Strong in the Face of Adversity

COVID-19 was the backdrop to the story of the SDM 100 companies in 2020. Despite the uncertainty and challenges it presented, however, the top security dealers held their own, and some even thrived, finding new paths and opportunities.

If there is one word that could describe 2020, both in life and for the top 100 security dealers, it is unpredictable. Following several years of growth — and a very strong 2019 — SDM 100 companies found themselves on slippery ground beginning in March 2020 with the onset of the COVID-19 pandemic. It is hardly surprising this year that, when asked for their “most significant accomplishment” many wrote a variation of, “We survived.”

“Due to the challenges and unknowns surrounding the COVID-19 initial lockdown and ongoing pandemic, the market in 2020 was unlike any in recent history,” wrote No. 47, Supreme Security Systems Inc. “The market was spotty all year and there was no consistency, either up or down, in any specific market segment. Challenges were in all areas of operations, including sales, customer-facing activities and staff management.”

Custom Alarm, No. 80, wrote, “Overall sales revenue had increased about 3 percent year over year from 2019-2020. We were on pace at the start of the year to have a record year, until March. We wouldn’t consider this strong growth, but not bad considering nine months of it was affected by COVID-19 in one way or another.”

Across the board, there were clearly ups and downs this year, and a small number of the top dealers usually listed in this report chose not to apply at all this year. But as a whole, those that remain held their own. Annual revenue stayed steady at $10.8 billion, and RMR rose slightly at 1 percent. Eighty-two percent of the SDM 100 companies reported positive RMR growth, with some of the top 10 reporting positive growth at smaller rates than last year. Others, such as ADT and Brink’s increased their RMR in 2020 after a decrease in 2019, which helped boost the numbers. Only three of the top 10 reported lower RMR rates. If you take out the top 10 companies, the remaining 90 companies actually grew their RMR a respectable 9 percent, up from 8 percent last year. Total subscribers tipped down another 5 percent, continuing a five-year trend; but profits rose, with 50 percent of companies reporting an increased profit margin over 2019.

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A Chaotic Year

There was no single formula for success. Some found the residential market to be flat or in decline while others saw a boost from homeowners staying home — and working from home — who wanted to add security systems.

“COVID-19 definitely weakened the market for residential sales and monitoring. Commercial installations saw an uptick,” wrote No. 65, Crime Prevention Security Systems.

No. 4 Vector Security saw the opposite trend: “In 2020, having essential worker designation was crucial. Residential was a growth driver in 2020, with work-from-home creating opportunities for residential segments. The commercial vertical was challenged with up to 30 percent of businesses closing, which delayed work.”

They are one of the few exceptions, however, that reported an uptick in residential sales. Pandemic or not, the trend of softening residential — as DIY companies flood the market — is continuing for many.

The publishing of the 31st annual SDM 100 list is a great time to take stock of the industry.

Core Growth

During the last year, we had a once in a 100-year pandemic, a recession, an unemployment rate that surged to just below 15 percent, and material changes to much of the way things are done in this country. What about the security alarm industry? According to our research, it grew recurring revenues by 2 percent! These revenues for ongoing services represent the best indicator of the size and reach of the industry. They also provide the vast majority of industry profits. A bright spot amidst the tragedy.

Another issue many companies faced this year involved the supply chain. Whether related to the virus, or the trade war with China, it had an impact.

“Lumber yards were temporarily shut down during the pandemic as were manufacturing plants, causing supply shortages and backlog. At the same time, many products produced in China became subject to tariffs driven by the trade war. All of these factors increased the cost of doing business; and this was compounded by social distancing requirements on job sites, which resulted in production and scheduling challenges,” wrote No. 7, Guardian Protection.

Per Mar, No. 15, put it succinctly: “COVID-19 overall had a minor impact financially but a major impact operationally.”

Some found the Zoom approach to business inhibiting. “Lack of face-to-face interaction hurt sales efforts. We also missed out on networking events and industry trade shows that usually yield us more business,” stated No. 21, American Alarm & Communications.

Vio Security, No. 29 (formerly GHS interactive), added that restrictions on door-to-door sales hurt their business.

On the upside, the pandemic brought to the forefront some of the technologies and trends that had been on the cusp of taking off, but 2020 was the push they needed. Video was particularly strong, as was managed and hosted services.

With businesses shut down, more customers saw the value in remote video and access control systems to protect their closed facilities; while restaurants added video to protect their expanded outdoor dining areas.

“We had a very strong interest in both the residential and commercial markets for camera systems, and that interest did result in actual sales,” wrote No. 40, Matson Alarm.

While there were no shortages of challenges, companies like No. 72, Fleenor Security Systems, still managed to find an upside.

“COVID-19 caused us to take some actions we would probably not have considered but in the end it has actually given us a new perspective that we can be successful with a remote workforce if needed. … Overall I would say 2020 was an incredibly challenging but successful year!”

The ‘Speed of Normalcy’

Looking ahead, there is a note of cautious optimism, largely centered around the vaccine rollout and how quickly the economy can open back up. As a whole, the SDM 100 companies have a positive outlook about revenues in 2021, with 78 percent predicting they will be up over 2020. But the impact of COVID-19 will continue to be a factor through much of 2021. And of course there was another major event that happened in 2020 that could have huge implications for this year: the election of a new administration. Both of these topics weigh heavily in the anticipation of what is to come.

“The market doesn’t know what direction to head right now with COVID-19 vaccines being administered, but variants of the virus springing up. Couple that with a flip of the senate and executive branch and everyone is waiting to see what will happen. I believe we may yet see a softening of the market in the first and second quarter and I hope a massive rebound in the last half of the year,” wrote No. 45, Peak Alarm Co.

“There is only one issue with any importance in 2021: reopening the economy. Until this takes place, probably as a result of near total inoculation, we will continue to deal with unpredictable unknowns,” said No. 47, Supreme Security Systems Inc.

Sonitrol Integrated Security, No. 81, wrote, “After 2020, I don’t see a whole lot that could change that much more. The biggest unknown will be how the new administration approaches things, but we have seen that security is vital no matter which team is in the White House and Congress.”

At its core, the security industry is a resilient one, however, and No. 62, DFW Security, is optimistic that no matter what happens the industry will thrive: “Our industry thrives in economic downturns and upswings. I expect 2021 to be a great year for our industry.”

JSC Systems, No. 89, is similarly hopeful for a strong recovery. “The speed of normalcy is the most obvious variable, which is directly tied to vaccination rates. If things go as projected, the second half of 2021 should be strong. We expect a normal school year in 2021, business to be back to normal capacity, and people to start traveling. In the geography where we operate, this points to investments in private and public construction. The volume of business we are bidding and proposing is at an all-time record. This is the best leading indicator of our potential growth.” SDM