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Specialty Retailers Buoyant, But Threats Loom

Most specialty A/V retailers are having the time of their lives, thanks to a vibrant economy, strong new home sales, accelerating custom-installation demand, and vigorous sales of home theater products, including a standout performance by big-screen TVs.

But specialists’ profitability could come under assault as product differentiation continues to dwindle, online sales grow, and consumers turn in growing numbers to the Internet to educate themselves about their purchasing decisions, said consultants and PARA members during the association’s 20th annual conference in Marco Island, Fla. All urged specialists to confront these challenges and embrace new business strategies rather than be lulled by a business climate that improved markedly over last year.

“There is more custom business than you can go after,” PARA president Roberta Lewis told TWICE during the event. And home theater is “very strong.” Said Sonance sales director Kent Sheldon, “I don’t ever remember such uniform prosperity.”

“The business climate is getting better,” agreed Joe Cavanaugh, owner of Omaha’s Stereo West.

Most of the specialty momentum is concentrated in custom install, and more specialty dealers are pursuing the custom business more aggressively, in part by scaling back their selection of products on the retail sales floor.

The custom market is so strong that some dealers said they can’t handle any more business. “In custom, we’re at capacity now and can’t get enough employees,” said Jeff Hoover, owner of Audio Advisors in West Palm Beach, Fla.

An educated population is helping drive up the quality and quantity of custom installs, said Stereo West’s Cavanaugh. It’s happening, he said, because “consumers have been educated in quality custom installation, and we educated some builders,” he said. Builders “who previously went the cheap route now want to do it right.”

Even though the economy is at its “strongest perhaps in history,” PARA chairman Jon Myer warned that e-commerce and the Internet threaten to “reduce store traffic and profits,” in part because the competition “is no longer miles from your store.”

But dealers can take advantage of the net’s potential, Myer said, calling the Internet the “ultimate one-to-one marketing tool” that lets dealers personalize messages rather than mail four non-custom newsletters in bulk per year. With the Internet, dealers can adopt “less of a shotgun marketing approach to announce new products,” he said, and they can use the web to “trigger retail sales” in brick-and-mortar stores.

For specialists, said Lewis, the Internet is at a minimum “an avenue for education, [and] educated consumers always buy the best.” With the Internet, “the playing field will expand, but we [specialists] will have a larger portion of it” if it’s used to increase awareness of themselves as an alternative to box merchants.

In a white paper released at the event, PARA also urged the industry to experiment with e-retailing. PARA’s board examined e-retailing for four months and came to four conclusions:

• E-retailing has come to stay and is a force to be reckoned with.
• It is too early to be sure which models will be successful and which will fail.
• Those companies that respond proactively have the opportunity to be among the trailblazers and market leaders in the new economy, while those that hesitate too long are almost sure to be left behind.
• And this is the time to innovate and test new models to determine the most viable approach for specialty retailers and manufacturers.

Ted Fujimoto, president of Landmark Consulting, likewise urged dealers during a presentation “to act so you can start learning.” He foresees “a restructuring of distribution and sales channels” due to Internet marketing and online sales. In 1998, Fujimoto noted, $11 billion in online sales were transacted, another $15.5 billion in sales resulted from online orders that were paid for offline, and $50.8 billion in offline orders were influenced by the net. Those figures will grow, he said, in part because 50% of all Internet access in two years will be from non-PC-based devices.

The Internet will also play a role in changing the job description of retail salespeople, as will growing product commoditization, consultant Neil Rackham told attendees.

“Value before lay in the product,” he said, and it was the salesperson’s job to communicate a product’s benefits. “That was OK when products were unique, but they’ve become increasingly substitutable.” With markets commoditizing, substitutability increasing, and buyers becoming more sophisticated, in part because they’re using the Internet as an information resource, then “if the value doesn’t lie in products and services, the value has to lie in the way you sell them.”

As a result, said Rackham, salespeople must turn “from value communicators to value creators.” Nonetheless, he warned, down the road, “new generations of information systems can become value creators and will have better diagnostics ” so people will better determine their needs.

Because of changing consumer attitudes, Rackham advised specialty dealers not to spend time targeting “transactional” customers: “A fallacy in selling [is] that you can convert a transactional customer into a consultative customer. That might have been true at one time…but the evidence is that both types have moved further apart.”

“This person,” he explained, “understands the product, sees products as substitutable, focuses on cost, and resents time associated with salespeople.” Further, the transactional customer “is a growing number.”

“You have got to decide to conduct business transactionally or focus on the consultative market. You can’t be one-size-fits-all anymore,” Rackham said, noting that “most sales forces are too expensive for the Internet-driven transactional world and underskilled for the consultative sale.”

Consultant Don Peppers urged dealers to add one-on-one marketing strategies to complement the consultative selling approach. “As you learn more about the customer, he doesn’t want to re-teach a competitor about his needs,” he explained. Such one-to-one marketing “predisposes customers to remain loyal.” ‘

Peppers cited as a one-to-one marketer. “The more you buy from Amazon, the easier it gets,” he explained, pointing to one-click ordering that makes it unnecessary to type in an address and credit-card number. He also noted book recommendations based on a customer’s previous purchases.

As another example, Peppers cited a dry cleaning store that stores extra buttons and material. The key principal here is that “even if your competitor offers the same one-to-one services, your customer remains loyal to you” because it becomes “too much trouble to start again with the competitor.”