Orlando, Fla. - Dave Workman, executive director/COO of the Progressive Retailers Organization (PRO Group), now part of BrandSource's ProSource with Home Entertainment Source, is attending the parent group's Summit here this week and discussed with TWICE the changing nature of the upscale CE market in 2011.
With all the changes in the marketplace, when asked how the industry will evolve in the next several years, Workman said, "The traditional model of stocking levels have to be reviewed along with logistics. New categories are not going to have 40 points. They will have 15 points [in some cases], and we have to provide dealers with business models so they can be profitable."
The industry veteran said that HDTV "and other legacy categories will provide much lower margins. We have to have more â€˜just in time' and quick replenishment logistics."
The usual choices when it comes to retailer relationships with suppliers in CE has always been direct or distributed, but PRO, under the ProSource umbrella, "is working on hybrid model with Sony, a mix of direct and logistics," which is in beta testing now and will begin April 1.
"We think that model will win the day," as retailers have to deal with both tablet PCs and "lower-margin legacy categories," Workman noted.
"Inventory used to be an asset for traditional retailers -- now it is a liability," he explained.
The hybrid model would enable upscale CE independents to work closely with suppliers to make sure that when there are supply problems on upscale goods, they don't go automatically to big-box retailers, Workman said.
"That is crushing for our type of retailers. We need to develop systems to partner with [suppliers] on such issues directly."
When asked if the other part of the big-box business model -- the big box -- is outmoded, Workman said, "It is a liability ... but it is a moving target. Best Buy is looking to narrow SKUs. How many $69 DVD players do you display? The bigger issue is inventory. The big box used to be about selection. Now the Internet is selection. Brick-and-mortar should be where you go to find experience. Big box has to change to focus on experience [rather] than create a big box to show everything."
He said, "The shift that is going to take place may not be a 3,000-square-foot store, but you won't need a 48,000-square-foot store. How about 20,000 square feet?"
As for the everyday low pricing message, Workman said, "The problem is that becomes the central message. The problem is, can the entire operation do that? If you can't, consumers won't buy. And how frequently will consumers come to your store? How many unique, new shoppers will come to your store?"
Another problem he sees in the current CE marketplace is that manufacturers has long operated as if "one size fits all," and that model is now outmoded.
The reaction suppliers have had to the creation of ProSource shows that manufacturers "want more diversity and more channels to deal with. The overall reaction to ProSource has been very, very good. They want this channel to survive and thrive."
While the specialty channel has "plenty of challenges in front of it," Workman noted that "segments of the market are coming back to us. The luxury segment is filling up in orders. Audio has helped our type of dealer."
So far the first half "is definitely better" than last year, even with all the challenges of bad weather in 2011," Workman said.
He said that by later in the year, "all of our guys will be in tablet PCs," new business models will be developed, and "for us, we are telling our members to go after headphones, headphones, headphones. It is a fashion item and no longer just a low-end category. Our members have to put in listening stations and treat it like a high-end category."
And with all the changes in the CE industry, specialty retailers must "fully embrace it as an asset not a liability. Then we can do great things."