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PRO Calls For Cooperation With Vendors

5/21/2012 12:01:00 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.

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.

Workman 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 and stated, “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.”

The business model of the industry has changed,
with Workman saying in effect that the strengths of the
big-box of “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-andmortar
stores and online.

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.

He stressed, “Technology needs to be sold. We are
CE retailers that need to make money on CE.” And he
pointed out, “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.”

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 “offbrand
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. 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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