The following edited column came in the form of an e-mail from Gary Duff, owner of a custom-installation business called Home Tech Architectural Electronics of Granite City, Ill. He wrote this in reaction to my column of Jan. 17, “Excitement Should Create Profits.” He noted at one point, “In the last couple of years, I have seen the margins essentially removed from most of the items I sell.” While some might not completely agree with his opinions, we at TWICE feel they provide plenty of food for thought. — Steve Smith, Editor in Chief
I am acutely aware of the reduction of profitability in the electronics business and agree with your column (TWICE, Jan. 17, p. 16, “Excitement Should Create Profits”) that this industry has very little margin for error right now. You didn't mention what I believe to be the root of the problem: big manufacturers' rush to the Internet as a distribution channel.
What has happened is a group of resellers who bring virtually nothing to the party are able to sell at profitless prices precisely because they bring nothing to the party. Best Buy and other big-box places offer the ability to see and compare many, many SKUs.
Businesses like mine offer lots of hand holding and expertise while working with the building trades to complete our projects. Huge companies like Best Buy and little ones like HomeTech offer the consumer something and hope to earn a profit when they make a purchase. That profit essentially disappears when the consumer goes home and puts the model number into Google and within a second finds a dozen places willing to sell at very close to my cost.
The aggressive consumer gets the benefit of Best Buy's huge display and my expertise while not paying for either service in any way.
I blame the manufacturers. Where, exactly, does a manufacturer expect a consumer to go and actually see its top-of-the-line 50-inch plasma TV when it's on PriceGrabber.com at $5,839? What retailer, exactly, will be happy to display and sell a DVD player when it's on the Internet below my cost buying through distribution? Which distributors are going to survive in this environment?
More to the point, where will the manufacturers go to demonstrate the next big thing (HD-DVD, media centers) if there is no profit available in selling them?
I've been in this industry since 1978. I've been a district manager for a big retailer and a key account manager for Toshiba, so I like to think I have some insight into the industry. Here is my two cents, for what it's worth. Profit MUST be reintroduced to the industry. Manufacturers don't need all those Internet guys that show up to slash the price. They do need Ultimate Electronics and Tweeter to have their product on display in hundreds of locations across the country. Not to mention all the small CEDIA and custom guys like me.
I see two options:
Manufacturers don't need the Internet guys. They can sell on their own Web sites to virtually everybody. Consumers could buy there and so could retailers, all at the same price. They could then rebate profit back to authorized retailers based upon volume through existing co-op mechanisms.
Manufacturers could prohibit, through contractual agreement, authorized retailers from selling on the Internet. They could put real teeth into the agreement and actually enforce it.
Of course these suggestions assume that manufacturers see the same issues that I do, shrinking dealer base, flat sales at retail, etc. Time will tell.