Shining Light on the Industry
Change overcomes challenges for regional dealersDecember 1, 2012 By Nancy Klosek
In 2012, regional dealers fought against online competitors on both pricing and tax issues, struggled to increase average ticket prices on profitless TV sales, and wrangled with a struggling economy that kept many of their customers in a financial vice grip.
But they didn’t take these challenges sitting down. They changed their product mixes, improved marketing and merchandising strategies, increased profit-rich service offerings, and embraced new training initiatives by some vendors who are showing a renewed appreciation for regional consumer electronics and appliance dealers.
2013 won’t be much easier, but the dealers we recently spoke with felt the changes and strategies they deployed last year will help them forge ahead.
Here’s what they had to say.
Dealerscope: What was the biggest challenge you had to overcome this year, and how did you do it?
Alan Lavine, Percy’s, Worcester, Ma.: How to get around the online sales tax issue. When customers come in, and we have the same goods and services as online, as well as the same prices with the same shipping, delivery and everything, then the customer wants us to eat the sales tax. That’s one of my biggest issues; a major issue.
What we do is [explain] to the customer how important it is to pay sales tax, because that covers all the municipalities, the police, the firefighters. We tell them, Granted, it can be a large number, but think how good you’ll feel when you have all the goods and services that you expect in your towns!
Plus, we try to explain how important it is to support the local economy, because people like us support the high schools, the baseball and football teams, and all the other stuff. All my people are in the community, so we’ve put all those dollars back into the community. It doesn’t go outside the state. We give ’em a little bit of guilt, and it usually wins them over.
Ultimately, they want to buy from us, but because of the 6.25 percent [sales tax] in Massachusetts, it’s a big number. But 99 out of 100 [people], once you talk to them, they understand it. And they understand we’re here before, during, and after, and that we’re part of the community, like them.
We say, You know, we don’t want to pay tax, either. I’m not standing out over at the Capitol Building in Boston saying, Take my customers’ money! But it’s a huge hot-button issue.
The second thing is the cost of health care for the employees. The only way to get around that is to either raise deductibles, or have the employees pay a larger part of the share. What we do is have a meeting, and I tell them there are only so many things I can do. I can’t give 10 paid holidays, three weeks vacation, five sick days and infinite health care. So I let everyone pick. I say, You can’t have everything, because we can’t afford to do it and keep everyone employed. Pick one through four. What’s the most important, and what can you do without?
Everyone says health is number one, so we put more money into health care. Vacations are important? Great. You don’t need 10 paid holidays? Okay, take it down to four.
I use the money saved from one section, and put it into another section. It’s a team approach, because you can’t have everything. I’m included in it, because it’s my health care, too. Whatever we all decide, we all decide.
Terry Oates, President, King’s Great Buys Plus, Evansville, Ind.: The biggest challenge is margin degradation, particularly the way vendors choose to go to marketplace with IRs (instant rebates) and whatnot. You look at your margins on the front side, and there really isn’t any profit in it until you get the money on the back side, and they don’t pay quickly; you’re in a losing proposition.
But for the most part, most vendors pay their bills pretty quickly, so it’s not as big an issue as it once was. But if you’re looking at a statement just based on what the surface margin is, there’s no money in it. Therein lies the challenge.
Quite frankly, I think that’s one of the reasons the vendor community has chosen to go to UMRP (Unilateral Minimum Retail Pricing) on a lot of their products. There is a contingent of retailers out there that choose not to make any money, or that choose to use the advantages they have from a buying perspective to drive the price down.
Oftentimes, the big boxes are merely delivering product; they’re not selling anything. In fact, we’ve seen with some big boxes that they don’t even have certain products on the floor, but will put them on their websites. They’ll destroy the margin opportunity for all their competitors by destroying it on their website, and then have somebody fulfill the sale. It’s just a strategic move. And I understand, I get it, but I don’t agree with it—particularly from the vendor’s point of view, because they’re getting no value at all.
And I think at least the smarter vendors are starting to wake up and smell the coffee. Dealers like ourselves—and I’d say most regionals fall into the same category we do—we stand and deliver the message and sell better product. At the end of the day, if we don’t tell customers the value proposition that product offers, it never gets delivered, period, because they’re certainly not going to get a very good presentation in a big-box store. That’s our reason to be, if you will.
The UPP policies are a step in the right direction, but I think there’s going to have to be a further analysis of that. I think we’re going to see a proliferation of programs that resemble them, and maybe even product that’s differentiated for our channel that ultimately can allow the manufacturer to make money. Because if they can’t make money on better product, there’s no reason for them to be, either.
Ed Robinette, Morris Home Furnishings: The biggest challenge is finding good, qualified salespeople. We had a couple of people who left and opened their own businesses, and we were lucky enough to have them for a very long time. That’s been a difficult thing to do. In fact, I’ve put myself back on the sales floor quite a bit to help.
We do have some really good people, but they’re spread more thinly, and it’s difficult to find new good people, and to train them. We’re continuing to use every method we can think of, but the best way to get good people is by networking through other employees, and finding them that way. We have several hundred employees, and all of them know several hundred people. We’ve also found people in other jobs in the company who felt they were not sales associate material, but they really are. We’ve actually developed a couple of very good people that way. It’s working out pretty well.
We have a sales floor with furniture specialists, electronics specialists and bedding specialists. So the other thing we’re doing is to let people know in all areas that they have an opportunity—if they want to step up and become part of other areas, they can. If you’re selling furniture, but [you] really do like electronics and want to be able to sell both, if you can demonstrate your ability to do it and you come to all the trainings and learn it, then we’ll allow you to sell that also. That’s allowed us to have people who can work both areas and as backup when we need them.
Jeff Clemens, Electronics Sales Manager, Grand Appliance and TV, Zion, Ill.: The biggest challenge we face as an organization has been and continues to be dealing with growth. We’ve been fortunate to have increased sales steadily over the past several years, and 2012 was no different. In 2012, we’ve opened two new stores and enjoyed double-digit sales growth. This has challenged us in a number of ways, but in sum it has significantly impacted our ability to maintain the high-touch, customer-focused approach our customers have come to expect from us.
To overcome these challenges, we made major investments in human resources and technology. With regard to human resources, we’ve hired more than 25 employees in sales, delivery and customer service to deal with more deliveries, inventory and store traffic, and to allow for better communication with customers before, during and after the sale. In addition, we’ve empowered employees at virtually every level to make important decisions quickly, rather than forcing a customer to go through multiple levels in order to get information, advice or solutions.
With regard to technology, we’ve launched a completely new, much more functional and informative website for our customers. In addition, we implemented new logistical technologies to make the process of receiving, pulling and delivering merchandise as efficient and transparent as possible. For example, our new truck-routing solution allows our salespeople and customer service personnel to monitor our trucks in real time, and get instant notifications of delivery status to keep our customers informed of their delivery status, and also to proactively deal with any issues that might occur during a day’s deliveries.
Dealerscope: What was the single best-selling product you sold this year? What was it about the product that helped it to sell more than others?
Lavine: French-door refrigerators in either three- or four-door versions. In our market, people liked the size and the design. Also bundled packages—refrigerator/stove/microwave—did very well when vendors supplied multiple-product rebates, and when the rebates were substantial.
Clemens: In terms of units, it was air conditioners by far. We do a lot of business with property managers, and this was a hot summer. We completely blew through forecasts and had to scramble to get more product in mid-summer to fill demand.
In dollars, refrigeration is still our number one category. In particular, Samsung French-door refrigerators performed extremely well. They have a good mix of design, function and price that make them an easy sell for our folks on the floor. Plus, they support us with a pretty deep program that allows us to make good margin, compensate our salespeople and offer consumers a good value.
Robinette: The biggest category in electronics is 55-inch-and-larger TVs; that’s our concentration. It’s where there are customers who’ve already purchased high-definition flat-panel TVs and are moving up to larger screens because they are seeing more of the 60-, 70- and 80-inch screens available with their improved picture quality from the high-definition TV of five years ago.
Our biggest sales and growth is in bigger screens, but the important thing is that [customers] get the entire package. A TV is just half of it with the video, because the audio is not worth listening to; speakers the size of a dime don’t do much. So we’ve really focused heavily on increasing our accessory sales to make sure that customers are getting these TVs connected correctly, and have the right things to make them perform. employees at virtually every level to make important decisions quickly,
And the audio category has seen a big, big sales improvement. Our numbers are way, way up in both of those categories—well over two to three times what they were a year ago. We’re hitting around seven to eight percent of our electronics business in accessory sales—cables and wall mounts. Then audio sales are up in the 10-to-12-percent area, which is much more than it’s ever been.
If you, as a salesperson, are selling seven or eight percent in accessories, and 10 to 12 percent in audio and six percent in extended protection plans, that’s certainly going to help your income, and it’s going to make much happier customers, because they’re going to get a much better experience that way.
Oates: We have furniture and bedding, as well as appliances and electronics. From a margin opportunity, clearly, bedding and mattresses were a bright spot for us, as for a lot of other retailers. We’ve taken an extended view of the furniture business as well. In some stores, we added it where we didn’t have it, and that seems to be working well for us also.
I think you’ll see a lot of dealers embrace those categories. They have to do something to augment their margins—particularly smaller dealers that don’t have some of the buying efficiencies that a regional would have. As public companies try to drive the top line, execution is a real key for regionals. From the vendor’s perspective, they have to have somebody who can execute the way we do. I recognize that having a lot of storefronts like a big box has is important to them for exposure. But you look at Best Buy, at hhgregg and at some of the others who are selling electronics, and they’re not faring so well right now. At the end of the day, it’s got to be a win-win for everyone. I think for awhile there, electronics manufacturers were the only ones making any money, and people were getting tired of that. I know I was.
Dealerscope: What was the one product you made the most profit on this year?
Robinette: The product we made the most profit on this year was probably soundbars—they generated both profit and the dollar volume.
Lavine: We added mattresses and furniture, and we made the most on those. We slimmed down our TV lines because we were making so much money on them, I felt guilty! (Laughs) So I decided to make a little less margin on mattresses and furniture, so I could sleep better.
The reason we added mattresses and furniture is because it’s harder to sell those online. It’s easy to ship smaller things sold online. Average mattresses and furniture margins are anywhere from 40 to 70 points.
We slimmed down our smaller screen sizes to one 22-inch, one 26-inch and one 32-inch SKU, and stuck with the 40- through 80-inch screen sizes. We also slimmed down a couple of lines. We pared our audio brands, so instead of four we’re down to two. It’s all about controlling the sale.
The TV vendors have made it difficult to do business. There’s not too much that’s exciting with TVs. We’re very fortunate to have good and great salespeople, and they want to sell products that make them a lot of money, if they’re going to spend the time with the customer. We’re fortunate—sometimes we have a fast floor, and they want to go from customer to customer and accessorize them and make as much money as they can.
Also, mattresses is a clean business; once it’s in the house, it’s in the house. I don’t get a lot of damages on mattresses. There are very, very few returns on mattresses and furniture, whereas with electronics, customers don’t know how to use the TVs, and with audio, it’s a question of how you hook it up.
Oates: Bedding, far and away. That business just lends itself to a higher margin. You’re looking at margins in the high 40s to low 50s. I don’t know anybody making that kind of money on electronics, which in many cases are in single digits. And in many cases, depending on the product and what the promotional schedule is around holidays, it’s sometimes negative margin on the front side, anyway.
What’s happened is the entry-level product is so good today that consumers don’t see a real value in stepping up to a better product, because ultimately, all they’re looking for is a good picture on their TV to watch the ballgame. You have to stand and deliver the message to them. But if there’s no profit in standing and delivering the message, you take the order and get on down the road.
In many cases, that’s what’s going on, particularly on salesfloors that are not incentivized. Even on incentivized floors: If there isn’t enough profit in it to afford that, then you have a problem, when they can walk across the aisle, in many cases, and sell a mattress and they’re going to make three times the money they’d make in selling a TV that costs twice as much.
The consumer doesn’t understand, nor should they be expected to. All they know is, hey, I want a new TV. And they make an automatic assumption that if we’re buying something and selling it for $1,000 that we’re making $500. They have no concept. So it’s incumbent upon us to try and find a way to deliver a value and say, All right, there is a difference between this entry-level product and this better product, and here’s why it’s going to enhance your experience.
The long and the short of it is, they’re strapped for money, so people are making decisions, saying, This is good enough, which doesn’t allow profit opportunity, or allow the vendor community to build better product to make more money.
Clemens: This may be a cop-out answer, but labor and installation have been extremely profitable for us this year. In the past, our delivery drivers performed basic installs like range or laundry hookups, but were not equipped or trained for more involved installations like custom A/V systems or high-end, built-in kitchen appliances. So we would subcontract these services to a small network of companies that we trusted to perform quality work and provide excellent service.
Overall, we were pleased with their work, but wanted to have control over the process and final touch-points with the customer. We worked out deals with our best sub-contractors to bring them in as full-time employees, and as a result, have increased profits while vastly improving our level of service.
Our installation process is more efficient and unified, as customers can now schedule all services in one place rather than working with multiple companies to complete a sale. Now, whether it’s a standard delivery and hookup or a more complicated installation, the technicians come in Grand trucks, or in vans wearing Grand uniforms.
Plus, anyone in this business knows there will always be issues of some sort. But taking these services in-house has allowed us to eliminate all finger-pointing when a problem occurs, and instead focus on quickly and effectively solving the problem for the customer.
Dealerscope: Overall, what can manufacturers do to help you improve sales, profits and foot traffic that they haven’t done yet?
Oates: I’d like to see more differentiated product at a price that is not that significantly higher. They know which retailers can sell better product, and they should put the types of products in those places that actually encourage the proper presentation and proper pricing that goes along with the value the product offers. They have a UMRP price, if you will, because they know what goes on with those retailers who are not in the business of selling electronics. but rather of selling stock. And those dealers drive that top line, and analysts, in their infinite wisdom, look at that top line rather than the bottom line.
That is the way it’s been. If the vendor community is going to be growth-oriented, then they’ve got to have some product they can make money on. And those retailers who can demonstrate that they do inform the consumer of a product’s value should be rewarded for doing that. In many cases, we’re finding some encouraging signs that they’re recognizing that some of us understand that it’s good to make a profit.
If it takes diversification to make a profit, we’ll do that, but the danger is when the big boxes get into those categories, because they’ll destroy those too, thinking that the price is what drives their share. There is some truth to that, but when the consumer realizes that that lower price is all that they get, no one wins.
America, clearly, is overstored, and the vendor community has no discipline when it comes to who gets to sell their products; everybody gets to sell them. I’m OK with that, too; let the best retailers win because that’s the free market enterprise system at its best. But when the playing field is incredibly un-level, I have a problem with that.
Clemens: Overall, I think most of the manufacturers we represent are on the right track. Strict MAP policies, including online restrictions with real penalties for non-compliance, have definitely helped profitability and leveled the playing field with regard to price. This has allowed us to make a harder customer service pitch as a reason to shop with Grand.
In addition, many of the manufacturers we represent have renewed a commitment to training and marketing resources that had eroded in years past. The manufacturers that are doing these things have seen significant increases in sales and share with us in 2012. Those that haven’t have struggled.
Lavine: Manufacturers need to keep the UPPs and the MAPs, and hold steady with them. It’s helped us a little bit. In the store, you can do what you want. When you go to a website, it sometimes says something like ‘cheaper in cart.’ It’s a joke. They show the MAP, and you go to the cart, and it’s well below, with just a couple more clicks. The customer is not stupid; they know what to do. So I need manufacturers to be strong with their MAP policies, keep the margins up, and let people sell within their markets instead of selling into other states.
I’m tired of getting quotes from outside my state, where the customers have no intention of buying, but they have that price in their mind. Then, a good salesperson has to step off that piece and sell them something else that we make more money on. As an example, a customer comes in and wants the ‘A’ washer. We normally sell it for $599. They go on a website and it’s $499. I now have to see if I can sell ‘B’ at $549, and let them know they’ll get X number of better features. My guys can do it, whereas I could have sold the other model at $599. It makes it all much more complicated, and I feel bad for the vendor. The vendor’s product is being kicked around on the sales floor, and then a good sales floor is going to move around it and sell around it to make more money, and maybe even get the customer a better value. That’s the shame.
Every vendor during the day gets kicked, and not on purpose. It’s just that the customer sees it online for $499, and now my guys have to step off it or around it. The customers have a price in their head, and some have a brand in their head, but a good sales floor can step off any brand. The days of someone standing in the middle of a showroom and demanding a brand are pretty much over. We just tell them that Percy’s is the brand. That’s the first brand; the second brand we sell is the manufacturer.
Robinette: They’ve already at least improved the pricing with the UPP initiative. That has helped, but the only thing I can see is that it wasn’t set at a high-enough margin; the margins aren’t that much better than they were before. It’s just that they’re holding that price so that it’s not discounted as much. But the biggest challenge I’ve seen is the fact that retail is not as high as it should be, or maybe the cost isn’t as low as it should be. In all fairness, they need their cost out of it, too, but we need a little bit higher retails. From my talks with them, though, we may see some improvement in that area.
Dealerscope: What were the best new services you introduced this year that increased margin, sales, customer satisfaction, or generated recurring revenue?
Lavine: We introduced layaway for all products. There’s a need for it in our market. We hadn’t done it before because we weren’t as good at listening to our customers as we thought we were. We also got into lease-to-own, where customers can take it home that day, and now we have 15 ways to pay.
We also just started our ‘Yes’ campaign. It’s that we say ‘yes’ to anything. Can you buy online? Yes. In-store? Phone? Yes. Yes. Same-day delivery? Yes. Next-day? Yes. Whatever they can think of? It’s ‘yes.’ There is no ‘no.’
By the way, I love showrooming. I think showrooming’s the greatest thing that’s ever happened. Have all the customers in the world come; my sales guys can outsell anybody. I challenge customers to leave without a product, and to tell me what I don’t have. I want to be the showroom for the country. I am so confident in my management and that my sales team can outsell anybody, and that my services are as good as anybody’s in the country, and I want the opportunity to tell the customer that. So showroom the heck out of me.
Tell me what I don’t have. Tell me what you want. Come in and tell me all the good and bad about my store. I dare you to come in and tell me how bad or how good I am, but you have to tell me face to face. I want you to tell me I can buy this someplace else, or I can buy it online in two days. Tell me about all the great things happening online that I don’t know about. Showroom me.
Robinette: On installation services, we added a soundbar installation charge. The biggest thing that helped us with improving the accessory and audio sales is that we monitor and hold everybody accountable for their percentage amount of sales. And we go over this every week with the managers. It’s something we never did till this last year, so I think that’s probably the most important initiative: holding people accountable for numbers, and showing them a goal and a stretch goal.
We just make sure we keep track of what people are doing. By doing that, people can see where they are, and know where everybody else is. And if they need improvement, you can see a measurement there as to who needs it and who’s doing well. That’s why we’re probably about three times better than last year in audio and accessory sales. And we’ve also increased our commissions on these products, and considerably on audio, because there’s just not a lot of margin in TV.
Oates: We’ve tried to educate our staff to be the absolute best at delivering our value proposition. We’ve invested a significant amount in training, as has some of our vendor community, by bringing in good training to us so we can train our people in product knowledge, sales skills, and in how to deal with a customer in the changing demographics of our respective marketplaces. There are a lot of single-parent households today, and a lot where the female is the head of household. You have to learn how to deal with that; it’s not a male-dominated society anymore. But it’s incumbent upon the retailer to insist that vendors help. In many cases, all vendors want to do is come in and take an order, so you have to insist on it. And there’s value, ultimately, in what that training will bring to you.
Clemens: We’ve been selling Sonos for several years now, but recently changed our approach to open up new opportunities with the line. We’re an appliance company first, so electronics have always been a category we carried to keep our loyal appliance customers from buying TVs and other A/V equipment at our competitors.
A big-screen TV or home theater system is not always the easiest or most appropriate add-on to a kitchen package sale, so the A/V sale and appliance sale have largely been separate transactions in the past. That’s changing with our new approach to Sonos. We decided to capitalize on the strong remodel market and our relationships with builders, remodelers and designer by pitching Sonos as the perfect solution to complete a kitchen remodel.
Virtually everyone remodeling a kitchen plans to show it off at some point, and will likely play music in the background during a party, open house, etc. The simplicity, capability and wow-factor of Sonos made it an easy sell to customers, especially those with Android or Apple-based products. Once we closed the kitchen, the add-a-room capability of Sonos allowed for single room solutions to expand to more rooms, and opened up a clear path from the kitchen to the living room for additional A/V sales.
Dealerscope: What was the best or most important tweak you made to your e-commerce site this year? How did the move increase sales, profits, or customer traffic into your store?
Clemens: We launched an entirely new site late in 2011, and have refined it thoughout 2012 to give us a more professional, legitimate presence online. We’ve combined paid search with enhanced email marketing to drive more people to the site. Plus, now that our site is more professional and comprehensive, our salespeople have started using it as a resource in-store when showing customers products they may not have on the floor, or as a visual tool for customers calling in for information. That’s also helped drive traffic to the site.
With regard to e-commerce, we plan to launch a fully functional shopping cart during the holiday season, so I’ll have to get back to you on that.
Lavine: Our website is now simpler to read. Before, it was way too messy, and too hard to find things on; too many layers, words that customers don’t read. No one wants to hear about the labor—just show them the baby!
I think what happens in this business is we try to explain the ‘labor’ too much. Customers just want model, price, whether it’s in stock, and how soon can they get it. They don’t want to click 10 times to find that out. Now that’s all clear. On so many other websites it’s not clear whether it’s in stock or not. People can’t wait for certain things like refrigerators.
Dealerscope: Will 2013 be a better year for business than 2012?
Clemens: We’re confident we’ll continue to grow in 2013. The new stores, new technology and high-quality new employees we’ve added are all reasons for us to be optimistic for increased sales. Plus, we worked hard to solidify old relationships and gain new ones with builders, designers, remodelers and property managers during the economic downturn, in hopes that it would translate into more business when things turned around. As the building market has come back, we’ve seen signs that those investments are beginning to pay off. There’s always the chance we’ll add another location as well, but nothing is imminent on that front at this point.
Lavine: We hope. We’re really counting on that sales tax stuff to pass.
Oates: It hinges on one thing and one thing only: If we have the proper outcome in the election, there will be a steady euphoria that takes over at least for a year. But if we continue with the current administration, I think there’s going to be a tremendous discomfort among everybody that does business. I know of people sitting on the sidelines today waiting to make the necessary investments in their business, but they don’t know which way to go right now because we don’t know the outcome of the election, and I think there could be a third less retailers than there currently are today, across the country.
Robinette: From the forecasts I see, overall, there’s not going to be any huge increase in any part of any business. In retail, there may be some increase, but I think it might be a small amount, maybe one or two percent. It’s very difficult to have increases as they keep lowering the prices. The economy is growing a little, but certainly not by leaps and bounds, and I don’t think, no matter who’s in in office, that it’s going to change that much.
I think the holidays are going to be pretty good, but I don’t think overall in the next year that there’s going to be a huge increase. But I do think once we get past the election and into the end of the year and into January, we’ll see some pretty good sales.
The good news is, people have money in the bank. In our market, deposits are at an all-time high, and the bankers say that’s because no one’s spending any money. And credit has come back tremendously in the last year or so. So I’m thinking that after the election, when people see some things settling down, and quit listening to everybody fighting, maybe they’ll start spending some money. DS