Savoring solid sales gains in most product sectors while girding itself for the new millennium, the NATM Buying Corporation turned out for a buoyant annual meeting — its last of the century — last month at the Turnberry Isle Resort & Club in Aventura, Fla.
Held under the theme of The Producers, which underscored the entre-preneurial and theatrical aspects of merchandising, the meeting laid the groundwork for NATM’s transition into the 21st century while reaffirming its core trade-up and full-service strategies.
Those policies appeared to pay off for members in 1998. Despite a $350 million falloff in total NATM revenue to $3.1 billion — attributable in part to the demise of Sun TV last year — the buying group enjoyed hefty double-digit growth in both dollar and unit sales in nearly all electronics/appliance categories.
Moreover, the momentum has carried over into 1999, with most of NATM’s 17 members reporting brisk across-the-board sales for the first quarter.
But despite the good cheer, NATM’s leadership acknowledged that retail price erosion, particularly within the computer and consumer electronics sectors, continued to be the bane of member merchants.
“We’re challenged in price, not volume,” explained Jerry Throgmartin, president of both H.H. Gregg and NATM. “We’re higher-end in every category but computers, and within the group there are few members who don’t carry computers at all. Most continue as aggressive participants, although not as aggressive as others.”
Added group director Warren Mann, “Revenue went up but not necessarily profitability. We continue to seem to be more upscale, and if you trade up, you have a better chance at being profitable. But the price erosion in consumer electronics” — which also impacted NATM’s 1998 sales — “is like running up the down escalator.”
This year, members are also being hampered by first-quarter shortages of DVD players and, to a lesser extent, VCRs.
Observed Bill Rowland, president/ CEO of American Appliance, “The availability of the video categories other than TV has been tough. We’ve had more supply problems in the first three months of 1999 than in the past few years.” Rowland attributed the shortages to strong December sales, the move toward just-in-time deliveries, and suppliers’ desire for leaner inventories.
Looking ahead, Throgmartin stressed that NATM will continue to change with a changing industry.
“Our goal is to continue to evolve into more of a business group than a buying group,” he told fellow retailers and attending suppliers. “NATM has survived and thrived by adapting to a changing industry, and we will continue to do that. In a fast-paced world, we have to look at the full scope of operations, including buying, merchandising and logistics, and we have to find ways to add value for consumers.”
Short term, strategic initiatives include: NATM’s first concerted entry into the lawn care category, spearheaded by Frigidaire; the addition of HDTV newcomer Konka to the supplier roster to fill an opening price point void; and a stepped-up role for Onkyo, which wants a “more comprehensive relationship with NATM,” according to Mann.
On the product front, DVD, as evidenced by the strain on supplies, topped most attendees’ lists as product of the hour. “It’s a good business for us,” noted Mann. “We can keep it profitable if we sell the whole bundle, and it’s got some time before it becomes a $79 CD.”
Throgmartin also sang the praises of DVD, describing the category as “super hot” and lauding its “great profit and greater volume.”
“The acceptance of DVD has been tremendous,” agreed Bob Borchardt, president of Recoton. “The buzz about digital TV and digital products in general is creating excitement in consumer electronics. Consumers may not actually be buying them just yet, but they have brought many customers into stores.”
On the issue of shortages, R.C. Willey VP Steve Child observed that “nobody knew how quickly DVD would grow, and in hindsight the manufacturers were too conservative.”
Child noted that while R.C. Willey also carries Divx in order to “give people a choice,” the system has been selling poorly because the new technology is confusing for consumers whose VCRs “are still flashing 12:00.”
DVD sales have also been “very strong” for Darrell Chabino, president/CEO of Sight ‘N Sound Appliance Centers, who also cited a heightened demand for projection TVs. “All things considered, this looks like a good year,” he said.
Indeed, based on first-quarter results, NATM members were optimistic that the century would end on an up note. “The first three months have been very good, and we’re planning on the rest of the year to be strong,” said Eddie Maloney, president of Cowboy Maloney’s Electric City.
Leading the sales charge, said Maloney, are DSS and DirecTv (“fantastic, a tremendous growth area”); projection TVs (“outstanding”); and virtually “everything associated with home entertainment.”
For American, first-quarter business has been “very good” with “solid performances in all categories,” reported senior VP Dave Shepard, who was especially high on DTV.
He anticipates DTV will be a “substantial category” once local stations begin broadcasting digital signals within his Madison, Wis., market late this summer. “There’s lots of consumer interest,” said Shepard. “The resistance hasn’t been so much to price as to the lack of programming. But when it becomes available, things will be very interesting.”
Things are already interesting for Abt Electronics, whose business is up somewhere between 15% to 20% year-to-date thanks to a broadened product mix.
According to president Mike Abt, the store’s core appliance business is being buoyed by car audio, a new electronics-focused expansion, and the addition last January of order-taking on its 3 1/2-year-old web site. By year’s end, he said, “I hope we’re up 15% or so.”
Similarly, Vann’s, which is approaching its fiscal fourth quarter, enjoyed a “decent year,” said president George Manlove. “We’re conservative by nature, and we had moderate sales growth by design. But due to a change in product mix” — from home office products to mid- and upscale consumer electronics and custom home theater — “we can secure a positive influence on gross margins.”
1999 has also been a “good year so far” for BrandsMart U.S.A., reported president Michael Perlman. “DVD has been enormous for everyone, DSS has sold very well, and we have had phenomenal reactions to HDTV.”
Milton Rosenberg, president of Bernie’s, is already ahead of plan and “optimistic” about the balance of the year, based on his success at selling higher priced TVs, including DTV, HDTV and the Sony Wega, which has “done very well for us.”
But despite NATM’s apparent focus on consumer electronics, and its approximate 60-40 split between CE and appliances in dollar volume, group director Mann reminded guests that “we are still appliance guys in the consumer electronics business.” — Additional reporting by Steve Smith