LINCOLNSHIRE, ILL. -In a dramatic shift of its distribution practices, Zenith Electronics notified dealers that it is reducing retail distribution to two classes of dealers: those it handles directly and those served by Zenith independent distributors. Prior buying group programs are being eliminated, effective April 1.
The move comes as part of Zenith's attempts to transform itself into a developer and supplier of products based on digital technologies, while discontinuing the old market-share-driven practices that generated aggressive price promoting and weakened profitability for analog video categories.
Kathy Wolfe, new Zenith Sales Company president, said the company is in effect searching for new "digital distribution channels," comprised of accounts that know and can sell the cutting-edge digital products the company will be bringing to market under the stewardship of its parent company LG Electronics.
Many in this core group of accounts across the nation will be handled under Zenith's direct distribution system, although that number will be reduced from last year. Zenith independent distributors will serve all others. In addition, Zenith will maintain a commercial sales division handling mostly the hotel and motel trade.
"We are very serious about becoming a digital leader, and as consequence, our direction is to significantly increase our focus on digital products and digital channels," said Wolfe. "This continues an initiative we started in 2000 that focused on bottom-line rather than top-line growth."
The distribution shakeup is part of Zenith's three-pronged repositioning effort, which also extends to brand repositioning through advertising and other efforts and a revamping of the product assortment, she said.
Wolfe expects "the majority of our customer base" will be served via the distributor network, which includes 40 independent distributors in the Crosley Group. Another distributor, she said, would likely be added to reinforce the Crosley members.
Zenith intends to continue to work with all of its dealers, said Wolfe, but some of those will have to begin working with distributors rather than any buying group they may have used in the past. Whether such dealers elect to deal with the new distributor policy will be left up to them.
"So far, the dealer reaction has been fairly positive," she said. "We would like to facilitate the transition from Zenith direct to distribution and keep them all."
Wolfe said she didn't know how many dealers Zenith might lose in the change. The elimination of buying groups was "a tough decision" that was made after a careful analysis of "profitability and head count," she said, calling it "a business decision that was made for a variety of reasons. We wanted to ensure that there was no disruption of supply to our dealer base, and we preferred transferring them to the distributor network."
Two-step distribution could provide benefits to retailers, the Zenith exec said, including better inventory availability, convenience and local support, although the services and advantages of buying groups vs. distributors are "very different."
Zenith relied on distributors prior to dropping its last 15 independent distributors in favor of direct sales in 1994. Zenith later returned to a limited distributor relationship in 1999, when it began to use the Crosley Group to handle accounts that are smaller or located in more rural areas.
Stripped from the lines for 2001 are promotional products and a percentage of the analog model mix. Zenith will continue to carry all of the important analog categories, but with a greater emphasis on higher-end goods, said senior VP Wayne Park.
The digital mix includes DVD players and recorders, LCD and plasma display panels, but according to Park, digital television monitors and HDTV integrated sets will be the most strategically important categories for Zenith.
Zenith will shortly announce a new minimum advertised price (MAP) policy "that is consistent with the brand repositioning effort and that focuses on profitability both for ourselves and our dealer network," Wolfe said.
Rick Powers, Zenith digital products sales VP, said directly distributed digital Zenith retail accounts will be required to maintain certain volume levels and will be expected to carry as much of Zenith's digital product assortment as is warranted. More importantly, he added, direct dealers must demonstrate a "high-technology digital products vision and recognition that limited distribution is very important in focusing on long-term growth and profit."
Powers said ideal dealers will be those accounts that are "recognized as digital technology leaders in their respective markets." This will involve maintaining a well-trained sales staff "capable of communicating the benefit of the technology to the customer."
As for e-commerce, Zenith will maintain an Internet policy of dealing exclusively with "click & mortar" accounts that operate brick & mortar stores in addition to e-commerce-enabled websites. The new MAP program will apply to products sold on the Internet.