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MARTA Expects1st-Half Profits In CE, Majaps

2/12/2001 02:00:00 AM Eastern

ORLANDO, FLA. -While December 2000 wasn't as merry as previous years, retailers and suppliers at the MARTA Cooperative of America show, here, reported that sales were good during January, and they are expecting at least a profitable first part of the new year.

Less than a month after CES and a couple of weeks prior to the Home Builders' Show, MARTA, the $2 billion Scottsdale, Ariz.-based buying group, took its suppliers near Downtown Disney at the Radisson Hotel to order goods and discuss business.

Defying reports of a slowing economy and highly-publicized corporate layoffs, show attendees said that digital CE products should continue to do well this year and that independent major appliance retailers may have weathered the worst of the distribution storms of 2000.

Warren Mann, executive director of MARTA, whose 120 members operate 400 storefronts nationwide, commented, "In January business picked up because our supply [in CE products] went up. At the same time, manufacturers got aggressive in price, so there were good deals for our guys."

JVC of America's VP/chief operating officer Harry Elias, in town for his company's product showcase with dealers set for later that week (see p. 1), visited MARTA and commented that retail in general "has been a little soft" vs. January of last year and that business for many national chains has been flat with last year.

While that might be bad news for national retailers, for independents like MARTA, profits can be made in such a market.

Mann said the difference between MARTA's independent retailers and national retailers that are public companies is that "when they get a deal they say in their quarterly report that profits eroded but 'comp-store sales are up!' Our guys are business people. They'll tell [MARTA] our unit sales are slightly better, but our profits have increased."

On the CE side, big-screen TVs in general and most notably, HDTV and digital-ready set sales are on the rise. In projection TV sets, Mann said, "Digital projection TVs are half of our business now."

Prices are going down for HDTVs, but not dramatically, and with profits built in, Mann explained, "there will be more sub-$2,000 HDTVs available this year. Later this year there will be 16:9 sets that will be selling for what analog versions were selling for three years ago, with good margins."

Mann also sees plenty of profitable business for progressive-scan DVDs. "They will sell better, especially as HD-ready sets are sold this year. Seeing the performance of those sets with progressive-scan DVDs will build the market."

Key CE manufacturers in attendance agreed with Mann's assessment. Robert Spelman, VP/general manager of direct sales and buying operations for Thomson Multimedia, said that by the end of last year, "there was a shortage of digital TVs, but supplies came in and sales picked up around the Super Bowl." Spelman noted that nationwide DTV sales were "a mixed bag," but that sales were "better than expected," with good sales for digital PTVs and digital products in general.

Panasonic's Ed Wolff, assistant general manager for the television and network systems division, and Gene Kelsey, VP/general manager for audio entertainment/disc devices, agreed.

"HD has been accepted very well," said Wolff. "Half of the projection TV business is now in digital, and 16:9 is being accepted. We expect the TV business to be strong for the first half."

Mike Koon, electronics and appliance buyer for Schewel Furniture of Lynchburg, Va., said that from December, analog big-screen and HD-ready set sales have been up "100 to 200 percent for us. Home theater has worked well where we have been able to put together 'rooms to go' of furniture, speaker and TV packages."

Kelsey of Panasonic said the same holds true for DVD sales, which "have been strong through Christmas. Local dealers are doing fine with the category. They are concentrating on items that can generate [sales] velocity, such as DTV, TV and home theater."

He noted that DVD "continues to meet expectations," and added, "With products such as DVD/VCR combos that [Panasonic] will be introducing later this year, Panasonic-brand audio systems that feature ease of use, and easy solutions for audio needs, sales should be good for independents" like MARTA dealers.

The situation for independents is lot more volatile in the major appliance business, with the marketplace still dealing with the aftermath of the distribution wars of 2000, where Circuit City dropped out and Home Depot, Lowe's and Wal-Mart jumped in by cutting prices and margins.

When asked if the departure of Circuit City was good for MARTA's members, Mann said, "The exit was good for our people, and bad, all at the same time. Manufacturers had to go and get volume, and prices went down. We had a lack of time to re-merchandise our floors vs. the self-service guys. Now we have had the time to do that and are reaping the benefits."

Schewel Furniture's Koon said, "White goods have become like brown goods: Go for the lowest-margin piece. What we have done is plan our orders better to take advantage of manufacturers' increased production. We have been able to get good deals to keep some margins. Planning is the key."

Mann illustrated the problem with the case of the GE-brand LSQ8543 washer, a best seller over the past three years, which had "a $425 MAP and sold at retail for around $400. By July 2000, as Home Depot and Lowe's began selling it, the price went to $360 or $370. By the time Best Buy got it the price was around $339 plus a $30 rebate. The profit was taken out of the unit just to compete."

Brad Chaffee, general manager of the north central sales area for Frigidaire Home Products, said the main thing MARTA dealers were asking for at his booth were "margins.they want better margins."

Mann acknowledged that Frigidaire, and Whirlpool have been big supporters of MARTA by trying to differentiate their lines to keep margins intact for independents.

"Our efforts have given us a bigger piece of the pie," Chaffee said. He noted that the departure of Circuit City, the talk about Best Buy leaving the major appliance business (which he doesn't believe), and the new self-service competitors have caused a lot of anxiety among independents.

"If the business model that GE has created with Wal-Mart, where they put an appliance department in the front of the store, and GE can make money by providing service, installation and delivery, independents will become very concerned."

Still, MARTA is reaping benefits from the departure of Circuit City and the demise of Montgomery Ward. Mann said. "Business has shifted to us. Our advantage is having an informed sales force that can sell on the sales floor. We are in a better position than last year."