Diving Deep at the ProSource Spring Meeting
Dave Workman, president and CEO of the ProSource buying group, sat down last week at the La Cantera Resort in San Antonio, Texas, with Dealerscope/Technology Integrator, to update us on the group’s directions and strategies for 2017 and beyond.
How many ProSource members are here at the Meeting? And what are your overall membership goals?
Dave Workman: We have 26 PRO members currently, and 24 came. We currently have 59 Power members, and on the PRO side, there are around 40 members here.
We’ve made the statement that over a five-year [period], long term, the ProSource group has a potential to grow to 750 to 800 members. We have done a density study of membership and an evaluation of markets where we feel we are saturated, and there are markets where we just don’t have that degree of representation. There are also many markets out there where we have sufficient dealers.
Our objective is sustainability in membership. This means there’s a critical mass you can assemble in a market and not go beyond it. You really don’t add more members, because you have to have enough, but not too much, and we’re very sensitive to that in our growth in membership.
We have not penetrated the West Coast anywhere near where we think we should, and that’s one of the reasons we added Rick Huggins as a district manager. We do have a focus on the West Coast specifically, but we do have representation from all over the country.
Along with our growth, we’ve increased our vetting process for dealers. For them to come in, we take their info and contact their vendors and do a complete check, and they have to meet certain business model criteria - a minimum volume threshold, and be in business a certain time. Power and PRO members require a vote of approval by the board. Most Power members are members that have graduated up as they’ve grown their businesses – the minimum requirement for the Power level is four times what it is for a regular CI membership. And PRO is really the format for those who are more retail-centric, who do ecommerce or brick and mortar business.
Talk about recent trends in membership – the mix, the complexion of the membership between retail and integrator. You are attracting more integrators, and building up your Power members tier (those who do at least $4 million in annual sales). Yet, you’re also adding members like mega-chain retailer Micro Center. What’s the strategy behind the member buildout?
Workman: We just added Micro Center on the PRO side – a pretty big add for us. Micro Center is a high-touch, high-service retailer with a very high demographic.
[As far as strategy,] we won’t do anything for them in computer. The same question was asked of us when we brought in B&H – what can you do for them? We look at a certain part of their business and say, can we help them? Micro Center happens to sell soundbars and TVs.
The demographic of the customer coming in is more important as to whether that matches up with any categories we’re strong in – as to whether there’ll be a compatible match. So while they’re a multi-billion-dollar operation in total, the part of the business that crosses over to the brands we do business with would be a distinct benefit to them – and a benefit back to us. Another thing that’s really attractive about them is that they’re brick and mortar.
A while back, on the PRO side, we’d gotten the knock that we were so heavily ecommerce that that was all we were doing. Now we’ve got this beautiful mix of ecommerce and brick-and-mortar players. And the vendors are hungry for that brick-and-mortar presence, because that’s the area of the business you see constantly in the headlines that is “going out of business.” And for us to assemble quality, viable, brick-and-mortar dealers who can sell upscale goods increases our value to vendors.
What we’ve been able to do is position ourselves in certain categories to a point where we have critical mass and in some cases, are #1 or #2 in volume with a vendor.
What were the hottest topics or points of discussion among members at this Meeting -- and how do you plan to address their biggest needs and “pain points,” going forward?
Workman: Well, it depends on the type of dealer.
A universal [pain point] is the need to evolve business, because the business is changing constantly – if you don’t change, you die. You have to pick your targets. You shouldn’t try to be everything to everybody.
For CI dealers, [one pain point is] staffing qualified people to grow their business.
With our retail-centric membership, it’s finding areas of the CE business where you can stand out as something different from the mass marketer. You have to do something better.
We’ve done that as a group, in the way we pick categories we focus on. Our core strengths in categories are step-up premium video, the whole audio category and all the custom integration and related categories like shades, lighting, control and automation.
You take something as simple as networking. Five years ago, when we were first talking to dealers, it didn’t resonate – ‘We won’t touch that, we’re not in the computer business,’ the dealers said. Now, you won’t get a dealer to even touch a system in the home unless they do the network.
It’s funny how categories change – five years ago, there was no volume in shades but it’s probably now the fastest-growing category for most of the CI dealers in pure dollar increase.
We find these new things constantly coming along and we have to keep our eyes open. Bringing in these categories and [deciding] what the group does with those categories – you can’t be on the bleeding edge, so you really have to pick your timing – that is what [Director of Business Development] Andy [Orozco] and the CI committee do. They constantly evaluate changing opportunities and bring the right vendor partners to the membership.
Outdoor lighting is a potential new category. It’s one we haven’t addressed, but it’s on the radar.
You’ll hear [at this meeting] about the resurgence and renaissance of some of the high-end two-channel audio products. There’s a reason our demo rooms here are set up the way they are.
Integrators or [specialty] dealers have the customer who will spring for $30,000 systems. There is a growing market for two-channel and premium audio, period. And that will continue, because there’s the whole Millennial group that’s consuming more audio than ever before.
Will the advent of Hi-Res Audio streaming content be a positive influence?
Workman: Our strongest category is audio. [As for Hi-Res streaming,] when it is plug and play, turnkey, it will be demystified. Today, you still need to be a real geek to take advantage of it. My understanding is most of the streaming services by the end of this year will take advantage of MQA and other Hi-Res capabilities. And better content equals better-quality equipment.
Can we talk TV? Are technologies like HDR resonating with consumers, and are they willing to pay more for it?
Workman: We love TV. The number of HDR models this year was more than last year. The critical component is providing customers with a consistent demo – HDR has to be seen to be understood. But it’s not just about making the set twice as bright; it’s improving the overall picture characteristics. Unless you see what it does, it’s not something that translates in a spec you can advertise. Dolby Vision, big screens, black-levels in OLED are resonating. The one part of the TV business that is growing is premium, even though the overall TV business is expected to be down. It’s been a good category for us this year and we think we’ll have a good year again with TV.
What programs or initiatives are you promoting to help members increase their appeal with Millennials? What other demographics are becoming more important to both ProSource, and why?
Workman: We are adding marketing services – we have two partners in that area to provide digital marketing. All the old media doesn’t work. There are some exceptions where people are still doing flyers, and it works, but for the most part, you have to find a rifle shot – and digital media provides that, but most dealers are not marketing people, so we believe that as a group, we have to provide provable solutions to them.
We’ve established a Marketing Committee – several members representing all portions of the group but who have already proven they know how to market digitally - whose job it is to be our counsel, as we explore the solutions to bring to our membership. [It will operate] much the same as the CI Committee. We use our committees to provide our expertise, feedback and fine-tuning in areas where others don’t possess the knowledge. That’s why we do some of the things we do so well. We’re not trying to come up with all the answers ourselves. We’re not that smart, but we have a lot of smart people. Then we deliver something that’s successful.
We’re going in a Beta-testing mode for 120 days for proof of concept shortly. Then we’ll come back to the membership with some metrics and findings and then use the marketing committee to fine-tune the product – [looking at things like] SEO, paid search and if it works, etc.
[As far as demographics,] our core customer for our CI base goes after the top one to three percent of the entire population… household income of $150K or more (14.3 million) – but penetration is still only three to four percent.
For our businesses to be extremely successful, we [need to be] the classic luxury retailer that can do wildly successful, profitable business with the top three, four or five percent of the population.
CI guys don’t sell Bluetooth speakers or headphones but on the retail side, tons of that type of product are sold. You don’t find a 25-year-old outfitting his home with a million-dollar control and automation system. But [from that base,] Millennials will grow into the [higher-ticket] categories.
The high-end two-channel audio market is that more mature demographic who’s put the kids through college and will now treat himself, and blow 30 grand on an audio system.
There is a higher level of interest in that premium audio product out there - we just haven’t brought that capability back to the market. People want to buy it but don’t know where to find it. That’s why we have to fine-tune this digital marketing.
We know what we do well, and what we get high scores on, but lack of awareness is our biggest enemy.
How are you differentiating your brand profile from groups that are going after similar types of dealers as yourself, to get them to join – what makes you unique?
Workman: We are a group represented by a team of people, and we have greater resources that are unique to our group. The team has a common purpose to achieve the end goal.
We have a differentiation in segmentation: Pro, Power, CI. The industry initially scratched their head and said, ‘I don’t get it. How can you have a CI guy and someone as big as Crutchfield and B&H?’
But yet, the strength of the organization feeds on its diversity.
These are all different types of dealers, and everyone contributes in their own way in making the organization as strong as it is.
We’re getting to the point with some vendors where we’re their #1 group for business. We have critical mass with vendors. What our group has always aspired to - and I think we’ve gotten there - is it’s one thing to [work out] a program, but altogether different to have critical mass with the vendors where you now sit down at the table and develop strategies together. We’re big enough to have that seat that the table to develop strategies – then you take a little more control over your own future rather than having vendors make the market decisions.