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NATM Dealers Coping With Strained Margins

9/16/2009 09:00:54 AM Eastern

Dallas - NATM dealers are learning to live in
a low-margin marketplace.

The 11-member
buying group, comprised of some of the industry's largest independent and
multi-regional dealers, is riding out the recession through cost cuts, opportunistic
buys, and boosts from ancillary businesses like home office and audio.

 Brothers Eddie, left, and Johnny Maloney, right, of Cowboy Maloney’s with Conn’s retail president David Trahan at NATM’s annual conference

"We're still here,
still competing, and learning to play in this environment," said Bill Trawick,
president and executive director of the $3 billion group, which is holding its annual
conference here this week at the Gaylord Texan in Grapevine.

Recession-weary
shoppers are looking for deals, he said, and the CE and major appliance
industries have responded in kind, putting pressure on profits.

But compounding
the problem is "a very aggressive" price war between national chains, which is
further eroding margins and putting the entire marketplace at risk.

"Everyone gets
caught in that," Trawick said. "I hope the vendors won't let the whole industry
collapse."

Dealers told TWICE
the situation stems from underperformance in TV by Best Buy's private-label
Insignia and Dynex brands, which it has employed to counter value badges like
Vizio. Instead, the No. 1 CE chain is now turning to tier-one vendors for
opening-price-point products, further disrupting the market.

To contend with
the margin squeeze, NATM dealers are buying into oversupply situations and are
exploiting non-traditional categories like home office and component audio,
where product lines and market share have been freed up by Circuit City's
departure.

Members are also
cutting overhead, often through headcount reductions, but are also taking
advantage of the weak commercial real estate market to expand their businesses.
Among those opening new stores is Conn's,
which plans to add three to five locations this year; BrandsMart USA, which opened its fourth Atlanta
superstore last month; and ABC Warehouse and Electronic Express, which have
snapped up several former Circuit
City sites.

Sam Yazdian,
president of Electronic Express, said the Tennessee chain reopened a former
Circuit City store in Spring Hill three months ago, will relocate its 12,000-square-foot
Clarksville store to a 21,000-square-foot Circuit site in November, and will
also reopen a former CompUSA storefront in Brentwood next month, raising its
store count to 18.

All told, NATM's
sales volume has declined to just more than $3 billion, a mid-teen percentage
drop driven by weaker white-goods demand, falling TV prices, and the departure
last spring of Grant's Appliances in Joliet, Ill.

Broken out by
category, white-goods sales are down by the high-single digits, but still
outperforming an industry that is experiencing 15 percent declines.

In TV, unit sales
are ahead in the upper 20 percent range, Trawick said, although dollar volume
is "getting hurt" as average selling prices crater. The contraction has been
offset somewhat by sales of LED TVs, which are carried by some of NATM's
members.

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