HES/PRO Alliance Wins Industry Praise - Twice

HES/PRO Alliance Wins Industry Praise

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The strategic alliance formed this month between the Progressive Retailers Organization (PRO) Group and Home Entertainment Source (HES) has received support from suppliers and even the buying groups' competitors, who see it as a means to help keep the specialty A/V retail channel competitive.

Dave Workman, executive director/COO of PRO Group, and Jim Ristow, executive director of HES, the specialty A/V division of the Brand Source buying group, explained that the alliance will allow both entities to collaborate with their mutual vendor partners on special buying opportunities and specific channel strategies. The initiative, which leverages HES's warehouse distribution infrastructure, went into effect immediately.

Workman said the two groups together represent almost $4 billion in retail volume, and he described the alliance as a "long-term commitment" to sell "step-up goods for vendors in a growing [retail channel]."

Manufacturers who were briefed before the announcement were supportive of the move, the executives told TWICE. "The reaction was very positive," noted Ristow. "Suppliers, retailers and wholesalers are all trying to find a way to effectively sell step-up goods. Many [suppliers] said [the alliance] is for the good of the industry and found the channel strategy exciting."

Workman said the next reaction after suppliers were briefed was: " 'How do I take advantage of that?' The goal is to develop channel strategies with vendors and also to take advantage of opportunity buys when they come along," he said.

Vendors that do business with both PRO and HES include Sony, Panasonic, Sharp, Pioneer Elite, LG Electronics, Klipsch, Toshiba, Mitsubishi and Yamaha.

Bruce Fairchild, buying group sales director for Sharp, lauded the deal. "The initiative augments their buying power and provides a warehouse infrastructure so they can take advantage of opportunistic buys," he said. Both he and Bruce Tripido, Sharp's marketing associate VP, agreed that the alliance will help dealers with step-up selling floors maintain their profitability and remain competitive in the marketplace.

Steve McNally, sales VP for digital displays at LG Electronics USA, said that while he was surprised at first by the news, the arrangement isn't all that surprising. "It's a natural evolution, given all of the industry consolidation, and it won't be the last such alliance," he said. "It creates one destination point to move a closeout, and allows the groups to sustain themselves, to get consideration on larger buys and fill in inventory as needed. It's all about customer service, which is paramount to their success."

Richard Glikes, executive director of Home Theater Specialists of America (HTSA), the 59-member, $500 million buying group for specialty A/V dealers, custom installers and system integrators, said the alliance was necessitated by rising minimum purchase requirements and that HTSA is examining similar strategic alternatives. "Vendors are raising their thresholds from $50,000 to $100,000, or from $250,000 to half a million dollars," he said. "We have been looking at different distribution models that could include aligning with another buying group or with a distributor. Combining forces will help maintain the specialty channel and make it more viable."

Workman and Ristow said the groups had discussed working together since last year, and stressed that the alliance does not represent a first step toward a merger. Both organizations will remain independent with separate programs and identities, and there are no plans to combine the two groups, as their member profiles are distinct. PRO, which generates $2 billion in annual CE retail sales, is comprised of 17 regional dealers that are major players within their respective markets. In contrast, HES has 500 members with cumulative annual sales of $1.8 billion. Only about a half-dozen of its dealers approach the size of PRO's.

Ristow said, logistically, the alliance is operational right now. HES's Expert Warehouse distribution program, which it operates with distributor Archbrook Laguna, "will be the catalyst for the opportunity buys," he said. "We can buy in large quantities and disperse them to appropriate members of both organizations."

"When manufacturers have an overage, they can write one order and clear out inventory immediately," said Workman. "Expert Warehouse can provide PRO with a clean, quick solution when available. This gives everyone at PRO more opportunities."

In a statement announcing the alliance, the executives cited industry evolution as the impetus behind the agreement. "The consumer electronics industry is changing, and buying groups need to provide new business solutions to their members that can help them compete against the rapid commoditization and new competition in this business," Workman said.

Added Ristow, "The CE industry is entering a state of contraction, consolidation and commoditization which, left unchecked, will drive a level of downward pressure into the market. Over time this will greatly constrain dollar growth for both retailers and manufacturers. This alliance represents the most viable growth opportunity for the manufacturer in upscale, value-added merchandise and allows them to develop a cohesive national strategy giving everyone — vendors, dealers, industry — the best chance to survive and prosper." — Additional reporting by Alan Wolf

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