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Distributor Viewpoint: The State Of The CE Industry

Distributors in the consumer electronics industry are in a unique position: Due to their relationships with both retailers and manufacturers, they are tuned into both sides and in turn can offer valuable insight and perspective on industry-related issues. TWICE tapped into this well of knowledge by discussing some of the day’s most-pressing CE topics with a host of leading distributor executives. Their feedback follows.

TWICE: How much do you expect the nation’s macroeconomic troubles to impact your business? How will you navigate the challenges this situation is likely to present down the line?

Bob Gartland, president, AVAD: The current slowdown in the home building and general economy is certainly being felt by our dealers, so we’re feeling a bit too. We have a diverse customer base so we will not be as affected as some. But we are definitely not having as much fun this year as in years past. We will be featuring some training courses on how to attack the retrofit market this spring so our dealers will know what products and solutions are best suited for that environment.

Curt Hayes, president/chief financial officer, Capitol Sales: We continuously add new products and in the last 24 to 36 months, one of the changes we’ve made is to broaden our product categories so they now include commercial video and audio. We have also added several manufacturers including Panasonic Professional Displays, AKG microphones and Furman Pro power conditioning. This also gives our dealers a whole new category of products and business to develop.

Our success is, of course, tied to our dealers’ success so there are several things we’re doing to provide support to them. Our salespeople are working hard with each of our dealers on the huge retrofit opportunity available in the market today. We’re helping them understand how they can build their business with their existing customer base to expand sales. Since our sales people are very seasoned with experience in retail or installation prior to joining us, they have been in the business a long time and understand how to position and sell jobs in any kind of market environment. We believe this will be of great benefit to our dealers.

At Capitol Sales, we have increased our dealer education in all categories including essential business classes like finance and marketing to help our dealers continue to hone their business expertise.

Capitol Sales and BidMagic have partnered to offer the entire Capitol Sales product catalog on their professional proposal software, which is designed to work with QuickBooks, making it easier for dealers to develop bids and sell projects

With same-day shipping, our customers don’t need to stock inventory. Orders by 6 p.m. will ship today with a 98.5 percent-plus fill-rate day in and day out. This will allow dealers to order when they need product rather than having to keep a lot of inventory on-hand and tie up working capitol.

Morey Gottesman, sales and marketing director, Cardinal Electronics: With the pundits telling us that the economy is bordering on recession, it is bound to have an impact on our business. We, like all, have seen the slowdown and growth has been harder than ever to achieve. This climate makes it imperative for us to be on top of our game with our product mix and also with our staff. We’re holding more trainings than ever to keep our salespeople up to date on specific products and technologies, and we are constantly looking at products to add to our lines. Our focus going forward will be to keep on growing our mix with quality lines that are meaningful. We are not “line collectors.” At Cardinal, we feel the distributor is more important to the dealers than ever. A good distributor is able to be the dealer’s warehouse these days. This allows our customers to feel comfortable selling products, secure in the knowledge that the product will be in our warehouse when they need it delivered.

Doug Robison, president, DSI: The economic issues have not affected our business whatsoever. I don’t want to jinx our industry, but I think we are bulletproof right now. As consumers tighten up their expenditures and the price of gas stays high, the dollars will be spent on entertainment for the home. People will cut back on their travel, but will still have money to spend. Everyone wants a flat panel, and those that already have one want a second and a third one. The first two months of 2008 have been exceptional, and I believe that it will be a great year.

Katye Schmoldt, director, The EDGE Group: Our business is not unlike any other in the industry — we’ve certainly been negatively impacted by the economic problems. This is coming from several different areas. The decrease in housing starts and unsold new home inventory means less work for dealers specializing in infrastructure. Many dealers specializing in new construction have downsized their businesses (this is old news now). Decreased home valuations and tight credit mean consumers have less places to tap for funds to finance larger purchases. Adjustable rate mortgages have been and are continuing to adjust upward for many consumers, further decreasing disposable income. Rumors that gas prices may reach $4/gallon this summer adds even more to consumer confidence erosion.

The areas we must focus on to weather this period are cost control, educating our dealers on how to sell more goods and services to each customer, offering the best customer service to our dealers, and targeting new markets.

Tom Roper, CE merchandising VP, SED International: The current economic and housing start issues are affecting sales in our custom install business but our rental-channel business is booming. The independent retail stores are also seeing an uplift in sales with pricing breaks from tier-one brands like JVC, Samsung and Mitsubishi. SED is helping our customers navigate through these times in a number of ways, such as: offering special flooring terms which give the dealer more time to sell and by offering sell-through strategies to our customers. The dealer should lean on their consumer financing program to help drive traffic as well, since the prime rate continues to drop.

TWICE: What are your thoughts on Toshiba’s decision to drop HD DVD? What effects will it have on your business?

Gartland: We did well with HD DVD but the format war kept most dealers on the sidelines. Now that Blu-ray is the format high definition will be delivered on, I expect HD players to be specified in every system. I have concern that spotty availability may artificially inhibit the growth of the format. Our dealers and their end users are performance oriented, and they want this technology and lots of it.

Hayes: It is unfortunate, but we understand Toshiba’s decision. We have always offered both Blu-ray and HD DVD technology, so the challenge for the entire industry now is to keep up with the increased demand for Blu-ray in all channels and maintain product margins.

Gottesman: I think Toshiba’s decision to drop HD DVD is a major benefit for the industry, and was too long in coming. It is universally accepted that the “format war” succeeded in confusing both end users and dealers alike. For us as a distributor, it forced us to hold off on bringing inventory into the warehouse for fear that we’d be stuck with whichever format was the loser. As a result of all this confusion, neither format did well at retail. Now that there is a clear winner, Blu-ray should start to take off. We can concentrate on putting all our efforts into promoting a single format now and not have to worry about explaining the differences. The challenge will be to convince consumers that there is a benefit to 1080p “Full HD” and to help our dealers get that message out any way we can.

Richard Lee, purchasing director, DBL Distributing: DBL is very positive on Toshiba’s decision to drop HD DVD. DBL has always been a Blu-ray distributor. This decision doesn’t affect DBL from a business aspect. From an industry perspective, the decision to drop HD DVD is very consumer-centric. In the past, consumers were confused as to what technology they should adopt. Now that Blu-ray is dominant, we foresee that our customers will follow suit with this decision. Blu-ray has also become more affordable — the price has decreased significantly since its introduction in the marketplace.

Robison: We were disappointed that Toshiba dropped HD DVD as we thought it was a viable format, as is Blu-ray. We have sold both formats from the outset, and we were having success with both. Now that the standard has been determined, I feel that the consumers will be more comfortable making a buying decision. I anticipate moderate growth this year in this category.

Schmoldt: This is great news for our dealers and their customers, and it’s about time. Our business has been recently impacted by the move to a single high definition disc format; Blu-ray disc players are in very short supply. That’s a temporary situation, but it hurts business today. Now that there is no confusion about which format will win, the movie studios will step up their efforts to release more movies in high definition format. This will also help the sale of 1080p displays and audio components that can decode the many new formats of high definition digital audio contained in the discs.

For the short term, we need to ensure we have adequate supplies of Blu-ray disc players. We also must take advantage of this development to educate our dealers on how to make the most of all the benefits this new format offers customers – not just better video, but better audio as well. Since the overall market is experiencing sluggish, if any, growth, dealers must attempt to sell more products and services to every customer. High definition digital video and audio give them many of opportunities not only to sell to new customers, but to upgrade existing customers’ equipment as well.

Roper: We currently carry Blu-ray only, through Pioneer and Samsung. We expect to see a lift in sales because the studios will be pushing Blu-ray hard with their software promotions.

TWICE: How are you preparing to meet the needs of your customers as the analog broadcasting cut-off nears? Any plans to work with your dealers or manufacturing partners to help ease consumers through the transition?

Gartland: Our dealers and their clients made this transition a long time ago. We haven’t had an analog TV in our assortment for years.

Hayes: Our dealers’ end users are typically not using off air signal. However, for those customers who do, we will offer converter boxes.

Gottesman: The approach of the analog-to-digital transition has already generated piles of misinformation and customer trepidation is everywhere. It is imperative that our dealers know exactly what to tell the retail customer and it will be our responsibility to educate our dealers as best we can. Our current plan is to try to offer one brand of converter box. If there are any value-added products out there, we will also take a look at those.

Lee: Dealer education is the key to the analog-to-digital conversion. DBL was one of the first distributors to recognize the confusion behind this conversion and preempted it by launching a Dealer Education Campaign. DBL sent DTV education packages to the entire dealer network. We followed up with a page on dedicated to the analog-to-digital broadcasting — what it is, who it affects and what the retailers need to do to prepare for Feb. 20, 2009. In the February flyer, DBL also dedicated an entire page to the conversion and mailed the flyer to over 35,000 dealers in the industry. Additionally, DBL was one of the first distributors to offer the digital-to-analog converter boxes for purchase. This remains consistent with DBL’s overall view to be a one-stop-source for the dealer community.

Robison: The digital conversion deadline will draw traffic into all kinds of different stores, especially the independent retailer. Consumers in rural communities and small to midsized towns trust the independent retailer, and will come into to the store looking for answers. There is a great deal of confusion in the marketplace today, so we have to educate the dealer base, so they can educate the consumers. It only affects 12 percent of the households in the U.S. This is an opportunity to sell these consumers DirecTV. However, we are stocking the converter boxes now and we are providing dealers with information on becoming authorized to redeem the coupons. The confusion in the market can be a good thing. The store traffic that is generated over this is a selling opportunity, not just [for] DirecTV, but HD sets as well. We are working closely with our retailers to maximize the opportunity, as well as clear up the confusion in the marketplace.

Schmoldt: The reality of the digital-to-analog transition is that for many customers it will be a non-event as they do not depend on an off-air signal for content. That said, it is our collective job to properly educate our dealers and the public on what the analog-to-digital transition means — specifically what customers will be affected and the scope of available options available to them.

Roper: SED will be carrying a converter box which we will promote to our dealers over the next three quarters. We will provide information for our customers so they can supply the proper information to the consumer on how it all works.