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Buying Groups : Group Dynamics 2011

CustomRetailer canvassed buying group leaders who cater to the specialty retail/custom community to gauge market trends, member needs and future-of-the- industry projections. Here’s what they had to say.

July 2011 By Interviews By Nancy Klosek

CustomRetailer: What major market and/or product trends will exert an influencing momentum on the businesses of your specialty/integrator membership through the rest of this year?

Richard Glikes, Executive Director, HTSA (Home Technology Specialists of America): In TV, I think people are more hopped up about Internet TV than 3D. Some of the menu systems have gotten a lot easier to use, and a lot of the offerings are much broader. There seems to be a move among our members into thinking about security, if they were not in that business before. I know we're doing more camera business among the group. They have been handing that business off to partners they work with, and some have taken it in house, which I think more will do.

Also, audio seems to be strong. We're selling more turntables and high-end speakers than ever. Computer audio is also very strong. During a recent members' conference call, we shared photos of nice displays. It's all in the in-store setup and it ties together, too, with headphones. You can do these "personal stations" that are cool and don't take up much space.

Short term, the summer doldrums have hit and things are languishing a bit in this nice weather, where people aren't thinking about what to do inside. Our outdoor products are very hot, though—high-end sound systems and outdoor TV installations. Long term, I think we'll be shifting marketing again as to who we go after and how we connect with clients, but I can't be too specific as yet.

Jeannette Howe, Executive Director, Specialty Electronics Nationwide: The three long-term opportunities for success that will require integration are smart-grid appliances, aging-in-place control systems and surveillance. These will keep the integration community in business and working. The question I keep having to ask myself is, 'What happens when TVs are free?' Well, they kind of are! We're selling them for what we buy them for. So what are the other technologies we can embrace as an integration community that will keep us afloat? TV is still a cornerstone, but it needs to be integrated, too.

Regarding smart-grid appliances, it's an early technology; we'll see a little bit of in the fourth quarter of this year but I think the real push will come in 2012 and 2013. We're seeing the transition now with smart meters. Here in Southern California, I've been notified by my electric company that I'm getting a smart meter. The demand for smart appliances and technologies will increase as people start seeing that fluctuation in their electric bill. Once that meter goes onto the side of the house, you'll see the electric bill go up.

Aging-in-place technology-based products start with very basic personal emergency response systems, and that also allows for some recurring revenue opportunities. But companies like Grand Care Systems offer pretty sophisticated systems—software platforms that let a loved one keep track of elderly family members and keep them out of a nursing home. I do see it as an opportunity for dealers who want to find other models to keep themselves in business.

On surveillance, we will be announcing some solutions at our next Primetime event in late August.

The thing I always say about this channel is that you have to be chameleons. The climate out there is always changing. It was retail, it moved into project management and custom installation and the next iteration is certainly integration.

Jim Ristow, Executive Vice President, HES (Home Entertainment Source): When control and automation become more mainstream, that will probably be the largest influence. There are over 200 million smartphones that will be in the marketplace by the end of 2011 and over 35 million tablets, and less than two percent are currently being used for control or automation. Each is a potential client for our group. That's also something that's very difficult for the box stores to scale because product can be commoditized but solutions are much more difficult. Our group continues to do upscale, but the market will get much broader.

Retrofit is also a trend. As consumer confidence continues to grow, people will continue to invest in their homes.

Another industry trend is content coming from the cloud—non-hardware media services. We see a huge opportunity there as well to educate and sell customers attachments and step-up goods.

Dave Workman, Executive Director/COO, the PRO Group: Major trends center around audio products. There's been a quiet rebirth in interest in audio, and there has been a spillover effect as well in our focus around headphones. Our industry always chases the next 'what's hot' category, and everyone jumps into the pot and tries to sell as much as they can as quickly as they can.

The nice thing about audio is that it's a skill-set business. To do audio correctly, you have to have demonstration knowledge and bring the product to life for the consumer. That bodes well for the retailers we represent. It doesn't lend itself to putting products up on a website with a price. The resurgence in the category and the need on the part of the consumer follows some of the HD sets that have been deployed into the market. People realize they have to get different switching capabilities to do all the things they want to do with the sets, now that they own them. Our group has been enjoying a renaissance in the category for almost a year now.

The other trend I think we're dealing with is a somewhat bifurcated market, in that the luxury end seems to be coming back more healthily than the mainstream segment. That part is more resistant to food and gas prices, and it seems there is better activity in the whole custom space. There may not be as many huge jobs going on as there were in the go-go years of 2006 and 2007, but there seems to be nice uptick in interest in mid-sized jobs for wealthier clientele.

CR: What is your group doing in particular to help your membership make it to 2012 in healthy condition?

Ristow: There are some short-term and some long-term initiatives we're working on. Short term, we're seeing an audio resurgence and really trying to do all we can to push members to demo and sell audio. On the video side, we're being much more strategic and selective with trying to find islands of opportunity for members to make profit. Third, relating to the control and integration I spoke of, we're launching the ConnectedSource stores-within-stores, to make control more systematic and mainstream, and to extend the reach of customers and clients our members can talk to. We're in the beta test stage now and we'll be launching them in Q3.

Workman: Our big focus has been on supply-chain programs, whether they be integrated forecast programs with our major manufacturers, or the hybrid Tech Data model that has been developed with Sony. The hybrid model allows our accounts to still deal with Sony directly and with their local sales representatives, and to work with Sony as they would normally. But Tech Data is the logistics infrastructure for those dealers.

The key for retailers in today's market is how to minimize inventory and how to maximize flow. We've been focusing on business options for the dealers that allow them to take advantage of those kinds of things.

There are two parts to that. One is minimizing inventory but also minimizing out-of-stocks. One challenge we and anyone in our segment have always had is when there are shortages on key inventory items, which traditionally occur in the higher-end portions of lines. Those products might be two or three percent of a Best Buy sale, but might be 50 or 60 percent of our types of dealers' sales. So if there's an inventory shortfall, and we don't have that product, it's devastating. We're trying to work closely with the manufacturers to secure supply chains, exercise forecasting systems or develop programs as extensive as the one we have with Sony. That Tech Data program went into effect April 1, and enables a lot of expanded capabilities with our web retailers, where, for example, they can transact single-item fulfillment to consumers. It's like adding a partner to the business that we didn't have before.

Howe: Training programs. We just did one recently about succession planning. We found interest among some dealers who did really well during the heyday, and looking at the climate going forward, rather than finding a way to successfully transition their business, want to close their doors. So we had a training program that helps our dealers navigate a profitable pass either through transitioning their business or staying in business.

The PARAs of the world aren't here anymore in the same way they were before, with their management conferences. So we're doing that training. We're doing a lot of it in our Atlanta facility; this includes management training and team development.

Glikes: We're in the process of re-doing everyone's websites. We've adjusted most of our programs where payments are quarterly, which helps cash flow. We launched, which is getting in excess of 500 hits a day and funnels clients to the dealers' websites. As part of that, the content from it is accessible to all members to put on their sites, which will freshen their sites and move them up on the search queue.

CR: What have your members been asking for from your organization the most this year? What innovations in service or product mix are you going to deliver to help them keep their businesses profitable?

Howe: The biggest challenge for them is finding profitability in TVs. Yes, you join a buying group to be more profitable, and we can help dealers be more profitable in video, but it isn't enough to be a sustainable business opportunity. So we're looking at other solutions. We have seen audio come back, to some degree, and there's profitability there. Anything dealers can do to help the consumer to better-sounding audio is welcome.

And although 3D hadn't launched the way it had been hoped it would, it's a great opportunity for an immersive demo with audio. The dot-coms can't do that; it's the specialist who can, and the experience is pretty incredible when it's handled right.

We do see business coming back, and that's very promising. It's been peaks and valleys this year and I'd like to see more peaks than valleys. It won't be what it was three or four years ago, but I think it's sustainable. It's been a long recession. People want to spend money, but we have to give them reason to.

Ristow: We're expanding our Expert Warehouse mix to include more audio brands. And we continue to foster new ways to drive traffic into members' stores, whether under the ConnectedSource umbrella or through social media non-traditional marketing that we've been heavily pursuing for our membership.

I think everyone these days is trying to figure out how to make money in a declining market of TV ASPs. So we've really been pushing hard in the demonstration and sales of smart TV and 3D technology. Even greater than that, it's going back to a picture-quality story and really demonstrating step-up features in every category—an almost 'back to the future' trend of demo'ing, selling and presenting rather than just clerking. When times were good, it was easy to fall into the trend of clerking.


Glikes: We had a shortcoming last year in communication which we've since corrected by having monthly webex meetings. I think members like that; they can tune in for a 45-minute roundup. In the past, we had a spring, a fall and a CEDIA meeting, and at those points they felt pretty tuned in. And we do communicate almost on a daily basis by email, but it's not the same as talking to people by video. That's been a nice improvement.

Members are not really asking for anything different at this time. I don't hear anyone yelling and screaming. We've been doing more events lately at individual dealers, such as Music Matters events, and they seem to be working. People are happy with the turnout and the response, and that's really good.

I think we need housing to come back, and there are some big houses being built, and that's where we live, so that's good.

Workman: The two big things are that we're trying to develop channel strategies so that all can prosper, and that would allow a level playing field in the marketplace. The one thing most of our dealers would like to have that most don't already have is a relationship with Apple. That has been a challenge. A number of them have been authorized singly as new accounts but we have not been able to have Apple recognize the group of retailers for iPad sales. However, individual retailers have had some success making their case before them.

On the other side, we're currently engaged with the major CE vendors to create business models for their tablets. So we do fully expect to have business models on all of the other tablet products available to our retailers. CR



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