NATM Buying Corp. is looking to offset diminishing TV margins by directsourcing a wide range of supplementary products.
Fearing that continuing price wars by tier-one TV makers could lead to category commoditization, the brown- and white-goods buying group is stepping up efforts to bring in a host of ancillary goods from China. Categories under consideration include housewares; TV furniture; seasonal items like fans, heaters and outdoor grills; and CE accessories including surge protectors and remote controls.
To that end, a delegation of six NATM dealers and group officials was scheduled to leave for China last week to develop group programs. The imports would help wean members from an over-dependence on TV while lowering acquisition costs, NATM executives said.
At least seven of NATM’s 12 dealers are already doing business directly with Chinese factories.
NATM president and executive director Bill Trawick, speaking at the group’s annual meeting last month at the Gaylord Texan Resort & Convention Center here, expressed grave concerns for the health and well-being of the TV business. “TV manufacturers are no longer driven by brand or features or technology, but by price,” he said. “When one company makes a price move it chases all of them down, because if they don’t follow suit they lose business.”
Trawick partly attributed the price compression to reactions by national chains to slowing consumer demand. “The public companies are trying to get their volume up by discounting, but if the consumer is not driven to buy, low prices won’t make a difference,” he said.
Trawick’s comments followed what he described as a series of “significant” price moves last month by Samsung, Sharp, Sony and LG that are a likely precursor to additional price drops before the holidays. “The [price] delta between tier-one and tier-three brands is collapsing,” he said.
He warned that the group would limit its exposure to TV should the category become commoditized , in which case NATM would wait for the next generation of video technology before re-entering the business.
Despite the margin crunch, unit volume has remained robust for the buying group. Total TV sales are up 13 percent through the first six months of NATM’s CE fiscal year, which runs April through March, with LCD up 148 percent and plasma up 23 percent. Microdisplay, a waning group category, is ahead a “surprising” 17 percent.
“We’re getting hit on margins so we have to sell 30 percent more,” Trawick opined.
The story was somewhat different in major appliances, a category that’s still reeling from the housing market meltdown. NATM’s unit sales were down 4 percent year-to-date through September, but only off 1 percent in dollars thanks to effective up-sell and a margin-rich mix. “The numbers aren’t bad,” Trawick said, given NATM’s significant builder channel business and the presence of three members in the hardest-hit markets of Detroit (ABC Warehouse), South Florida (BrandsMart USA) and Las Vegas (R.C. Willey).
NATM’s numbers look even better compared to a 7 percent dip in Best Buy’s majap business and industry-wide declines of 6 percent for the year, he said.
Trawick believes the group’s white good business may have finally bottomed out following double-digit declines in July and August. “Each month is getting a little better and half the dealers will show gains for September,” he said.
Going forward, the emphasis for the $3.8 billion group will be on sharing best practices, finding ways to reduce members’ high cost structures, and consolidating purchasing by supporting the same brands. While NATM maintains volume commitments with core TV vendors Samsung, Sharp and Toshiba, members are free to spend half their open-to-buy dollars with other suppliers, Trawick explained. Those monies are dispersed among such manufacturers as Hitachi, JVC, LG, Mitsubishi and Sony, many of which do more business with NATM than the core vendors.
Trawick added that soft consumer demand has inadvertently helped NATM by creating opportunistic buys in majaps and 1080p TV as national chains renege on their commitments. “There have been lots of cancellations and we’ve gotten some good deals. There’ve been more deals out there in the last six months than I’ve seen in years.”
That will lead to some “very, very aggressive pricing” on Black Friday, when tier-one 720p plasma TVs will hit $799 and third-tier models will sell for $599, he predicted.
The situation will be somewhat different in LCD, as supplies of 32-inch and larger panels dry up. “We foresee some serious problems in Q4,” Trawick noted.