Buying Groups Look Ahead – and Back

Margins and Q1 performance are addressed in these comments from execs at the major buying groups. Check out Dealerscope’s March issue for additional remarks on other topics.

DEALERSCOPE: What will be this year’s high-margin product or category for the group – and how high could that be? What will be the hottest category, if it’s not the high-margin category?

Tom Hickman, Senior Vice President, Electronics, Nationwide Marketing Group: There’s good margin to be made in higher-priced UHD, and that’s where our guys are going to do it – in some of the larger sizes like 84-inch. I think you’ll see some premium audio sold along with that, too. There’s huge opportunity to add things, whether it’s an Integra amp or Paradigm speakers, or even a premium soundbar, and all those offer very good margin for us – to give more opportunity to add more margin dollars to the overall UHD sale.

Jim Ristow, President/CBO (Chief Business Officer), ProSource: Traditional product categories in the commodity prices is where the highest pressure is, obviously. The more luxury and the more integration-centric and the more of a solution sale the product is, the higher the margin is. That’s really where we’ve put our line in the sand, trying to help all member profiles in the last years. In wireless audio, we’ve seen great margins from the new companies jumping into the field. Control and automation has had not just growth but profitability. Even though the whole market is shrinking in traditional audio, our business, which is step-up product, specifically, is growing. We’re capturing huge market share and the vendors understand that we’re the place to go for legacy audio. Our membership is doing a great job showing, demonstrating and selling this product; their business in that category is going up, and it’s extraordinarily profitable.

Dave Workman, President/COO, ProSource: Our traditional audio business was up a little less than 10 percent last year. You hear a lot of talk about margin, and with some of the recent reports that have come out, when you look at every product category in the industry, there’s going to be downward margin pressure. Our focus is we accept the fact that all products through their lifecycle become a commodity at some point, and there will always be downward pressure. But the history of this industry has shown that solutions generally do not commoditize. While dealers are dealing with downward pressure on individual items, solutions are the only way you can capture margins. Products become commodities; solutions do not. That’s really our focus as a group.

Bob Hana, Managing Director, Home Technology Specialist of America (HTSA): What continues to distinguish our members is the ability to service and support. That has always been one of the higher-margin categories, if you will – our knowledge and ability to take the hardware and educate the client and then provide them support. We’re not in the do-it-yourself market; we’re in the do-it-for-me market. Those people appreciate the service and support, and that’s where the real margin opportunity is.

DEALERSCOPE: Are your dealers’ numbers shifting dramatically more to online this year and if so, what strategies do they need the most help with that you can advise about to adjust to that shift?

Jim Sendrak, Vice President/Marketing & Electronics Div. Manager, MEGA Group USA: If a dealer wishes to embrace the business of online sales, they first and foremost need to be sure they have a powerful website capable of doing the job. The website needs to do more than just present the product. It needs to be built in a way that consumers looking for a brand or a category or even a specific model will see that dealer on top of the search list. Our WebFronts offerings do just that.

Hana: We are observing, through our expanding digital presence and the emarketing part of it, that more consumers are doing more pre-research online and then coming to the brick-and-mortar store. So our presence online as they do research is becoming ever more important for members. It used to be they’d come in, get some education and then try to buy it online. I’m sure there’s still that, too, but we’re seeing a growing trend of the reverse. So the membership needs to pay attention to how important it is to have a good web presence, a social presence, be “live” in the digital world, and have all these elements working together synergistically. HTSA has been engaged with this from the very early stages, and we continue to invest heavily and work with our vendor partners, who are also seeing a return on those investments.

Hickman: Our members are primarily brick and mortar. We do have members who are transactional online, and they, much like everyone who read about it, saw that 2013 was a pretty big year for online, particularly in the CE space. A lot of it had to do with weather, and also simply because of the adoption of online purchasing. I think we’re now at that point where we have a high level of people who are comfortable with purchasing something CE online. So I think we will have some members who will take a good, hard look at online transactions throughout the course of this year and maybe position themselves to become transactional for the latter part of the year, as the 2014 holidays approach.

Lawrence: With a few very notable exceptions, our members are brick and mortar. We don’t particularly care whether we sell the consumer online or in-store, because one feeds the other. So our thrust is to make sure we have a presence online and are prepared to sell there if so needed, or to drive the customer into the store. Suppliers recognize us for our ability to demonstrate product, and consumers want to see that today in all the categories we deal in. We know that at a minimum, at least 50 percent of all consumers go onto a website before entering a dealer’s store. So we have to make sure that what they’re showing online is consistent with the image we want to project in the marketplace.

I don’t want to say we’re shifting to online sales; what I’d say is that we’re placing more emphasis in our presence online.

Workman: The vendors in all our discussions are placing a huge premium on brick-and-mortar presence. The vendors believe whether you have 10 or 100 online retailers, that’s not going to dramatically change the amount of business. There’s a shifting trend of online being a greater percentage of the overall consumer electronics business. That is, however, centric to certain specific product categories, and you have to be careful not to misread some of those trends. There are categories where online is a smaller share, and some where it’s a larger share. But in all cases, I’d say, the vendors believe more online is not necessarily better, and does not increase the business. There is an emphasis among vendors in general about how do you get people in front of their product. They still prioritize people touching their products, physically – particularly with televisions and appliances. They want people to touch them.

DEALERSCOPE: What do you predict group sales percentages shifts will be for Q1 ’14 compared to Q1 ’13 – up how much, or down how much, and why?

Richard Glikes, Group President, Azione Unlimited: Our business will be up 15 percent to 20 percent, based on housing starts and raising our average selling price.

Hickman: We came out of Q4 2013 a little soft from an inventory standpoint industrywide, and January was pretty good from a margin standpoint, but we’ve got everybody and their mother shipping product now (February), so I think we’ll actually come out OK for the quarter between February and March. I think we’ll be up single digits for the first quarter versus 2013’s first quarter.

Workman: I’d say it depends on the type of product. We’re having a continuation of the success we saw last year in the CI-channel products. As far as the big verticals, appliance sales have been very good, but in the CE category, you have to break it down. I think we’re going to see for the first part of the year a continuation of trend in the TV business until some things start kicking in, like the UHD product.

The consumer doesn’t know that January is supposed to restart a different pattern than December. I found in all my years that the holiday season generally portends a trend for the first part of the year. So it’s reasonable to expect that TV is still going to be a challenge for the first part of the year, that legacy audio will still struggle in sales growth – although we’re beating that curve – and that wireless and new audio and automation continue to grow.

Ristow: In CE, as the year progresses, the new wired ecosystems, the UHD product, all of that hits mid-year or Q2. We see it building up through the second half of the year.

Lawrence: On appliances, from a shipment standpoint, the first few weeks of the year had not been particularly good; the weather had definitely had an impact on the business, and will continue to have an impact on it through Q1. Early on, everyone said they thought the industry would be up around seven percent this year; I don’t think so. We believe it will be closer to two percent. We see some of the builder business beginning to catch up to itself, with housing starts slowing. It will be an OK year. Keep in mind that a lot of the business in 2013 was builder business, so the independent channel didn’t play in that as much. But a lot of members had a good year, and I think they’ll have another good year in 2014.

Workman: Generally, dealers tend to be optimists. So you have to hopefully look for a continuing strengthening in the economy, and the prospect for some of the distractions that occurred last year – when the consumer was faced with a lot of new taxes and things like the government shutdown, gradually balancing out, with a gradually improving set of economics that could favor a little more discretionary spending. All of that must be balanced with the fact that we’ve got some pressures in categories and the industry is forecasting those pressures. But generally speaking, I think the retailers are thinking it will be a decent year – maybe not a record-setting year, but a good year.

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Hana: The year 2013 was a good year for most members. It depended on where they were, but we’ve seen growth anywhere from five and 10 to 15 percent for some over what they’d done the year prior. And they’re very optimistic about 2014, and on being able to continue to generate the demand. Whether their sales are up or not, they are experiencing higher profit. They have really fine-tuned their organizations and are more focused on the kinds of products that bring that profitability.

Editor in chief of Dealerscope
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