new, lower-priced B&O Play range, launched at the start of 2012, aimed at younger customers; and the luxury car market.
B&O Play products include the BeoPlay A3 speaker dock for the Apple iPad and the BeoPlay A8 speaker dock that can be used with the iPod, iPhone or iPad.
"B&O Play is a growth opportunity for us across the world," he says. "It's got a nice link with Apple: if you have an iPhone, you can stream your music directly to all the Play products and therefore in a country like the U.S. where most people have two or three iPhones and iPads it is a huge opportunity."
Mr. Mantoni is also pinning his hopes on the revenue from partnerships with luxury car makers, including Audi, Aston Martin, Mercedes-AMG and BMW. This part of the business represented less than 15% of B&O's revenue last year but it is expected to grow between 20 percent and 30 percent.
"You buy a car and spend €100,000 and you get a lousy music system," he says. To convince skeptical Audi executives that there was a gap in the market for a high-spec audio system, "we went out and we bought an Audi A8 and took it apart and we created the speakers inside with fantastic sound….We went back to Audi and they loved it." Seven years on, B&O is in some Audi, Aston Martin and BMW S-class models, and most BMWs.
To avoid a repeat of the drop seen during the financial crisis, when the company's business was highly concentrated in Europe, Mr. Mantoni is pushing to expand in the U.S. and China. The potential in the U.S. is great, he says. Bang & Olufsen only has 50 shops in all of North America, compared with 66 in Denmark.
"We are underpenetrated there. We have several cities, like Las Vegas and Seattle, where we don't have a shop," he says.
China, where sales account for just 5% of the company's total, is also ripe for expansion. Mr. Mantoni forecasts growth of 20% to 30% there in the next two to three years.
Is he worried that a recent slowdown in the Chinese economy will have a negative effect on his plans? "It is true that there is a little bit of a plateau in [the Chinese economy] but I still see Asia as being hugely interesting because what's the population is starting to travel and gaining interest in our products," Mr. Mantoni says.
"We are a small business but a big brand," he says. "The products we sell do not necessarily have to please the entire world. But if we can create a small group of really passionate people, then we will be successful. We only have to find 10,000 out there who really love your products, compared with an Asian brand that needs to sell 500,000 speakers to be successful."
Mr. Mantoni is also looking to change the deeply embedded B&O culture of taking its time to develop new products.
In the past, he says, "we had more time and it took too long." He gives as an example the Beosound 9000 six-disc CD player, which took almost five years to develop. "Imagine today creating a new product and taking five years. During that time the market might have completely changed," he says, pointing to Apple's regular new releases. "We have shortened the time from the idea to when we hit the market and we are still working on it," he says.