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ProSource's Workman: 4K Prices Falling Too Far Too Fast

Buying group chief talks Black Friday, brick-and-mortar and Sears' status 9/15/2016 10:15:00 AM Eastern
Take Away

Workman is looking to OLED and Sony's new Z series to help mitigate TV margin pressure.

A/V and custom-install buying group ProSource celebrated what president/CEO Dave Workman told members was “a very strong, healthy year” at a Klipsch-sponsored reception on the eve of CEDIA 2016.

Before the event, Workman took some time to answer TWICE’s questions about the general state of the industry and the prospects for the holiday selling season.

Black Friday
TWICE:
 Are Black Friday plans already in place?

Black Friday plans are somewhat in place but not finalized at this time. Most of the doorbuster merchandise is already contracted for, but the step plans and some of the secondary promotional items are still being developed.

TWICE: Will retailers and vendors behave this year and stick to their promotional roadmaps, or get desperate and do nutty things?

I would never bet against dealers and vendors doing nutty things during this time of the year. Much depends on the demand we see between now and Thanksgiving. If things continue to build positively, then there is a chance roadmaps will be maintained.

TWICE: How much earlier can the Black Friday season possibly begin this year?

It really is Black November now. If a dealer has not made his or her numbers by Thanksgiving, there is no way that a dealer can lift the month as was the case off of Black Friday’s sales performance. ASP [average selling price] reduction and demand simply have failed to deliver the sales increases necessary to offset sluggish demand earlier in the month.

See: Black Friday 2016 Preview: TVs Could Be The Week’s Biggest Casualties

TWICE: Do you foresee any inventory constraints in Q4?

Nobody has specifically identified any anticipated shortages; however, OLED and 75 inches and above TV screen sizes remain a concern.

4K
TWICE:
Have 4K prices fallen too quickly?

4K pricing has fallen too quickly as evidenced by the fact that once again we are seeing an overall decline in dollars within the TV category simply because we cannot monetize the new technology in the face of price erosion. Where we are watching this most closely is in screen sizes 65 inches and above. OLED has served as an offset to this to some extent, however, and we are hopeful for the new Z series from Sony to mitigate some of this ASP pressure.

TWICE: Do you see a bigger role now for Sony?

Sony’s reemergence in the TV category as a premium brand has been one of the most important changes for our dealers in recent memory. Their business should continue to grow if they maintain their commitment to the specialty channel dealer.

TWICE: Have manufacturers been sticking to MAP?

For the most part the UMP programs have stuck. This has placed more pressure on the vendor to be aggressive with their promotional roadmaps to drive the business. Even with this, however, margin pressures continue as manufacturers squeeze the dealer margins to deliver more to the consumer for less.

Smart Home
TWICE:
Has ProSource had any luck in figuring out a subscription model for connected-home services?

We have a dedicated IoT committee working on the recurring revenue model, and our goal is to have something to present to our membership after the first of the year.

TWICE: Do custom integrators need to get into the smart appliance category?

It is too early to tell if our CI dealers need to get into this category, but it's most likely that they won’t, given the unique requirements of selling appliances. At the very minimum, they will likely need to partner with a local dealer to provide the complete solution to the consumer.

General
TWICE:
And what of Sears?

Sears is becoming so irrelevant in electronics that if and when they go away, it will hardly be noticed. The appliance market will likely see a lift as what share they possess gets redistributed. I find it interesting they had to borrow $300 million from their hedge fund owner, which I can only assume was to shore up their balance sheet to fund holiday purchases without a dramatic reduction in terms.

TWICE: On average, what is the mix of in-store vs. online sales for your larger dealers?

Our online to brick-and-mortar mix varies, but in general we as a group do about 70 percent of our total business in brick-and-mortar and about 30 percent online. The relevance of brick-and-mortar is best served in premium products where the consumer is looking for an experience associated with the sale, including needing to hear or see the product before purchasing, as well as the satisfaction of purchase that can accompany a flagship brand.

The other area brick-and-mortar excels is those products that are a solution through the knowledge of the associate and the after-sale service necessary to get it to perform. Overall, I see brick-and-mortar needing to understand what their value proposition is, and in what areas of the business, and to double down on their efforts to be the best at providing product and service for that specific area of the business. You cannot expect to grow selling products that have become commodities, or are easy enough to understand that alternative and more convenient channels of delivery have grown and continue to do so.

TWICE: Any concern over a digital backlash or “analog movement,” as evidenced by the resurgence of vinyl, two-channel audio and even flip phones?

I am not concerned about any anti digital movement back to analog. Analog enthusiasts are a niche that we love but do not at this point represent any mass movement that would endanger digital products. — Additional reporting by Alan Wolf

Take Away

Workman is looking to OLED and Sony's new Z series to help mitigate TV margin pressure.

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