PRO Calls For Cooperation With Vendors

By Steve Smith On May 21 2012 - 4:01am




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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