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Tablet Sales : Pulling Profits from Tablets

From traffic drivers to full solutions

April 2012 By Nancy Klosek

Wringing profits from a margin-challenged category isn't a new problem for CE dealers. It recently hit a tipping point with TVs where vendors had to institute MAP and unilateral pricing policies to stem the ticket-slide tide. Tablets are just as margin-challenged, but there is no such vendor strategy on the horizon. Dealers are left on their own to extract as much profit as they can from the category.

Some dealers, such as Rife's TV & Furniture, see merit in featuring entry-level Android tablets as traffic drivers. The single-store appliance and CE retailer Grundy, Va., currently stocks Coby's Kyros line, which range from $149 to $199. About one-fourth of the store's business is done in CE, including computers and tablets. "We stock more tablets at Christmastime, and in spring and summer, drop our inventory down," said Ricky Owens, sales manager.

While Rife's sells tablets mainly to prevent customers from shopping elsewhere, the retailer is planning to add Asus's line of Eee tablets, priced in the $399 range, to generate some margin and accessory attachment sales.

By that reasoning, none of the tablets carried by Vann's, the Montana-based retailer, along with its ON Store offshoot, sell below $349. "Providing something at a very low price point just to have it when margins are super-tight anyway doesn't make a lot of sense," said Matt Barrett, Vann's technology merchant. There is also a better selection of accessories for the higher-end models, he said.

"For a lot of the low-end tablets, there's not a lot of accessorization. You're kind of stuck with whatever they decide to give you," Barrett said. "That limits the customer experience to some extent. And that's not what we're about. As things settle out, you're seeing a little more accessorization from certain companies who realize, hey, this brand isn't likely to disappear within a month so I can actually commit some logistical resources to build an accessory mix for that particular tablet."

Online Vs. Brick & Mortar

But for some e-tailers, carrying a wide assortment is more of a blessing than a curse., for example, sells iPads and 29 Android-based tablets, with prices ranging between $149 and $599. "We're essentially able to have unlimited 'shelf space' and carry more inventory," said Bob Bellack, newegg's CEO, North America. The e-tailer's ability to use virtual fulfillment—keeping inventory housed at distribution centers as a way to maintain a high assortment with no inventory costs—provides further advantages.

"Our strategy is very different from that of brick-and-mortar dealers," he said, adding that in-store buys are more impulse purchases, while people coming to the site are willfully searching for tablets. Popular attachments online are OEM-specific accessories. "If a customer comes into our site and buys an Asus tablet, they might also buy an Asus case or an Asus docking station," he said. "Tablet-specific keyboards are also extremely popular."

One of the upsides for brick-and-mortar retailers is that tablets often lead to add-on sales that go beyond traditional accessories, such as headphones and music-streaming solutions. "The home network is driving how and what is purchased, and what we can build upon," Barrett said, adding that Vann's sales staff works to include tablets as part of a larger solution.

"The biggest thing is asking people, 'What do you want to do with it, or what do you think you want to do with it?' We'll say to the client, 'So now, you've got your iPad, or your Sony Tablet or your Samsung. You'll want to hook that up to a quality DAC—a Peachtree Audio, maybe, or a Sonos system.' Selling that ecosystem is the add-on."

When it comes to online sales, Barrett agrees Web customers usually log in with a reasonable idea what they want. To help that customer in reaching a decision, Vann's leverages its vendor relationships by posting YouTube videos that show off a tablet's features and benefits. The retailers also use Facebook and other social media tools, but not necessarily to sell products. "Social media isn't about trying to sell something," Barrett said. "It's about getting them excited about whatever is coming out, about sharing a piece of knowledge with someone."

Retailers can approach tablet sales in the same way the approach notebooks or gaming software, said Doug Schatz, vice president of electronics merchandising for the Nationwide Marketing Group. The benefit of tablets is that they can jump-start a buying cycle.

"What they are really about is frequency of shop because the buying cycle for a tablet is pretty short from the time you buy your first to the time you buy your second. It's the same with notebook computers, as opposed to bedding or furniture or a refrigerator," he said. "So by engaging in those shorter-cycle businesses, dealers are getting to see their customers more. And if you're getting to see the customer more, you have the best opportunity to have the top-of-mind awareness with the consumer when they want to shop for another product."

Jim Ristow, executive vice president of the BrandSource/HES buying group, which has made most major Android tablet brands available to its membership since late last year, also stressed the term "ecosystem" in addressing the topic of tablet sales and margin generation. Group membership is comprised of traditional retailers and custom integrators, and both are using tablets in different ways.

"Some of the more promotional members are using some of the OPP (opening price point) product to help drive traffic and/or include it as giveaways for promotions. But some are using them to create branded ecosystems," Ristow said. "When they're sold as part of not just video but audio and complete solutions, the packages are very profitable. Those members understand that they are selling not just that device but a market basket. It's a Trojan horse that opens the door to opportunities to things like Control4, Sonos wireless whole-home audio and Apple AirPlay products." DS



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