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Channel Management Can Limit Retail And Vendor Casualties: Dealer

TWICE: We’ve talked about a shakeout of retailers. What happens to the vendors that supply them?

Richard Glikes, HTSA: I think you’re going to see some vendor casualties this year as well as retailer casualties. You’ve seen a shift. I don’t think we need to go into brand names, but you’ve seen some change. I think you’ll see some shakeout in the vendor community as well as in our channels.

Tom Galanis, Sixth Avenue Electronics: The first casualties are going to be car stereo. That’s where you’ll see people pull out or go under. Major manufacturers are going to pull out of the car stereo business.

Steve Caldero, Ken Crane’s: The vendors are probably as concerned about the future as we are. With Circuit’s bankruptcy, what’s going to happen? Do they want to get down to having two accounts, Best Buy and Wal-Mart? Probably not. That’s probably not real good for them.

We’ve got to make this a meaningful partnership, which it hasn’t been lately. Vendors have been chasing the NPD goal — how many boxes can I move and how much market share can I have, no matter how I have to get there? I think they have to take a step back and ask themselves who they’re going to partner with, and which channel can actually sell the products that they make money on as a manufacturer. Yes, they’ve got to compete with everybody and have the low-price line they can sell to Wal-Mart and Best-Buy, but …

Rick Souder, Crutchfield: It goes back to something Steve brought up — we’re seeing that the rules of the game have changed in many ways. You can debate whether it’s a short-term blip or a long-term change, but clearly it’s a change.

It’s going to be very important for the manufacturers to declare who they’re going to support, where they’re going to place their effort, and then for retailers to do the same. With all the capacity out there, no one can sell all the things that are available. Retailers will have to become more important to a smaller group of suppliers, which may accelerate some of the weeding out.

Equally important is how the suppliers will balance the different channels. I would have hoped that with the rising tide there’d have been more discipline there, but there was probably less. Now there’s a huge need for that. What is the product mix going to be? If we commoditize everything, how will the manufacturer sell more step-up product and help the retailers sell more step-up product? What will be the future differentiations for the customer? That’s not clear to me right now.

Dave Workman, PRO Group: The problem with manufacturing is that during the boom times, they haven’t shown a tremendous amount of restraint chasing share downstream. I’m not really sure how many channels are available to them unless someone like Home Depot decides to get into the electronics business.

They have pushed better and better product down the channel. Those numbers are nice for one year, and then you have to anniversary them. But in this environment it’s really not an option for the vendor community to try to sign up a bunch of new people. There just aren’t a lot of new people to sign up.

Souder: Who can also pay their bills.

Workman: Yes. Again, I think retailers will get more focused, and vendors will have to get more focused. Those that do will come out of this and survive. Those that try to treat this thing as business as usual will have a rough road ahead. There are too many vendors and retailers. It’s the typical situation when you have a boom period. All bubbles bust. This industry has grown nicely and has let a lot of people come in because it was easy money, selling consumer electronics. Now retailers in general are going to have focus.

Glikes: That’s the theme for 2009, focus.

Workman: That’s what you’re going to hear from retailers across the board. The retailers understand that, and the manufacturers then have an obligation to do a better job of channel management. We understand that they have to sell different channels, but a more disciplined channel management has to come in. You can’t zero-sum this. It isn’t just Noah and Wal-Mart at this table. They need a variety of channels. To do so, they have to help create additional differentiation in the marketplace, and more channel management strategy. Those that get that together, I think will do fine.

Glikes: We have a problem because there’s not enough volume in specialty goods. Magnolia’s lack of success will cause specialty products to disappear. We’ll have less differentiated product, and we’ll all be selling exactly the same SKUs. Then you’ll simply get into this morass of the lowest price denominator, which Noah will win.

TWICE: Isn’t that one of drivers behind PRO Group’s alliance with Home Entertainment Source, to present a critical mass of specialists to manufacturers?

Workman: One of the objectives of the alliance is to make sure we have a $4 billion voice with the manufacturing community. With Circuit City’s predicament, the manufacturers need to hear solutions. At some point there has to be enough volume attached to that solution for it to make sense for them.

In that regard, it’s not just about the alliance — it’s really about the specialty channel in general. We can act as the point of the spear with the vendor community to present them legitimate strategies and viable growth opportunities.

We’ve always been an industry that brings technology to the specialty channel and filters it to mass market. God help us if we get the inverse of that, where all a sudden everything is coming out in the mass channel and then we have to figure out where the crumbs are.

To some extent that’s probably in place already. But we have to continue to raise our voices and remind the industry that it has done well with the trickle-down of technology, rather than bringing it out as a commodity and then trying to figure out what kind of gingerbread features you can add to make some other guy happy.