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PRO Calls For Biz Changes, Cooperation With Vendors

5/10/2012 08:14:33 AM Eastern

Dana Point, Calif.
- The Progressive Retailers Organization (PRO Group) called on cooperation with
its name-brand suppliers to work on the unprecedented challenges facing the CE
industry at a special "State of the Industry" presentation during the opening
of its annual spring meeting, here, Wednesday.

George Manlove

Dave Workman,
president/COO of PRO Group, provided the view of the group while George
Manlove, Vann's president/CEO and chairman of PRO, gave the view of a retailer
in back-to-back half-hour presentations calling on the industry's name-brand
suppliers -- most of which were here -- to work together on new, profitable
business models.

The "out of
character" speech by industry veteran Workman began with: "Many of you know you
can set my speeches to a stopwatch at five minutes. But times are different now
... this business has had incredible changes, and it is time to put forth some
new ideas."

He began by saying
that the goal is "collaboration" between retailers and vendors, PRO and its
suppliers, to come up with solutions to stop the "race to zero" profits that
occurred last year. To illustrate, he showed the now-familiar headlines of retailers
and vendor financial problems of the past few months.

"Sometimes we can
be desensitized to the bad news, but we have all lost friends in this room who
worked in the industry for 20, 30 years -- retailers and vendors -- who have
lost jobs as [the industry] struggles for profitability."

Workman said that
"efforts have been made," alluding to unilateral pricing policies and channel-management
decisions this year by vendors, to shore-up profitability but that they "need
to be fine-tuned."

And not everyone
is suffering, he said, noting,  "Apple continues
to report record profits ... and the threat of an Apple TV."

The business model
of the industry has changed, with Workman saying in effect that the strengths
of the big-box retail model is dead. "Lower prices and bigger selection of the
big box ... has been taken away by the web."

Workman noted, "We
can't stop where consumers shop" based on price and selection, so "the only
thing [independent CE retailers] have left is experience. Experience can and
will be multichannel," brick-and-mortar stores and online.

He stressed,
"Technology needs to be sold. We are CE retailers that need to make money on
CE."

Workman emphasized
the strengths of the newly configured ProSource, which is part of BrandSource
and made up of members of PRO Group and the Home Entertainment Source (HES) that
have a mid- to upscale CE product focus with $3.1 billion sales and 500
vendors.

So he made the
point, "Do we really want the only survivors to be those [retailers] who don't
depend upon CE products for their profits? We don't have the luxury of making
money on items from the non-CE world ... from Pampers, gasoline or food."

He stressed, "We
can't survive in a harvesting world" of a "fast checkout [online] and the
lowest price."

In making the
point that "technology must be sold and if experience matters, we have
something to talk about," Workman compared the HDTV rollout to 3DTV.

"When HDTV was brought
to market, it was very expensive, had no programming but specialists introduced
the technology and sold it and gradually it expanded through other distribution
channels." But with 3DTV, "Walmart had the product before we did. Early
adopters needed to be considered. End caps can't sell everything. If we
continue to do this, we devalue every new technology we will introduce."

On the issue of
channel management, Workman said, "Both [vendors and retailers] want it, and
need it for healthy competition and growth. We can't have two or three
retailers or two or three vendors controlling this business. You don't just
rely on increasing demand by lowering prices. Apple doesn't do it, and look
where it has gotten them."

While Workman said
that PRO supports the unilateral pricing programs that have been established,
vendors "can't be restrictive in the trade" either. "The world we live in now
will have different places to sell. Policies support channel management, but
[should not replace] channel management."

While TV and video
have had problems, Workman said that channel management with audio vendors have
worked with PRO's audio business, which is up in the 20 percent range in the
past year. This is higher than industry growth, showing "there is a place for
channel management" in the industry.

He added that
brand-name vendors and retailers are "in this together for the first time in
memory ... the challenges being presented in the industry affects us all with
virtually [all] companies being challenged to make a profit today."

He pointed out
that PRO has never supported "off-brand TVs or cables ... we build brands. We are
consistent."

Workman said that
vendors have dropped out of the business, including PRO's Sixth Avenue Electronics,
Ken Crane's and Ultimate Electronics. Workman started at Ultimate, and back in
2002, that chain had 50 percent of its product sales that were only available
to independents. "Now that number has to be 5 percent," he added.

PRO and ProSource
organizations have "a big toolbox" of advantages to sell name-brand
technologies profitably. "We can develop together new business models to serve
your customers. There will be larger volume players ... but there isn't a bigger
venue [than PRO and ProSource] to sell mid- to high-end goods."

He said that PRO
and vendors have "no choice to figure out" a profitable plan out of the current
marketplace. "The bottom line is that we want to work through this to grow the
business ... profitably."

In his speech, Manlove
echoed the themes of Workman, calling for "partnership opportunities" with
vendors and come up with a "joint task force to develop channel strategy and
policies" and "collaborate for supply-chain optimization initiatives."

Manlove also
called for integrating "vendor and retailer direct-to-consumer initiatives,"
which could eliminate some of the friction. As Workman put it in his remarks,
"We won't become manufacturers if you don't become retailers."

Manlove said that
both vendors and retailers have to "normalize demand and supply expectations,"
adding, "Let's not build or buy for what the business was. Instead let's buy
the way it is now."

He also added a
call to come up with "collective innovation and invention" with vendors to
squeeze costs out of the business and provide "mutual transparency and trust ...
cooperation that will help all of us."

He said that
Vann's began to feel "the undercurrent of a downturn" since 2007, "so we are in
this for five years."

In those past five
years, retailers have "right-sized our businesses" and had layoffs, closed
stores, cut costs but now realize that "change is not working" and now "we have
to transform the industry."

As for competitors,
Manlove doesn't want Best Buy to go away since it can play a role in the
industry as an "anchor of stability." Amazon has "changed the face of CE like
other industries it has entered in the past five years."

As for Apple, "We
allowed it, as an industry, to absorb full control of the industry. They are
now one of the largest companies in the world and did it quietly, strategically
and with innovation."

He said that the
boom in flat-panel HDTVs and its profits have been the industry's undoing
since, "While we celebrated and sold flat panels ... we didn't look at the long
term and sacrificed short-term profits" for long-term planning.

Manlove asked the
questions, "Who are our vendors, customers and business model? How to create
the energy it once had?"

Online sales and
mobile pricing apps creating a market of changing prices on a moment to moment
basis has resulted in "diluting brand equity" and making it almost impossible
to price products at retail stores. He cracked, "Do we need some new electronic
price tags that change every hour?"

Manlove noted how
the music and book businesses were hurt by online sales and those industries
not reacting quickly to stem the tide.

"I don't agree
that tablets have become the new TVs," he said, but noted, "Maybe the tablet
has become the new Walkman or Discman ... and the TV has become where we watch a
communal event. But everything else is mobile."

Manlove put
numbers on Workman's statements on ecommerce, saying that 15 percent growth to
accelerate through 2014, according to Forrester and U.S. government statistics,
and that "mobile ecommerce will more than double in the next four years," from
3 percent of all commerce to 7 percent by 2016.

Manlove said
specialty retailers have to be in business on the consumers' terms, "if on a
marketplace [site] so be it, a mobile app, Facebook page, concert events ... we
want to be there. If you remove one of those touch points, that is a problem,"
he said, referencing some vendor plans of not allowing marketplace sales of
their brands.

CE growth is now
in "audio, smartphones and tablets ... if we don't invent new ways of new growth
then we have given a company in Cupertino and Mountain View the industry on a
silver platter."

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