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Exec’s quiet exit leaves no Klipsch atop speaker maker

October 17, 2015

The only Klipsch family member in a top role at the Indianapolis-based speaker-maker Klipsch Group has left the company as part of an effort to refocus management amid challenging market conditions.

Michael Klipsch, 52, stepped down in September as chief legal counsel and president of business development, Klipsch’s parent, New York-based Voxx International Corp., said in a regulatory filing. At the same time, David Kelley, president of global sales, also departed. Both men will receive a year of severance.

Michael Klipsch, a Purdue University trustee who worked at Klipsch nearly 20 years, couldn’t be reached for comment. But Paul Jacobs, Klipsch’s president and CEO, characterized the departure of both men as mutual decisions, reflecting the need to streamline management and bring in new talent to help navigate the rapid technological changes sweeping through the speaker business.

jacobs-paul-mug Jacobs

Jacobs noted that, before the restructuring, Klipsch had four executives with president in their titles, which he called “a ridiculous number” for a business of Klipsch’s size. He said that under the new structure, the third president, Oscar Bernardo, became chief operating officer, leaving Jacobs as the sole president.

The company, which has about 175 employees, for several years has been shrinking, as cheap Bluetooth speakers and earbuds drag down demand for Klipsch’s home speaker systems costing thousands of dollars.

The good news is that Klipsch remains the No. 1 maker of home loudspeakers in the United States. The bad news is that the business overall has gotten smaller.

The challenges are reflected in Voxx’s latest financials, released Oct. 13. In the three months ended Aug. 31, premium audio sales—the bulk of which come from Klipsch—totaled $30.2 million, a whopping 22 percent decline from the same period a year earlier.

The performance wasn’t a blip. Premium audio sales tumbled from $189 million in the fiscal year that ended in February 2014 to $166 million in the latest fiscal year.

It’s not what Voxx was expecting in 2011 when it scooped up the family-owned speaker maker for $166 million as part of a strategy to de-emphasize commodity products like cords and cables in favor of market-leading, high-margin technologies. Klipsch was one of a series of acquisitions Voxx made in an effort to reinvent itself.

But the Klipsch purchase price has proved overly lofty, forcing Voxx to take a $32 million impairment charge on the acquisition last year and another $4 million charge in the latest quarter.

Jacobs said some of the sales sluggishness reflects the company’s recommitment to focusing on the high-end market, backing away from products such as lower-priced soundbars that sell well but have fierce price competition and thus thin margins.

The company also discontinued direct sales of Klipsch home audio products through the online behemoth Amazon.com, whose algorithms sometimes led to unpredictable pricing that damaged Klipsch’s relationship with other distribution partners across the globe.

“If you are going to clean up the marketplace, and you have a premium brand image, sometimes you have to bite the bullet,” Jacobs said.

Klipsch Michael Klipsch

He said the management changes included bringing new talent into Klipsch in areas like fashion and lifestyle and maximizing opportunities in the fast-growing parts of the speaker business, including high-definition wireless for in-room theaters, and multi-room streaming wireless.

Part of the new strategy involves interacting with customers in a more personal way. Toward that end, Jacobs said, Klipsch products now include packaging that features the Indianapolis skyline and says, “Designed with pride in Indianapolis.”

In a conference call with analysts Oct. 14, Voxx CEO Pat Lavelle said Klipsch management is doing the right things to adapt to the reality that “where, what and how people buy audio products has changed.” Even with the premium audio division’s sales decline, it remains a key part of Voxx, generating 20 percent of revenue in the latest quarter.

Two Klipsch family members still have a direct stake in getting Klipsch Group’s performance on track. Fred Klipsch, 73, passed the CEO’s baton to Jacobs four years ago but continues on the Voxx board.

Meanwhile, Michael Klipsch’s son Ryan, a Purdue graduate, joined the company’s engineering staff last year.

The company was founded by Paul Klipsch in 1946. He sold it to his cousin Fred Klipsch in 1989.•
 

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