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Distributors Provide Outlook For 2007

Distributors have come to play an increasingly critical role within the CE and IT industries as margin-squeezed vendors turn to two-step distribution, and e-tailers and integrators rely on their assortments, training services and fulfillment capabilities.

Given their unique vantage, TWICE recently checked in with executives from some of the leading distribution companies to get their outlook for the coming months. Each had a different perspective on which products, trends and developments will have the biggest impact on business, mostly influenced by their respective specialties. Their comments follow.

TWICE: Which emerging technologies and/or new products do you expect will have the biggest impact on your retail customers this year?

Warren Chaiken, president/COO, Almo: For consumer electronics, 2007 will be more about mass adoption of technologies introduced over the past 24 months vs. growth fueled by new technologies. For instance, we are hitting the mass adoption phase of portable media players and GPS technologies as prices drop, features increase and content becomes more readily available. LCD displays are fast becoming the leading HD display, again fueling market growth as prices drop and HD content becomes more readily available.

In the [major] appliance category, we are continuing to see increased growth of specialty appliance sales in the mid-market. New energy-efficiency features will continue to drive upgrade purchases such as front-load laundry.

Bob Gartland, president, AVAD: IP-based audio and video distribution — this technology, coupled with AVAD”s new vendor integration initiative, will begin a new age of system design wherein products work together with minimal programming and deliver on the promise of easy-to-use whole-house solutions.

Also, lighting control. With video price compression affecting everyone’s overall top-line revenue, this is a widely untapped market for a lot of integrators. It represents a true value-add for an installer, and it can easily replace all the revenue lost from falling prices. Successful AVAD dealers have already proven this time and time again.

Joel Blank, executive VP, BDI-Laguna: In 2007, HDTVs — particularly 1,080p — continue to be among the hottest products for our customers as HD content becomes more widely available and affordable, consumers demand increasingly bigger screens, and average selling prices [ASPs] of TVs and other HD hardware continues to drop. The high-definition DVD players, which will hit the magic price point of $399 this year, will finally get some traction. In the flat-panel war, LCD will continue to gain popularity over plasma, and we expect to see DLPs become significantly thinner and lighter, approaching the point where they can be mounted on the living room wall.

The GPS category will continue to explode as manufacturers hit price points low enough for the average consumer. On the high end of the spectrum, voice-recognition technology is the buzz, and consumers are looking for thinner, lighter models with bigger and brighter screens.

The hype surrounding the launch of Vista has made a huge splash in the PC business and consumers will continue to buy into it throughout the year. We will see more offerings incorporate HD-DVD and Blu-ray technology. The hottest notebooks are either “boutique” ultra-portable sizes from 9 inches to 12 inches on one hand, and larger “personal home theater” type products, approaching the 20-inch screen size on the other.

Finally, 2007 is the year of the digital picture frame. It will be a household item because at this point pricing has hit the sweet spot, and consumers understand and use digital photography every day. With more images than they know what to do with, they are looking for a product that can replace the old photo album, but still manages to display every photo in their collection.

Henry Chiarelli, marketing and merchandising senior VP, DBL Distributing: Technology evolution is a primary focus for DBL. Innovation drives our marketing efforts, our customer engagement strategies and our product purchase decision.

New technologies and products that will have an impact on our customers in 2007 relate in one way or another to high-definition hardware and accessories as well as technologies that access remote digital content including, Bluetooth and Wi-Fi based products.

For example, take the continued growth of HDMI. As integrators address a growing segment of mid-market consumers, the need for an interface between digital audio/video sources such as set-top boxes, DVD players, PCs, media servers, video games, A/V receivers and compatible digital audio and/or video monitors becomes increasingly important. DBL carries an extensive lineup of HDMI switches, cables and HDMI conversion products.

Another example is multiroom and multizone A/V. Though it has been one of the baseline trends in consumer electronics over the past few years, the proliferation of multiroom and multizone A/V will accelerate in 2007 as technology migrates to a hybrid of wired and wireless solutions including home entertainment, outdoor audio, integrated security and telephony applications. Also, as more consumers go digital and digital programming increases, there’s no doubt that Blu-ray and HD DVD products will emerge as a key trend in 2007. Without speculating on which technology may ultimately prevail, there are great products addressing both formats on the market today. For example, Philips and Samsung each have excellent Blu-ray products that have been well received by our base of retailers and installers.

[Another important area is] accessorization. Some folks see accessories as “yesterday’s technology in today’s world.” This couldn’t be any further from the truth. As customers increasingly embrace high definition, multiroom or -zone A/V and digital programming/playback, there are a lot of moving parts required to blend all of the various technologies and products into a working solution. Accessories become the products that “keep it all together,” and retailers/installers must offer their customers total solutions. That means offering cable and wiring, remotes, mounts, speakers, repeaters, power, components and much more, everything top to bottom and in-between. This goes beyond just functionality — this speaks to the quality of the experience in sight and sound.

When you look across DBL’s range of technology categories, there are hundreds of innovative products that address the needs of retailers/installers and consumers alike — new products that enhance cellphone signal coverage by improving signal strength; DVD/HDD camcorders that let users capture hours of movies directly to a built-in hard drive; wireless audio transmitter/receivers for iPod, MP3 players and other remote digital content devices; “environmentally friendly” products and many others. Our intent is to identify and be first to market with all emerging technology products that will keep us at the forefront of servicing our customers and meeting the demands of rapidly evolving consumer preferences.

Dan Schwab, marketing VP, D&H Distributing: Because many widely anticipated technologies have finally reached critical mass within the market, we see a multitude of consumer electronics impacting our customers through 2007. Formats such as HD DVD and Blu-ray, and scorching sellers like flat-panel LCD displays, have finally hit the price point and ease-of-use that the market has been waiting several seasons to finally take advantage of. In addition, gaming consoles such as Xbox 360 and PlayStation3 have incorporated the HD DVD and Blu-ray formats within the functionality of their gaming platforms, offering consumers a chance to have their cake and eat it, too.

Media server capabilities will also take hold as a must-have home entertainment device, especially with the recent release of Windows Vista and the integration of Windows Media Center functionality in virtually every edition, less Vista Basic. The ability to load and share high-def content within the walls of an entire home have and will remain an intriguing facet of consumer electronics and the digital home.

In line with media server capabilities and media streaming, we will see an explosion of interest in the wireless connectivity arena in the form of digital media players, handheld computers and SsmartpPhones, notebook computers, and even portable GPS units. The ability to manipulate media and access content from multiple devices, in multiple locations, seems almost too close to an episode of “The Jetsons,” but it’s here, and it’s available, and we see a huge opportunity for our resellers in offering such technologies to their customers.

Among the other product categories which catapulted the CE and home entertainment industry in 2006, we still expect to see a spectacular increase in interest in gaming products, distributed audio, LCD displays, home surveillance and remote monitoring, vehicle navigation and portable entertainment devices.

Michael Levy, president emeritus, The EDGE Distributors Group: The focus of the future will be in two key technologies: System control and software management. The interface most end users utilize is their handheld remote control. To them, this is their system. If the remote is difficult to use, the entire system will not be used often.

In the area of media management, a consumer’s music library can live on CDs, DVDs, iPods, computers, the Web and a host of other areas. Being able to easily access their libraries, wherever they are stored, will become critical in the future. Any black boxes, be they CD or DVD players, surround-sound receivers or the like, will become less and less brand critical as time moves on. The interface and access is what will drive business.

Mike Hench, president, The EDGE Distributors Group: From the perspective of our core market, custom installation dealers, I think the most exciting technologies are control and the continued growth and acceptance of high-definition content and related products. Although neither technology is brand new, they have both evolved to the point where they are much easier to use, more affordable and offer great value to the customer. They also create real profits for the dealer-installer in exchange for providing a real service: installing, programming and integrating the system.

As these two technologies continue to get better and less expensive, we are seeing them appear in more mainstream installations — not just the top 1 percent to 2 percent of the market.

Sam Taylor, president, Electrograph Systems: With the steep decline in ASPs for plasma and LCD displays, high margin potential now exists in the peripherals sold with the flat panels. Products like Avocent’s wireless HD transmitter, Electrograph’s flat-panel mounts or EZ Touch overlays give our resellers outstanding revenue potential and the opportunity to integrate the displays into more solution-oriented applications. Extended warranties and other customer-care programs also offer valuable margin potential.

Not to say that flat panels can’t be profitable. Electrograph recently began shipping its RevolutionHD family of high-performance LCD and plasma displays, which are exclusively distributed by Electrograph and positioned to be purchased and sold by professional installers. The entire line is available with Imaging Science Foundation Certification Calibration Controls [ISFccc] for further picture optimization in bright and dark rooms, and Electrograph’s “Quick Swap” warranty, which allows complete replacement during the first year of ownership.

Fred Towns, senior VP, New Age Electronics: On the digital photography side, photo enthusiasts will continue to embrace computer technologies and we’ll see bigger jumps in large-format printers and high-end monitors, such as Eizo’s Color Edge. For the point-and-shoot market, we expect a much broader fashion accessory line, more color choices, and significant placement of digital picture frames.

In all CE categories, attachment sales will drive up margins for retailers. Focus will be on product assortment rather than individual SKUs and manufacturers are introducing more add-on products with higher margins. This is apparent in audio/video, digital photography and office product categories.

In IT, more and more emphasis is being placed on security for PCs. Data Breaker introduced a new product—a patented technology that automatically disconnects your computer from the Internet when not in use to protect users against hackers. New Age feels that retailers will bundle these heavily with notebooks and PCs.