Buying Groups Growing Market Share In Battle With Big-Box Chains
By Staff On May 5 2008 - 6:00am
To paraphrase Mark Twain, reports of the death of the independent dealer have been greatly exaggerated.
Indeed, it wasn't too long ago that some industry observers were ready to write off the neighborhood TV and appliance store, as Best Buy, Home Depot, Lowe's and Wal-Mart grew their brown- and white-goods businesses.
But the prognosticators didn't account for the growth of the industry's buying groups, which have been busy developing pricing, marketing and support programs to help their members compete.
Those labors have apparently paid off, with most of the industry's major buying organizations reporting market share gains over the past several years.
This year the groups are redoubling their efforts amid a stalling economy and hurting housing market. An overview of where they stand and their game plans going forward follows.
Brand Source, the nearly $11 billion home furnishings buying organization, said it continues to take share in nearly all of the categories in which it competes, and expects to consolidate its gains as the big-box specialty chains begin to lose marketplace momentum amid a changing retail landscape.
According to Brand Source CEO Bob Lawrence, the group has "taken back share" for the past three years and readily outpaced the industry averages in 2007, with white-goods volume up 3 percent in a down market and CE sales up 16 percent, he recently told TWICE. Majaps comprise fully 50 percent of Brand Source volume, he said, followed by CE at 30 percent and furniture and floor coverings at about 15 percent each.
Lawrence stressed that big-box stores are no longer the end-all and be-all for vendors. As chain stores near saturation levels and consumers' demands and service needs grow, "The prevailing belief that bigger is better will break down, and aggregation of small will be the new big," he said.
Despite some "choppiness" during the first quarter, particularly in the hardest-hit housing markets of California, Florida and Michigan, Lawrence's optimism was borne out by the generally upbeat reports coming from the member rank-and-file during the group's recent Spring Summit in Dallas.
To provide members with fresh ammo, Home Entertainment Source (HES), the group's $1.4 billion specialty A/V division, added Toshiba to its vendor ranks and expanded its programs with Panasonic, Pioneer, Samsung and Sony.
Each of the vendors is making its products available to HES members through the group's Expert Warehouse distribution program, which allows smaller accounts to participate in vendor-direct programs with otherwise prohibitively high order requirements.
Also new through Expert Warehouse is a hybrid program with Samsung that provides qualified dealers with the advantages of a direct-sell relationship — including volume rebates, merchandising support, longer price protection and a better display program — albeit with a smaller commitment to buy.
In addition, manufacturers supplying Brand Source's newly relaunched 12-volt division, Mobile Entertainment Source, joined the warehouse program last month.
The Home Theater Specialists of America (HTSA) buying group is developing a new set of technology, staffing and marketing standards that all group members will eventually be required to meet.
The standards, developed with The Luxury Institute, a research group focused on the high-net-worth individuals market, will help the group create a more uniform approach to help it reach the much-desired luxury customer, explained executive director Richard Glikes.
Glikes said these standards will be refined and published, and said he expects members will have to adhere to the resulting standards by approximately the fourth quarter of this year or the beginning of next year in order to remain in good standing with the organization.
HTSA's super-premium focus is part of an approach for long-term survival in an industry where many traditional retailers are taking a hit. Glikes recently told TWICE that the group's first quarter was "challenging," and that in general its numbers were "off about 5 percent." Similarly, the group's final accounting for 2007 left it "down a little," he said.
Glikes attributed the current challenges to "consumer confidence with retail," which he expects will eventually "tick up again." He added that the silver lining in the cloudy economy is that: "It is a time to take share."
While HTSA's business overall may be down slightly, its custom installers' businesses are not. Glikes told TWICE that approximately 20 of its 63 members are install-only operations rather than traditional retailers. Looking ahead, Glikes said, "We'll add more installers than retailers over time. You can do a lot of business without a storefront. The business has changed."
During the group's 11th annual spring meeting last month in California, Glikes laid out his game plan for HTSA for the balance of the year. It includes:
focusing members' businesses on group vendors by setting and enforcing performance standards to measure member support;
utilizing HTSA-supported sales training to improve the sell-through of products and services by increasing the selling skills of members' retail and custom sales staff; and
increasing the financial strength and acumen of the membership [in an effort to attain] more profitable and well-run businesses.
NATM Buying Corp.
Despite a tough first quarter compounded by a weak white goods market, NATM Buying Corp. has been able to maintain and even increase its market share in certain categories, reported Bill Trawick, the group's executive director/president, thanks in part to a still robust flat-panel TV business.
The $3.8 billion group's sales mix is currently 45 percent CE and 30 percent major appliances, while its catchall "other" category is a growth area consisting of various items like home office, furniture, lawn care and barbeques that some, but not all, NATM members carry.
"It's been a tough first quarter," Trawick recently told TWICE, with majaps still representing the toughest side of the business. "Most of our members are running negative sales numbers in appliances. As a group we are doing better than the industry, so we are holding our share or gaining our share as a group."
Nevertheless, white-goods sales have been haphazard, where "one month cooking products will be good, but another category will be down. There is softness across the board," he said. Yet NATM dealers are competing in the marketplace by driving foot traffic with right-priced products and, when necessary, aggressive promotions.
In consumer electronics, flat-panel TV continues to be the star category, with sales remaining "very, very strong" Trawick said, particluarly in 40-inch and larger displays. The group's "rock solid" performance in flat panel has helped it offset weakness in other CE areas, some of which exceed that of appliances.
Despite aggressive promotions from the national chains and warehouse clubs, Trawick maintains that NATM members are gaining share in flat panel, and "doing a better job than the industry. We are holding our own out there."
Looking ahead, Trawick anticipates an up-tick in the second half as the president's stimulus package infuses the economy and members continue to expand into new locations.
Nationwide Marketing Group
In the face of a weak housing marketing and soft economy, the Nationwide Marketing Group is stepping up its marketing and promotional activities, and is focusing on higher-margin products like high-efficiency laundry and 120Hz LCD TVs.
The $11 billion majap, CE and home-furnishings buying organization hopes the actions will extend the group's four consecutive years of market-share gains in majaps, and its double-digit growth in flat-panel TV in 2007, Nationwide executives recently told TWICE.
Specifically, the 3,000-member group's white-goods sales grew between 1.5 percent and 2 percent in unit volume last year compared with an industrywide decline of 5.6 percent, while sales of flat-panel TVs and related accessories were up more than 10 percent in units.
To help build profits, the group has set the goal of expanding its high-efficiency laundry businesses to 47 percent of total unit laundry sales, up from the current 38 percent, according to appliance marketing VP Adam Thomas, and is providing aggressive pricing and up-selling strategies in CE.
To help spread the word, Nationwide is providing members with new high-definition TV spots and redesigned promotional tabs produced at the group's media facility in Atlanta, along with in-store kiosk content and aggressive promotions including mail-in rebates, free delivery, installation and HDMI cable offers, and longer interest-free financing options.
Meanwhile, Specialty Electronics Nationwide (SEN), the group's specialty A/V division, is growing by about 100 members a year and now stands at 460 dealers, according to executive director Jeannette Howe. Her members "will be fine" in the down economy, she recently told TWICE, as they generally tend to a well-heeled clientele for whom they provide profitable retrofits and TV calibrations.
Also new in Nationwide's arsenal is its first line of direct-sourced home theater furniture from China. The Savannah Point Collection features modular wood and wood-veneer consoles and hutches, and rear panels for mounting plasma and LCD TVs.
To help address the more challenging retail environment, the Progressive Retailers Organization (PRO) Group is expanding its supply-chain initiative, dealer-training efforts and best-practices programs.
Specifically, the group will expand its virtual distribution model, initiated last year with Panasonic, in which it forecasts and orders as a single entity. Executive director Dave Workman described the supply-chain initiative as "an unqualified success," and said PRO may eventually expand the program to all large vendor partners.
On the vendor-training front, Bose has initiated a pilot program with PRO dealers, beginning with Sixth Avenue Electronics on the East Coast and Ken Crane's on the West Coast.
PRO will also continue to execute targeted marketing efforts under a customer-acquisition program with Sony and Claritas.
Despite the restructuring of Tweeter Opco, its largest member, and the bankruptcy of Harvey Electronics, the $2 billion, 17-dealer buying organization enjoyed an increase in net sales of 10 percent last year and a same-store sales gain of 6 percent. (Harvey has since left the group.)
PRO members will convene this week at the group's annual meeting in Scottsdale, Ariz., to compare notes and plan out the balance of the year. — Reported by Colleen Bohen, Steve Smith and Alan Wolf