The Distributor Dish
The distributor community talks about challenges—and remedies—for the CI sector for the balance of 2011.By Nancy KlosekApril 2011
CustomRetailer: What category this year will drive the most profit for your retail and integrator customers? How has that changed from last year?
Jim Annes, AVAD: For our customers, the greatest profit opportunities are located outside of the flat-panel television. As pricing pressures increase in the panel market, our dealers are adapting to an environment where the profit margin on panels are in the single digits and they need to add on accessories and services to augment their bottom line. Dealers who recognize that TVs get the customer in the door, but look to power, cables, warranties, audio, mounts and other categories to drive profit will likely be better positioned for success.
As an industry, if we took half the time we spend complaining about margin pressures in panels and used it to concentrate on creating better strategies around other categories, we would probably be better off. I think audio is one area that some of the more progressive dealers are really pushing in the market. In their minds, thinner TVs have less attractive audio performance, and it creates an opportunity to add audio to each panel sale. This could be as simple as a surround bar, or more specialized with components.
Jeff Kussard, Capitol: One only had to look at the main show floor at the 2011 CES to understand just how big an impact will be felt by the explosion in tablets and e-readers. Even though these categories offer limited margins, the market for high-margin accessories will explode with them.
John Alifano, D&H: Traditionally, service and warranty work is profitable. No hardware item that installers can stock offers the kind of margins that these categories present. In the hardware realm, cables and almost all accessories provide enhanced margin opportunities. Another word of advice: If a retailer is not in the housewares category, he or she should reconsider. These products have excellent margins, low returns, model life stability, and they increase the amount of checkout dollars.
David Kaplan, DDG: Our typical customer is the independent residential custom integrator. Flat panel—and attachment to flat panel—has been the business driver for many years. 2010 drove home the point that this is simply not the case anymore. The new driver is the retrofit integration and upgrade opportunity of attaching connectivity and interactivity to the broadband networked home.
Glen O'Brien, Electronic Stockroom: Control has become tied into delivering content, particularly music, around the connected home. This is a continuing trend. Companies like Crestron and AMX really have to guard their flanks from all the newcomers. URC and others really stand to help the dealers make greater profits in 2011.
Tim Coakley, Ingram Micro CE: We have signed an exclusive arrangement with a company called Soul—and Ludacris is making headphones for them. That's a huge opportunity for us as well this year, going after the high-performance headphone crowd. The headphone category overall for us is on fire. It has been spectacular for us for the last two years, and we anticipate it will be good this year, too. After TVs, home audio and digital imaging, it's our fourth-biggest category. We have 25 vendors for it and offer about a thousand SKUs. Now, higher-end earbuds and sports products ranging from $70 to $120 and all those points in between are doing really well; we also do extremely well with noise-canceling headphones.
Dennis Holzer, PowerHouse Alliance: For our members, a significant difference is that there are a lot more categories that can be profitable for them. As a result of us forming the group, members are getting into new categories and getting more in-depth with categories than they had been before. With the addition of several lines we've been able to do things in areas of categories we hadn't been able to do before. A good example: we'd always carried standard TV mounts. People used to be willing to pay 20 to 30 percent of the cost of a TV for a good-quality mount when TVs were $3,000. It wasn't unnerving. With TVs at $1,000, few want to spend $300 for a mount. So we've added a line of lower-priced mounts to meet the new need.
Brian Swanke, CWR: Outdoor and marine will drive the business.
CustomRetailer: What's the most pressing problem your customers face and what is the most effective thing you're doing to help them?
Bill Stewart, Petra: The state of new-home sales continues to have an impact on the custom install business, and, fortunately, we still have several installers coming to us with needs for retrofit projects. Petra's role has become even more important over the past few years because we have more than 20,000 products in stock and ready to order with same-day shipping. Plus, our website is available for installers to place orders 24/7, and we also have a mobile site that makes it easy to order on the go. All of this allows installers to have just-in-time inventory so they can maintain adequate cash flow, and we also offer a free freight program and flexible payment plans so they can remain competitive and still make a profit.
C.J. Provenzano, E.C.D.: I believe the biggest challenge for the integrator is making the change from custom A/V installations to true integration. The residential A/V installation business will never be the same as it was prior to 2007. Change is a difficult thing to accept. Today's installer needs to look for opportunities outside their existing channels. There are many opportunities in lighting, shades, home automation control, camera observation security, commercial sound and video, digital signage, etc. Once installers are willing to make the effort to see these opportunities, their success will follow. Unfortunately, my experience is that many are called but few make the change.
Swanke: Margin. We are working hard to leverage our buying power to get customers the most margin they can get.
O'Brien: A large percentage of our dealers are small- to medium-sized independent businesses. As the downturn in the economy and new-home starts took place, the large portion of our dealers that were dependent on new-home construction and the centricity of legacy A/V categories have had to learn how to shift to a retrofit-oriented business that expands to add commercial channels and a broader assortment to even stay flat with their historical sales volumes. Since they are limited in their resources, both financial and human, this is a natural challenge for any small business—and an area where we can add tremendous value in aiding our dealers their transformation efforts.
An incredible problem is the supply of critical goods in a timely fashion. We at ESR have added new suppliers, fine-tuned our staff, improved our processes immensely and have increased our supply of product. In addition, our efficiencies at shipping have gotten better so we can make sure our dealers can finish their jobs and get paid.
CustomRetailer: What is the most important initiative you're executing in 2011 that will help retailers and integrators make more money?
Michael Flink, ADI: This year, ADI is focused on creating extraordinary growth programs for our dealers and integrators that will give them the tools they need to improve their business. ADI will be dramatically strengthening our training programs to deliver more growth opportunities than ever before. Adding additional products and technologies to each installation is vital to business growth, and we want our customers to know that ADI is the only distributor they need to expand and move into adjacent markets.
ADI offers more than 1,400 training programs a year to help dealers upgrade their knowledge and skills. With dedicated training rooms in each of our branches, dealers can turn to us to learn about the latest technologies. We've made several enhancements to this year's ADI Expo format to make it a more valuable experience for dealers, and provide more hands-on learning and face-to-face interaction with suppliers. We've also incorporated online registration for the expos so dealers can easily review our new course offerings ahead of time, which includes interactive sessions covering everything from financial management for small-business owners to emerging trends in residential technology.
Provenzano: With the change in our industry from a residential custom A/V install-only business to opportunities in lighting, shades, home automation control, camera observation security, commercial sound and video, digital signage, etc., we have added product lines that address these new channels. In addition, we actively seek opportunities for installations that we can turn over as leads to our customer base to help ignite their change. As our business is wholesale only to industry professionals, we want to bring the opportunity to our clients.
Kussard: Here again, accessories represent one of the best avenues to higher profits. For our part, we are now shipping a new in-house line of HDMI cables that represents a significant increase in profits in a category that is lucrative to begin with.
Holzer: We're seeing our dealers—A/V custom installers, phone and computer—crossing over into other categories they had not entered before, such as security. So we are partnering with some vendors on the security side so that our A/V guys will have a high-quality line of security. We're now also attracting security people who had been buying their A/V from all over the place. Now that they know we have security, they're starting to come to our locations so they can pick up everything—right in line with our being a one-stop shop.
Crossing over is not only an important move for us but also for our dealers. We're exposing them to new areas of opportunity so that they have the ability to get more out of each job. It's not as simple as just picking up security lines. You need to get into the training and understand the monitoring aspects—and we are going the whole distance to do that. We are spending a great deal of money on training our people so that we can be prepared for our installers and their needs.
Kaplan: This is a great question. It seems the pace of technological change keeps accelerating. There are emerging trends that are creating upside sales opportunities for our dealers and affect what we stock and how we assist our dealers in selling to their clients.
We are living in the era of "killer apps" that allow consumers with broadband unprecedented opportunities for accessibility and interactivity with their homes. We are seeing trends in selling affordable retrofit solutions in new "sweet spots" such as content delivery, security and energy savings.
Our most important initiative in 2011 is making certain that we are the local experts who provide dealers with the assortment, training and marketing support to combine the various platforms and protocols that make the digital home a reality.
Swanke: We are working to broaden categories and make our customers the source for a specific category. So whatever their primary business is, we will have every major manufacturer in the category.
Annes: We have a laser-like focus on creating more solution-based sales opportunities for our customers. Consumer preference is quickly evolving from placing importance on the individual products in a solution to the total value the solution brings them, regardless of the names on the boxes. Making sure that the hardware and software in a solution works together seamlessly is now more important than having the most expensive TV in the neighborhood. We are building product and service solutions that our dealers can then put into the market that focus on the usefulness, accessibility, reliability and total value created rather than the cachet of the parts. This is as simple as helping them create repeatable solutions for certain customer segments to providing in-depth training on technologies that enable these solutions, such as networking.
O'Brien: We have just initiated a dealer roundtable in Northern California and will be rolling this out to all our markets. The unfiltered and increased information that we get and share allows our dealers to not just make better buying decisions but to hear about and adopt best practices from the market in general. It also allows us to work better with our own suppliers, helping them be more responsive to our customers' needs.
CustomRetailer: What event in the CE channel—business announcement, political shift or decision, product release, etc.—had the most impact on your business and the business of your customers? If it was good news, how did you leverage it to drive sales and profit for your customers? If it was bad, how did you deal with it to lessen the impact or damage?
O'Brien: I'd have to say the release and incredible acceptance of the Apple iPad. For better or worse, these types of digital devices will continue to disrupt the market and redefine the custom installation market.
Alifano: 3D TV may have positive impact in the future, but for now it has generated nowhere near the projected amount of units the industry had hoped. The technology just did not provide enough of a reason for the consumer to replace a display when so many of them had just upgraded to a flat screen. As a distributor, we hedged our bets and did not take a large inventory position in this area.
Swanke: Pads, pods and e-readers are hot and we have started selling them now.
CustomRetailer: Are your dealers and integrators asking for any specific supports or services from you that they are not being offered by vendors or buying groups? If so, what do they want that they're not getting from other sources?
Holzer: First, and foremost, they want the ability to "will call" the product quickly. Very few retailers and installers out there are carrying inventory. They want to be able to outfit their floor, their office or their truck with the minimum amount of products they need and are able to sell, but they want to know that they have access to whatever they are selling quickly.
Second, because factories have fewer and fewer people, they want to be able to know that they have a place to turn if they have problems and questions.
Third, they want to have a variety of products for all situations. So depth of brand and depth within each category is what is required, for each case-by-case situation. They want to know, with our one-stop solution, if we can cover them. We cover the whole country and can serve them well across the board.
Stewart: Today, our dealers want to keep their inventory levels tighter than ever, but unfortunately, freight costs can add up quickly if an installer is placing multiple small orders throughout the month. Our no-minimum-order requirement is a big benefit that we provide our installers where we'll pick up the freight costs if they place an order of $850 or more.
In addition to that, we constantly run promotions that lower the free-freight requirement so our dealers can order by the project without incurring big freight hits to their bottom line. It's important to us that we help keep our installers' businesses healthy and continue to support them in every way possible.
Coakley: Our dealers are asking for help with online fulfillment strategy, and we've been working with them in helping them to craft their strategies. Obviously, the online business keeps growing in the double digits, and sometimes for some companies in the triple digits, so dealers need the help to keep pace with the growth. Ingram Micro has fabulous logistics on the back end for the fulfillment for customers. It's a seamless process and we can do it all, including custom labeling, for our dealers.
So we're taking our line card and giving them the ability to have more products than they have in their storefronts. It's a great investment for them because there's no inventory risk; they use our inventory so they don't have to worry about the products being out of stock. If items are purchased off their website, we do all the logistics for them on the back end. For 2011, it's huge, as online becomes stronger and stronger, especially with products like headphones and photo/video.
We also provide dealers with merchandising for their websites in the form of content—things like high-resolution photos and connectivity education. We're helping with functional web attributes as well, while giving them a broad line card of products that differentiate their stores for them—and then providing the back-end logistics of shipping one box at a time to a customer.
Flink: Our dealers are looking to maximize their cash flow and reduce their capital requirements, and this is an area where ADI is really able to add value.
ADI represents over 600 name-brand manufacturers at more than 90 fully stocked branch locations that dealers can fully utilize to help reduce the costs of managing and holding inventory. Many dealers use our branch locations as a warehouse, and benefit from our flexible credit terms, which allow them to get paid on a job before they are required to provide payment for products. Through ADI, dealers can access a huge inventory of products and tools for each installation and eliminate the need for multiple suppliers. Dealers can also take advantage of our delivery options, including next-day delivery, just-in-time delivery, and 24/7 pickup anytime to get the products they want, exactly when they need them.
Alifano: Some dealers have been asking for co-op marketing opportunities or participation in a marketing plan. We like to connect our customers with manufacturers that can facilitate this process, making them aware of any advantageous programs and passing that benefit along.
Swanke: Everyone wants iPhones and iPods.
O'Brien: What we find from talking to our customers, whether in the course of business or at our dealer events, is that the quality and knowledge of our people has really been one major factor in our favor. Just the fact that a live person answers the phone knocks them out. CR
Check out CustomRetailer's Distributor Guide listings at customretailer.net for the following companies and distributor groups:
Boss A/V Solutions
Digital Delivery Group
Electronic Custom Distributors (E.C.D.)
Jasco Products Co.
New Age Electronics
www.newageelectronics.com; www.synnex.com/nae/consumer electronics
The PowerHouse Alliance