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HES Sees Opportunities In Changing Market

Orlando, Fla. — There are opportunities in a changing CE marketplace and retailers should focus on them.

That was the main message Jim Ristow, executive VP of Home Entertainment Source (HES), told his members at the opening membership meeting yesterday morning at the buying group’s 2013 Summit, held at the Orlando World Center Resort, here.

Ristow opened the meeting by saying that “legacy” categories in audio and video are challenged, but as the new year begins, there are “a lot of opportunities.”

He said that while HES members can and should “dominate in those legacy categories … we must offer more and wider product selections. We need to go higher and lower in price points” for profits because there are “huge tidal waves of opportunity … but we have to think a little differently than the past.”

Ristow set the table on what the CE industry is facing, citing NPD data reported by TWICE that showed CE holiday sales were down 7 percent, that there were “challenges in core categories,” and that even Amazon reported lower profits in the fourth quarter.

He also cited a USA Today report about retail store closings, saying that Best Buy, Sears and RadioShack are chains that are among the top 10 in expected store closings for 2013.

Regarding the travails of Best Buy, Ristow said: “An unhealthy Best Buy will hurt us in the long term, but in the short term it will have a good effect.”

The increase in the stock market, the upsurge in sales of luxury products, and increases in new housing and home remodeling — which are “great for our business” — illustrate that HES-type customers have increased confidence in the economy and are now willing to spend, he said. With more businesses hiring more employees, economic conditions are “improving.”

This puts HES, which is a division of the BrandSource buying group and part of ProSource, in a great position, Ristow said.

“ProSource has merged 500 integrators with PRO Group’s 15 to 17 members, the largest specialty chains [in the U.S.], so we are … the best alternative to the big-box stores.”

He reported that in 2012 HES had double-digit growth in audio, control and automation, larger-panel TVs, lighting and commercial business.

In TV, “the CES buzz was all about Ultra TV, smart TVs and OLED. The issues facing us will be how much will be shipped this year, when, and how [big] a part of our mix will it be for our business this year.”

Ristow remarked that this trend is a “huge benefit” for HES because “we do better in 65- to 90-inch TVs where we are making money, and that trend will expand this year.”

A key to this trend was the unilateral pricing policies (UPP) put in effect by Samsung and Sony last year, and which have been joined by LG Electronics, Sharp and Toshiba for parts of their lines, Ristow said. “These are ways we can stabilize and make money,” he noted.

In the second part of the presentation that was closed to vendors and the media, Toshiba’s product marketing and development VP Scott Ramirez outlined its 2013 product plans. Ramirez told TWICE that the UPP program will go into effect for ultra-slim LED TVs in March, while the 4K TV UPP program goes in place in June when shipments begin. The regular LED TV line remains on a MAP program, Ramirez said.

There are also opportunities in wireless, new audio products, connectivity, automation, lighting and headphones, where members can “expand and change their client base. We will be able to provide solutions, for better- and best-of-class products, to install and connect products and systems,” Ristow said.

As members of ProSource, HES members are now “very important to key categories. When it comes to connectivity, we are the place to go. Box stores are selling more TVs, but we are selling the bigger screens for better margins which are … [more] profitable for vendors.”

In audio and control products, Ristow claimed HES “dominates … In major audio brands we control 15 to 25 percent of vendors’ business, second to Best Buy.”

He added, “We are the best to provide solutions,” saying that when there is consumer confusion “it is good for our business.” HES has been able to sell higher-priced products by demonstrating the items and installing them. “We have the whole package.”

Ristow also turned back the clock to 1987, showing how in categories like audio there were receiver companies and speaker companies and everything was in “neat, little boxes,” but with digital products there is a “whole new audio business.”

That includes “affordable, high-quality solutions that are thin, the style is sexy, and that consumers are willing to pay for.”

While receivers were the hub of the A/V experience in the main room of the house, receivers are now “the hub of a multizone connected solution” for audio and video and will continue to evolve as “wireless and Cloud aggregation” develops in future years.

Ristow told his members that the audio business is “embracing AirPlay and Wi-Fi, wireless single-room systems, and more Sonos competitors and docks … which could provide more margins.”

Key receiver and speaker providers are “building on legacy categories” and introducing powered soundbars and sound stations, he said, citing developments by Bose, Denon, Klipsch, Marantz, Denon, Harman and others in “raising the bar” in terms of product categories and “elevating the technology.”

In powered soundbars, Ristow said there is a “beginning of the title wave” in which self-powered soundbars could go to $3,000 from a supplier like McIntosh.

Apple TV is the leader in streaming audio and video around the home, but Ristow noted that for the HES market, “Samsung is the alternative” via its use of the DLNA format, which provides interoperability, wireless sharing of content, and access to the Cloud.

Ristow said that for HES members “the moral of this story is that a tidal wave of opportunity is … about to happen. We have to expand upon what we do, dominate the legacy categories and do more. Vendors want and need you, especially with the changes in [the] retail and custom [installation] channels.”

HES Summit Notes: HES, together with PRO Group under BrandSource’s ProSource umbrella, has an estimated $3 billion in CE sales and a strong lineup of vendors.

Ristow noted that HES has “deeper programs” with many current vendor, such as Integra, Paradigm, Bose, Denon and Marantz, as well as such new vendors as the Harman luxury group, Seura TV and IC Real Time.