Brand Source Positioned For CE Ascendancy

By Alan Wolf -- TWICE, 3/23/2009

Dallas — Home Entertainment Source (HES) and its Brand Source parent are positioned to play a key role in the consumer electronics marketplace in the coming years, the buying groups' executives told dealers and vendors.

Addressing attendees at the organizations' annual Spring Summit, held here this week at the Hilton Anatole, HES executive VP Jim Ristow and Brand Source CEO Bob Lawrence outlined the groups' strengths and successes, its competitors' vulnerabilities and new opportunities to make the organization vital to vendors.

"What happens over the next 12 to 16 months will reshape

From left, Bob Cole of World Wide Stereo with Ricki and Stuart Shuster of Marvin Electronics

the look of the industry for the next decade," Ristow said, forecasting mounting casualties among dealers, installers and manufacturers. The good news is survivors will come out stronger and more profitable; the economy is beginning to show "positive blips," and HES, Brand Source's A/V and custom-install specialty division, is in the "sweet spot" of the marketplace.

Indeed, Brand Source's total CE sales were $3.9 billion in 2008, up from $290 million in 1992, Lawrence said, which would have put it on Wall Street’s radar as the fastest-growing CE entity were it a public company. The group also "stands on the threshold of being the largest CE entity in the United States," he told attendees, and advised them to fasten their seat belts for a meteoric, five-year ride.

To get there, Ristow said, members will have to look beyond the recession, get back to their entrepreneurial roots, develop and execute new business strategies, consolidate brands and act as one united group that presents “the only national alternative to box stores.

"Vendors really need us" given recent retail consolidation, Ristow said, and manufacturers were reminded of that point during a sit-down last month in New Jersey with major suppliers and HES’s buying group partner, the Progressive Retailers Organization, or PRO Group.

PRO's executive director Dave Workman also attended the HES Summit, along with members including Bjorn's, Flanner’s, Huppin's/OneCall and Ken Cranes, to cement plans to pool the groups' $4 billion in combined buying power and leverage HES’s Expert Warehouse distribution program.

Ristow said The Alliance, as the partnership is called, will help "give vendors a clear channel for step-up goods," which are in danger of disappearing with Pioneer's departure from plasma, Hitachi's new promotional strategy, and the growing concentration of flat panel volume between Samsung, Sony, Best Buy and Wal-Mart.

From left, PRO Group’s Dave Workman with Steve Caldero of Ken Cranes and Murray Huppin of Huppin’s/OneCall

As a consequence, the ultra-premium category is gone in TV, if only temporarily, and the $2,000 to $3,000 price range has become the "new premium" tier for video, he said. This means dealers can no longer count on 35 percent-plus video margins, and inventory turns will have to increase from four to 10 or 12 times a year to maintain profitability. What’s more, product availability will tighten as vendors reduce the amount of inventory they are willing to hold, Ristow warned.

But all is not gloom. Market share gains by big-box chains have flushed out the small, independent “trunk slammers,” he said, and vendors including Samsung will attempt to rein in their products' availability online.

Best Buy is not invincible either, with digital downloads and video-on-demand threatening its crucial entertainment software business, Ristow said.

To help members press their advantage, HES is adding e-commerce capabilities to the group’s Web site and is enhancing Expert Warehouse with a fast-track option for returns. The warehouse distribution program, which was up 35 percent in dollar volume in 2008 and 33 percent year-to-date, is also adding Definitive Technology loudspeakers, Energy loudspeakers by Klipsch, an Alliance exclusive, and Niveus media centers to its roster.

HES also partnered with PARA, the educational arm of the Consumer Electronics Association, to provide an extensive seminar program at the four-day show, where HES attendance was up 20 percent to record levels, Ristow said.