Perry: Panasonic Will Tighten Distribution

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Keeping step with the “reordering of the universe taking place” in the consumer television industry, Panasonic Consumer Electronics North America executive VP Bob Perry revealed plans for a realignment of the company's distribution practices, which in coming months will see it drop price-focused retail accounts while picking up others that are willing and able to implement Panasonic's stricter marketing policies and programs.

Perry said Panasonic is shifting from its relatively “uncontrolled” distribution practices of the past to one that “ensures that those dealers who have invested in our products on their retail floors receive a reasonable return on their investments.”

Perry said, “There are some dealers we do business with today that we probably should not do business with. The way that we control the distribution of products into the marketplace needs to change, and we are going to tighten that up. The way that we segment our product lines into the distribution channels — whether it is TV or digital still cameras — will change.”

Perry said the changes will begin to take place in the next three or four months and, in the end, he expects Panasonic will actually have more dealer accounts than it does now. He said the company will likely pick up some of those A/V specialty dealers that had handled Pioneer's Kuro TV lines in the past, and will be implementing a minimum advertised pricing policy (MAP) tied to advertising support, while executing sales and demonstration guidelines to ensure its products are properly presented.

“We really believe that one of the fundamental gaps in the consumer electronics industry is that things that consumers want are truly available, yet they get dissatisfied because they don't know it's available, they don't know how to use it, and they don't know enough about it to make the kinds of informed decisions we want them to make,” Perry said. “We know there are times that consumers have bought Panasonic products and probably shouldn't, because they wanted something else, and we want a happy consumer.”

Due to the pressures of the economy, Perry said that if low-overhead, line-listing e-commerce retailers and other price-focused accounts are allowed to continue undercutting retailers that go through the time and expense of properly educating consumers on Panasonic's many unique features and technologies, the dealers doing the heavy lifting will eventually lose the sales and be forced out business.

“If we sell the top 10 Internet sites and then we add 50 more, our sales volume does not go up,” Perry said. “The 50 more are not accretive to our business. Once you sell to the top 10, you've already reached all the consumers you need to reach for education. Now, we'll sell more than the top 10 Internet sites, but we'll only sell the sites that present our products properly for consumer education. That's going to be a change. We are going to stop the line listing of Panasonic products on the Internet for people who deliver no value whatsoever.”

Panasonic has also been working closely with brick-and-mortar accounts to “dramatically improve the in-store experience,” he said. “We want to make sure for our VieraCast products that there's a live Internet connection, and we want to make sure that the signage around our products clearly communicates the benefits to the consumer. It's not about how many jacks it has, or how many bits it has. We need to communicate the benefits to the customer without losing them in gobbledygook.”

Perry said Panasonic is not looking to harm any dealers, only to reward those doing all of the work.

Through the changes, Panasonic hopes to maintain its leadership position in the television market.

The television industry is “becoming more concentrated and coalescing” into fewer brands and fewer successful companies, Perry said.

The industry today is under tremendous pressure as the “three big players — [Panasonic], Samsung and Sony,” are now offering models priced only a little higher than “tier-1.5,” tier-two and tier-three brands.”

With such a small step up in price, more and more consumers are opting to go with the biggest brand names, he said.

In the end, the most successful companies will be those that are vertically integrated, with the strongest core competencies and control of their own panel manufacturing, he added.

Regarding Panasonic's recent financial statements calling for about a $4 billion loss for the year, Perry said that “those are non-cash losses. Operationally, we are actually profitable. We are one of the few CE companies that are operationally profitable, although at the end of the day, in our financial results, net revenues, and income statements, we are going to report a loss.”

As for the industry outlook, Perry said: “the first half of 2009 is going to be difficult. There are signs that we are already hitting the bottom in certain areas. The economy is probably going to bottom out around May or June.”

During the economic downturn, the majority of TV purchasers “may buy slightly lesser-featured goods, but actually the total number of TVs sold should remain flat at around 28 million sets a year.” In other product categories, like digital still cameras and audio, the businesses are “trending down slightly,” he said.

As the economy bottoms out, business will settle for awhile, Perry predicted, followed by “very slow and measured growth” over the next few years.

“We think it is going to take a while to climb out of this. The amount of value that has been lost in the overall economy as a result of this real estate realignment is tremendous,” Perry said. “It's going to take a few more years, but we expect to see slow and gradual improvement, and a number of companies will announce realignments as a result.”

Perry pointed out that most companies, including Panasonic, have already announced corporate realignments to adjust to the changes, and more are likely to do so as Japanese and Korean companies end their fiscal years on March 31.

“Now is the period in which we reorganize, to be prepared as we enter the next fiscal period on April 1 … and Panasonic is no exception,” he said.

Perry acknowledged that in its realignment, Panasonic's North America's CE operation was forced to impose “a triple-digit reduction” in employee head count because “it has an obligation to its stock holders and society.”

The large scope of the reorganization, he said, was necessary because Panasonic had not routinely transformed its business in the past.

The restructuring “eliminated some layers” of the sales team so that communication between dealers and Panasonic's executive level would be faster. “It increases our closeness to the marketplace and our responsiveness,” Perry said.

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