Distributor Roundtable : Distributors Deliver Full Package
More value-added services help dealers competeApril 2012 By Nancy Klosek
Steve Bodnarchuk, M. Rothman: We are continually striving to provide our dealer base with unique product offerings, limited-distribution lines and first-to-market/value-add bundle opportunities. Differentiating the products promoted at retail from the traditional e-commerce price model helps our dealer base be more competitive.
Bill Stewart, President/CEO, Petra: One of the major benefits of working with a distributor like Petra is that we offer tens of thousands of products and accessories from hundreds of manufacturers, and back them all with our lowest-price guarantee. In addition, we also see dealers who are trying to diversify their product selection, but struggle because they want to keep inventory levels tight to increase or maintain their cash flow. Our no-minimum-order policy is perfect for these dealers, as it provides just-in-time inventory while allowing them to explore new categories and product lines without investing hundreds or thousands of dollars. A dealer can truly test what works and what doesn't work with their customer needs and demographics. We also know that freight expenses can take a huge chunk out of a dealer's profit margins, so we pick up the freight costs if a dealer places an order of $800 or more. We really strive to be one-stop solution and a strategic partner with our dealers, providing the support they need to keep them competitive.
Dennis Holzer, Executive Director, PowerHouse Alliance: We've introduced additional product categories and additional products within those to help provide some of the profitability. First and foremost, accessories, for most distributors, used to be the meat and potatoes. If they sold accessories, they would make great margins and were happy, without a lot of effort. We're certainly putting effort into the category now, because it is no longer a luxury sale; it's a necessity sale. Whether it's TV mounts, wire, furniture, or any surrounding categories, like remote controls and automation, which enhance the video category, we've certainly added it.
The other category the PowerHouse group has added, big time, is security. Our focus dealer is the custom install dealer, and there has been a merging where a lot of the security people are installing audio and video. And our audio/video guys were getting beaten up. So what we've done as a group is add security, so that now, our A/V dealer can compete against security guys infringing on him; now, our guys are starting to infringe back.
The products include actual alarm systems, cameras and a lot of the products that allow you, through your smartphone, to control a thermostat when you're not home, or lock and unlock your front door. It also allows for lighting control through the smartphone. It encompasses the whole automation category, but going through security.
We're introducing new categories, introducing better products within categories, providing more training, and then, of course, getting more creative with financing. We're opening more locations so dealers don't have to stock and can have same-day availability.
Rob Kalman, Vice President, U.S. & Corporate Marketing, SED: We consider it our job to help our customers differentiate themselves in the market and deliver superior service, whether they are competing against e-commerce, big-box, or some other competitor. Some of the ways we do this is through exclusive bundles, unique product assortments, in-store display units, complete install packages and reliable fulfillment services.
Derek Noce, Business Development Manager, National Retail Accounts, WYNIT: The biggest competitive threat today is the online marketplace, and the ability for consumers to instantly compare the price of any item through their smartphones. In order to combat that, we are working with manufacturers to manage a clean channel and providing unique product offerings.
Dealerscope: What is the most important element you've incorporated into your business model during the last 12 months and how has it helped your customers?
Stewart: We've made petra.com and our mobile site high priorities, as we see more customers preferring to order at their convenience. Our mobile site has been well received, particularly with our installers and integrators, since they're able to research and order while at a project site. Petra.com now provides more account-management tools for our dealers, such as access to complete order history, shipment tracking, and paid and unpaid invoice history. Plus, dealers can now get shipping estimates when ordering from petra.com so they can keep tighter control on profit margins. Additionally, we also launched our live chat feature and a help desk on our website so our dealers can get answers to their questions as quickly as possible.
Davis: D&H has added just-in-time inventory management, which allows us to offer a greater selection and deliver product as needed while warehousing our stock more efficiently. We've also added sales personnel and specialized teams to handle the nuances of retail and e-tail for our customers and to accommodate a greater volume of retail business. D&H is very hospitable to new businesses, supporting smaller retailers with programs and services that aid in their success. This helps grow our dealer base and develops the market for independent retailers who may not have a lot of other vehicles for support.
Bodnarchuk: I think the most important element incorporated into our business in the last 12 months is that of additional supply chain efficiencies. As more and more manufacturers look to ship in full-container quantities, and shift to direct-import purchasing, many dealers cannot participate in these types of programs. We have re-allocated resources and taken advantage of this type of product procurement from very early on. As a full-line distributor, we are committed to having adequate product inventories available for dealers to pull from at any time and purchase in any quantity.
Kalman: Over the past year, we invested significantly in the operational and information technology sides of our business to allow for continuing logistical excellence while we grow the business. This benefits our customers with the best in speed, accuracy and convenience. Our new, larger facility in Atlanta and the addition of a distribution center in New Jersey are examples.
McCarty: We have many processes in which we are currently investing that will be clear differentiators and really enable our customers. Last year, we made a big investment in inventory, nearly doubling the amount we have on hand at any one time. Our business benefited significantly, and our customers have faster access to a larger pool of inventory, which reduces their need to make big investments. And they can rely on Ingram to provide quick shipping for just in time. Additionally, as we developed the relationship with BrandSource, supporting Expert Warehouse, we brought many new vendors on board and are currently servicing white goods in the Northeast, which we are working on scaling, both with BrandSource and potentially, longer term, to our other customers as well.
Noce: The most important element we have incorporated into our business is the continued focus on our vertical market strategy, along with the addition of the role of business development manager. As we develop core product offerings within each vertical, it gives us the ability to create multi-channel initiatives that work with our entire customer base. Our business development managers are responsible for bridging the gap between customers, suppliers and sales within each vertical market.
Halperin: In today's very competitive retail environment, dealers need access to accurate information quicker than ever before. At Almo, we have done two key things to ensure immediate access to information. First, we strategically aligned our outside field sales organization with our inside sales support group to streamline communications. This team selling/support approach not only satisfies their need for immediate information, it also provides each dealer with a knowledgeable team that is vested in their business success.
We also continue to expand the capability of our dealer B2B web portal, Almo Access. For dealers who want almost instantaneous access to key information, Almo Access is their digital sales and support team, and it will soon be available as a mobile app, for even greater convenience.
Robison: We had a sales reorganization. As you know, we do a lot of consumer electronics and we do a lot of DirecTV. We found that our salespeople are best at one or the other. Very few retailers are good at both businesses, where they do a significant amount of CE and or satellite. So we split our sales force in January. We've taken half our folks and focused them on consumer electronics, and focused the other half on satellite. The people who are really good at consumer electronics are selling it and have less in their bag, and it allows them to spend more time face to face with their customers, more time working on customers' displays, on their marketing plans, on how they advertise. There's also more focused training. It's just starting, but I think it will help our sales force have more face time and more business consultative-type activity with independents.
Holzer: We're doing more education. In almost every branch—we have 36 locations—we're doing, at minimum, one seminar/training per month. We're not only introducing our people to these products, we're training them on how to use them, on how to incorporate many products together, and we're training them on how to go higher in the category.
Some guys may have stopped selling-up at a $149 remote control. Well, there are remotes out there at $599, $699 and $799, but they involve expertise to be able to sell and program. And those are the ones people are willing to pay more money for. So, going higher in the category, you're using your service capabilities, you're tying a customer to you, since you've programmed their remote control, and you're selling higher-ticket items. And while the profitability is close to the same, or maybe a bit higher, it's 15 percent of $500 versus $100.
Kussard: Not to sound flippant, but simply staying in and growing our business has helped our retail customers to rely on us as resources through the sales process and beyond. Increased training programs, for example, are essential to our dealer partners if they are to maximize their value to potential customers.
Swanke: In the past 12 months, our goal has been to expand manufacturer offerings in the categories we sell—take an existing category and add more brands. Two years ago, we brought in Otterbox cell phone cases and this year we brought in Ballistic cell phone cases to expand the offering. We did the same thing with marine audio, now offering all the major brands: Boss Audio, Fusion, JBL, Jensen, Poly-Planar and more.
Dealerscope: What is the most profitable line or category that you carry today? What's the margin on it, and how has that changed from 12 months ago?
McCarty: Headphones. This category provides double-digit margins, which is high for a distributor but needs to be, as the average selling prices are typically low. The category continues to be one of the healthiest among all CE categories, with strong growth rates. It is a highly competitive category, however, and retail margin expectations are high. Also, tablets, as everyone knows, exploded last year. However, margins are tight. This is an important category for the dealers, but more important is selling the accessories associated with them, as there is much more potential margins in terms of dollars and rates on the accessories. Dealers need to maximize every tablet sale and ensure they are driving a strong attach rate.
Holzer: It's accessories. The security business is not significantly more profitable than A/V products, but it has the promise of continuous income, when you set up the client and they pay a monitoring fee. You continue to get a piece of that it's recurring income. That's huge. And there is crossover in that we are getting security dealers who are buying audio and video from us. So it is working both ways.
The IT guy is now coming into the mix now, too. A lot of the better TVs we sell now have Wi-Fi capabilities. Those guys say to themselves, I'm going out to the client's home. So why not sell TVs, too? It's IT, your phone guys, your video and your security guys coming to convergence. And while you'll still always have certain specialists in each area, you'll see guys who offer one-for-all. Why not be the guy who does it all? The last thing you want is to be a guy who hooks something up in a house to a service somebody else is providing.
The additional categories, too, are profitable: control and automation. Frankly, before, most of us looked at furniture and related products and sold them, but they weren't a necessity; today, they are. Extended warranties, too, continue to be a good source of revenue.
Bodnarchuk: Accessories and complementary add-on-sales products remain our most profitable categories. Margins have remained consistent for both distributors and dealers, and success is derived from increasing attach rates and continually finding new opportunities to present them along with core sales.
Stewart: Petra has centered its business on accessories within all categories. Now, more than ever, we're at a stage in the industry where the accessory is key to making the hardware piece a lifestyle enhancement. When a consumer buys a smartphone, there is an expectation that he or she will always buy headphones, a case and a charger.
Apple, cellular and tablets are extremely popular categories right now, but regardless of category, we remain focused on providing the largest and best assortment of accessories that a retailer can attach to any hardware purchase. Undoubtedly, add-on accessories will continue to drive business and profits for our dealers, and as always, we're committed to finding the best brands at the lowest prices.
Robison: DirecTV is still very profitable. And we're doing a lot of high-speed Internet business through residential satellite broadband, which is through ViaSat. That company's brand used to be WildBlue, and it's been re-branded as Exede. It's high-speed Internet for consumers that who only can get dial-up—rural consumers—or people who have DSL that doesn't connect at the speeds they want. That business is really building. They really launched in 2005 or 2006 and had some capacity issues, but they launched a new satellite last year, which gave them a lot more capacity, so now they're up nationally, as of February. It's really kicked in for us, and is really starting to grow.
Halperin: That's a tricky question. While appliances have historically provided dealers greater surface margin opportunities than CE, there are many back-end costs that often eat into those gross profit dollars—especially shipping and installation. Core electronics offerings like flat panels, Blu-ray players, digital cameras and tablets continue to provide dealers razor-thin margins. Unfortunately, we do not see that changing any time soon.
The key to maximizing profits in this area remains accessories that complement the sale of the core item. Retail floor staff needs to be trained to effectively present those add-on offerings throughout the sales process, not as an afterthought. These add-on sales definitely provide great value to the consumer while enhancing the dealers' realized profit for the entire transaction. Effective accessory merchandising and selling remains the single best way for dealers to improve profit margins in the CE world.
Kussard: In terms of sheer profitability, our Capitol-branded HDMI cable continues to be a big boon for our dealers. The margins are higher than the already substantial numbers offered by the category as a whole, and the quality is on a par with the most successful name-brand products in the business. Accessories, in general, are an important category for supporting the bottom line. Nearly every hardware sale can and should include accessories as well, and they offer higher margins than TVs and other electronics.
Davis: Higher-end headphones present a great profit opportunity for retailers. The category of headphones priced at $100 or more has escalated in the consumer marketplace, as ownership of portable media devices continues to increase, and as digital audio content becomes even more ubiquitous. Accessories are also a great profit center for retailers. The accessories category usually comprises high-margin items that are an easy upsell alongside popular devices with less-satisfying margins.
Noce: As profitability continues to decline within traditional categories and end-user fulfillment has increased, we have offset the loss in margin with focused efforts in our vertical market strategy in new categories such as outdoor, housewares and photo specialty.
Swanke: Marine audio has been a very profitable category for us. It has grown 20 percent a year for the past few years. And iPod integration has sent this category to a new level. Margins for distribution are around 15 to 20 percent, and 20 to 25 percent for the dealers. A year ago, the margins were not as good on the category because the product was not as complicated and did not require the expertise it does now to get quality sound on a boat.
Kalman: Accessories and extended warranties continue to provide the highest-margin opportunities. Close behind are small appliances, housewares and personal care products, segments we took a big stake in with an important acquisition recently. SED acquired certain assets of Archbrook Laguna in August 2011, which included 93-year-old housewares distributor Lehrhoff and Co. These product categories offer a large variety of higher-margin and value-enhancement opportunities.