In the halls of Harman International Industries Inc. in Northridge, executives speak with awe of “Project K2.”
It’s not a classified weapons system but a set of audio loudspeakers named after the Himalayan peak, K2, which is considered the most difficult mountain on earth to climb. The 4-foot-tall speaker, available in whitewashed maple and black lacquer, is the crowning jewel of JBL Inc., Harman’s main subsidiary and one of the oldest and best-known names in the speaker business. Its price: $35,000 a pair.
The K2 is only widely available in Japan because the Japanese “are willing to pay top dollar for top sound. We sell them as fast as we can produce them,” said JBL President Richard E. James.
Some Japanese retailers wait as long as five months for delivery, said Bruce Scrogin, president of JBL International, the company’s export division. The system, acclaimed for its ability to reproduce concert-hall-quality sound, has won the top award from Japan’s leading audiophile magazine.
For those whose tastes aren’t quite as demanding, there are JBL speaker systems for the home and car from about $125 per pair, while its top-of-the-line speaker for the North American market retails for around $3,500 a pair.
But the success of the K2 says a lot about JBL. While audio industry sales nationwide have remained basically flat for the past two years, JBL’s sales in that period have grown by about 20% annually and the company expects to top $200 million in fiscal 1992, James said. JBL’s overseas sales have jumped fivefold since 1986 and now account for half of its sales.
JBL’s growth reflects the company’s solid foothold in Europe as well as Japan, where it has capitalized on its reputation for high quality with systems such as the K2 and several other high-end lines. And JBL, which during the 1980s saw its domestic sales shrink, underwent a thorough house-cleaning and set up a separate division that exclusively handles North American sales of JBL speakers, so domestic sales have been climbing as well.
JBL’s parent company, Washington-based Harman International, hasn’t done so well and in fiscal 1991 it lost money for the first time in 10 years. The $19.8-million loss, on sales of $587 million, reflected the recession, the weak dollar and problems with four of its 17 companies, including design flaws in new products by a subsidiary that makes sound-distribution systems, said Sidney Harman, 72, the company’s founder, chairman and chief executive.
Harman International has a wide array of big-name audio companies including Harman-Kardon Inc., Epicure Products Inc., Pyle Industries and Fosgate Inc.
Another of its subsidiaries is Chatsworth-based Infinity Systems Inc., a leading home- and auto-speaker manufacturer that also happens to be a big JBL competitor. Both Infinity and JBL speakers are manufactured in the same plant in Northridge, but other than that they keep strictly to themselves, Scrogin said.
JBL has been helped by the fact that in tough times, retailers and consumers tend to fall back on tried and true names such as JBL, which traces its heritage to the 1930s when James B. Lansing (hence the name JBL) helped pioneer the use of speakers in motion-picture theaters.
“People love JBL,” said Ken Boutte, assistant manager at the Studio City outlet of Fusion Audio Video, a home-entertainment specialty retailer. “They are quality American workmanship.”
Boutte, however, also says that JBL faces plenty of competition from other big-name brands.
There are more than 300 speaker brands in the North American audio market alone, and in Germany there are at least 400, according to JBL’s estimates. Both at home and abroad, JBL’s biggest competitor for years has been Bose Corp., a privately held company headquartered in Framingham, Mass.
James estimated that in the United States, JBL and Bose each have 10% to 12% of the home-speaker market--making them the two largest speaker manufacturers in the world. The two companies are also neck-to-neck in Europe and Japan, where they each claim market shares that James estimated at about 5% and 7%, respectively. Bose officials could not be reached for comment.
Meanwhile Boston Acoustics Inc. in Lynnfield, Mass., has made inroads since its founding 11 years ago and now claims 3% to 5% of the U.S. home- and auto-speaker market, said its president, Andrew G. Petite. Boston Acoustics’ speakers retail for $150 to $1,200, he said.
Boston Acoustics has a negligible presence overseas, where JBL for years has had a competitive advantage because of its well-established network of more than 100 distributors. Since it first started selling speakers in Europe about 20 years ago, JBL has held onto many of the same distributors, who in turn have built solid relationships with audio retailers, Scrogin said.
And JBL hopes to soon use its distributors to expand into Eastern Europe, Scrogin said. For the immediate future, meanwhile, JBL’s strength overseas should help it weather the recession at home. Scrogin said, “To have big, broad distribution on a worldwide basis and be in different markets protects us because we don’t have all our eggs in one basket.”
For all its talk about quality, however, JBL’s image in the United States has suffered somewhat as it has gradually shifted away from specialty mom-and-pop retailers to big electronics chains such as Circuit City and Silo.
“The speakers are better than the distribution they are in,” said a top executive at a competing company who asked not to be named. “A lot of people that are interested in sound might be discouraged from considering JBL speakers because they think Circuit City doesn’t have good speakers.”
That perception, Scrogin said, is “crazy,” but he acknowledged that “the high-end dealers that used to be JBL’s dealer network, I think, feel very abandoned by the company. But if we want to grow as a company we really have to be in the big retailers.”
James said JBL doesn’t distribute speakers to everyone who wants to sell them but tries to maintain a balance that works out for both mom-and-pop dealers as well as big retail chains.
And with the shift to the broader market, JBL has had to introduce lower-priced speakers than in the past.
Meanwhile sales of the JBL Professional division, which makes products for sound studios, movie theaters, sports arenas and the like, have been growing by an annual rate of 10% despite a slowdown in the professional market overall, James said.
JBL’s speakers now provide the sound effects for Universal Studios’ King Kong attraction, Dodger Stadium, the Houston Astrodome and myriad concert halls, churches, movie theaters and rock concerts.
One thing that hasn’t changed is JBL designs and manufactures almost every speaker at its Northridge plant, unlike other companies that farm out the labor to Third World countries.
“The American idea is to do the designing and marketing, and let manufacturing be done by the most labor-intensive nation,” said Harman, who was undersecretary of commerce for Jimmy Carter. “We as a company reject that. We believe the garden in which innovation grows is on the manufacturing floor.”
Harman International Industries at a Glance Audio-conglomerate Harman International is headquartered in Washington, but most of its operations are in Northridge, which is home to Harman’s biggest subsidary, stereo speaker-maker JBL Inc. Although several of Harman’s other subsidaries have suffered due to the recession and some internal problems, JBL recently turned in a record year and expects sales to top $200 million in fiscal 1992.