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HES Preparing Members For Volatile Market

Home Entertainment Source (HES), the specialty A/V division of the AVB/Brand Source buying group, implored its 436 dealer members to use all the tools at their disposal as the CE industry enters a period of even greater volatility.

The message was delivered during the groups’ biannual buying summit, held this week at the Hilton Anatole hotel here.

Those tools include new HES programs and vendor partners, best practices of fellow members, and dealers’ own business skills and savvy. “Look at every aspect of your business,” advised general manager Jim Ristow during the conclave’s opening session. “We can take share back from the big boxes, but we will have to do things differently.”

One thing HES is doing differently is narrowing its focus on select SKUs from its core video vendors to secure “sharper deals and more marketing support,” Ristow said. Following individual presentations by Hitachi, Mitsubishi, Pioneer, Samsung and Sharp, members voted for the models they would support through the $1.2 billion group’s Expert Warehouse inventory distribution program.

Expert Warehouse itself will be enhanced to permit electronic order tracking, guarantee price protection payments, and provide real-time information on price changes and new model transitions. HES has also launched a large dealer program to pass along savings to volume buyers, and has increased the Expert Warehouse staff by 25 percent and quadrupled its customer service staff to keep pace with the program’s rapid growth. Sales were up 54 percent in 2006, Ristow said, while volume at its sister program for installers, Custom Warehouse, increased 68 percent in less than one year. New vendor additions there included Monster Cable and Universal Remote.

On the product front, HES will launch a turnkey, retail fulfillment program with Comcast that will allow members to order and install the MSO’s cable boxes directly. The group inked a limited distribution deal with JVC for its new high-end, 1,920 by 1,080p front projector that will retail for upward of $8,000 and will only be carried by HES, PRO Group and Magnolia Audio/Video. Another new addition is home theater seating by Bell’O. The group will also participate in the government-mandated digital converter box program, Ristow said.

Longer term, HES is moving forward with a group branding program, akin to Brand Source, that will provide members with standardized Home Entertainment Source signage and advertising and marketing material. Bob Lawrence, CEO of Brand Source, said the HES branding effort will take seven to 10 years to fully implement.

The new programs and services were designed to help HES members compete in an ever more volatile business environment marked by CE chain restructurings, aggressive expansion by Best Buy, and another expected round of flat-panel price moves in the third quarter, Ristow said.

“The bad news is that you will soon have to sell more units to maintain your sales volume,” he said. “The good news is that unit sales will continue to skyrocket,” thanks to HES members’ higher-end focus and custom install skills. Indeed, member dealers can step customers better, produce bigger tickets, and react more quickly than the big-box chains. “The vendors believe in us,” Ristow said. “To them, we’re not another buying group; we’re the only national alternative to box stores for premier CE.”

World Wide Stereo founder Bob Cole, who is serving his third and last term as HES president, echoed the sentiment. “Manufacturers are looking for a group that will partner on more than what is the lowest price,” he said, noting that the freefall in flat-panel pricing has left vendors as well as dealers looking like “deer in the headlights.”

“At some point the madness will stop. There are too many casualties,” he said.

Cole said HES management “spent a lot of time working on strategies” during a recent trip to Japan that will help members sustain margins. Beside better goods, his recipe for success also includes “a higher level professional who can sell higher margin goods, self-esteem to hold prices and cajones.” The payoff, he said, is that “It’s really nice to sell a 38-point panel, a 40-point panel. No 18s, no 22s.”

Nevertheless, “It’s a very tenuous thing we do for a living. Prices change and brands come and go.” What it ultimately comes down to, he said, is “you, your brand, and the guy that comes to work for you.”

Separately, HES announced its 2007 Vendor Awards. Winners included:

  • Most Supportive: Genesis Series Cable;
  • Most Valuable Player: Hitachi; and
  • Vendor of the Year: Klipsch.