The Future of Buying Groups
Now that the economy is moving forward again—with unemployment down, housing starts up, and the stock market fully recovered—it’s tempting to think that we in the A/V world can return to business as usual, relying once again on new technologies and products to drive sales, and the return of old-school margins to rescue the bottom line. But if we look around us and examine the carnage of the past half-decade, there are ample indicators that things will never again be that easy. “We’re not in Kansas anymore, Toto.”
• Internet sales volumes for CE have increased every year—in spite of the Great Recession.
• Big Box electronics retailers are in deep trouble, and many have closed their doors.
• QR codes and smartphone apps have made showrooming easier than ever, reducing many retail stores to places where internet shoppers go for free information gathering, comparison shopping and expert advice.
• Apple Stores are hugely successful. On a “sales per sq. ft. basis” they are outperforming everyone in the history of retailing.
• The digital hub, with its emphasis on convenience (headphones, streaming and personal digital devices) has upstaged the traditional analog values of quality and performance. Where’s the profit in that?
• Many specialty retailers, who limped along during the recession on anemic sales and scant profit, are closing their showrooms, moving into industrial spaces, and converting to a technology integrator business model.
The state of consumer electronics has changed radically, but the full impact of these changes has been obscured by the great recession.
Given all these disruptive changes, how can buying groups continue to be relevant to this emerging new breed of home electronics specialist? Recent membership growth suggests that they can—at least for now. Over the past few years, the number of dealers lost during the recession due to business closings has been largely been replaced by new recruits. Independent dealers continue to turn to buying groups to help solve basic business problems: improving margins (by leveraging the buying power of the group) and controlling overhead (by providing group rates on insurance, credit card clearing and marketing services). The larger question is whether the current array of support services provided by buying groups is sufficient to help dealers compete and prosper in the increasingly challenging competitive landscape that lies ahead.
Buying Groups Today The buying group concept has its roots in bricks-and-mortar retail. They began as aggregates of independent dealers who joined together to negotiate for lower vendor prices, better payment and shipping terms, VIR programs, preferential product availability, and other advantages—all to help independent dealers compete with the emerging discount box stores of the 70’s. With time, additional dealer support services were added to help members control overhead costs and simplify the running of their businesses.
Today, four major buying groups serve independent consumer electronics specialists in the US. They include:
• Azione Unlimited—Azione was founded by president Richard Glikes several years ago, after serving 15 years as Executive Director of the HTSA buying group. In a few short years, he has grown the membership of Azione Unlimited to over 90 small-to-medium sized dealers, custom retailers and integrators, along with a broad array of vendor partners. Although Azione now provides an expanding array of dealer support services, Glikes likes to emphasize the primacy of sharing ideas as the most important dealer defense against the disruptive innovations that continually rattle through our industry. Azione’s bi-annual membership conferences are organized around this principle. In the changing world of home electronics, he adds, “No one is smart enough to have all the answers.”
• Home Technology Specialists of America (HTSA)—HTSA includes 63 medium-to-large dealer members (including the seven companies that recently joined forces to create VIA), 50 percent of whom have retail showrooms. The main emphases within the HTSA group is on marketing tools, lead generation, best practices, as well as the old standby, using buying power for best prices from manufactorers. Managing Director Bob Hana also emphasizes the importance of training. He describes the group as a “place where early adopter dealers can learn about new products, and find support services to launch, explain, and
• Nationwide Marketing Group—Founded 40 years ago, nationwide serves 3,700 retail dealers in the appliance, furniture and rent-to-own sectors, as well as electronics and custom installation. According to Senior VP of Electronics Tom Hickman, 2,000 of their members make consumer electronics a part of their retail mix, and about 470 of these specialize in electronics—all of whom are bricks and mortar retailers. Nationwide emphasizes the
breadth and buying power of their
network of retailers.
• Pro Source—A new name in the industry, Pro Source is the result of the recent merger of two well- established buying groups: Pro Group—a 26-year-old association of about 120 large regional consumer electronics specialists—and Home Entertainment Source (HES) a decade-old organization of about 450 mid-to-small sized retailers and custom installers. Pro Source now represents a total of 950 storefronts generating about $3.2B in annual CE revenue. The group has a three-tier membership structure: Pro (Retail/E-tail promotional specialists), CI Power (Large integrators & custom retailers) and CI (Small custom integrators). According to Co-President Jim Ristow, Pro Source offers the best of “Old School” buying power and “New School” innovation.
The Road Ahead CE buying groups
have a well-established record (some
decades-long) of responding to the competitive challenges that dealers and custom installers have faced in the past. But it’s a different story now. Instead of being disrupted by discount pricing due to lower inventory acquisition costs by the big boxes, specialty dealers today are being disrupted by deep discount selling made feasible by the low operating costs of internet resellers. To remain relevant, buying groups will
have to find solutions that address these
And that’s just today. It’s unlikely that innovation in the consumer electronics
sector will slow down any time soon. We
are just beginning to see and understand the full impact of the technological advances that continue to emerge from the e-tailing revolution and the digital hub concept. In addition, evolving consumer preferences—driven by successive generations of digital-heads—will continue to disrupt the retail-based home electronics business model that the founding generation of analog-heads have known and loved.
Wireless technologies that now disrupt wire-based distributed audio models (and vendors) will undoubtedly inspire others to solve the video bandwidth problem, and launch a new era of wireless home video solutions. Content streaming will continue to undermine cable/satellite services and conventional disc technology. These trends may combine with new and larger personal electronic devices to make home theater (as we now know it) obsolete for the digital-head generation. As a consequence of these disruptive innovations, home electronics specialists will face the reality of selling fewer and fewer big-ticket products and
systems, and much more of our expertise—on an fee for service basis.
Next Time With these and other
unanticipated disruptions becoming a fact of life, what can buying groups do to help dealers adjust to changing business conditions, and to remain relevant to dealers? In the next issue of Technology Integrator, we’ll explore this topic with executives from the four major CE buying groups. We’ll talk about how—in light of all these disruptions—they can enhance their group’s importance to manufacturers, and how they can become more relevant to the new breed of dealers that’s emerging. We’ll also talk about the now-endemic problems of commoditization and low margins in CE, and look at possible ways to combat them, with private label brands or exclusive models from name brands.
Buying group executives will also weigh in on expanding support services to members to include such ideas as in-house distribution centers, group-branded consumer internet sites, and kiosks and store-within-store strategies. Finally we’ll tackle the emerging competition into our sector from below: Comcast, Verizon, ADT, and ATT—and now Apple. See you then.