PRO Upbeat About Second-Half Demand, Sales

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The Progressive Retailers Organization (PRO Group) members expressed cautious optimism about the second half during its annual spring meeting, held at the Hyatt Regency at Gainey Ranch, here.

Among the topics of discussion were also higher pricing and margins. PRO, a 17-member A/V specialty-retail group with an estimated $2 billion in annual sales, reported that Toshiba is the second vendor to sign up for its virtual-distribution model. The program enables PRO to forecast and order as a single entity and has been in place since last year, with the first vendor in the program being Panasonic.

Dave Workman, PRO's executive director, also reported that LG Electronics has presented a group program that has been accepted by PRO.

"LG is a big supporter of groups and is a prime [flat-panel] manufacturer. We always try to establish relationships with the right vendors, and it would be a mistake to ignore [LG]," Workman said.

Compared with last year's tumultuous PRO meeting, which began with Harvey Electronics announcing a merger with MyerEmco AudioVideo and ended with Tweeter's bankruptcy alert, much has changed with the group. The merger dissolved and Harvey left PRO, while Tweeter was sold and cut back in size.

When asked if changes within the group have hurt its standing with vendors, Workman commented, "We haven't lost influence with vendors due to membership changes. On the contrary, they desire to do more business with mid- to upscale retailers that make up PRO."

He added, "They realize changes occur. We are pleased because at this point [of the year] as a group we are outperforming the industry in every single catgory. What is important is where we will be five years from now."

Still, higher energy costs, the collapse of the housing marketing and subsequent credit crunch continues to take its toll. For instance, Murray Huppin of Huppin's/OneCall said the Internet retailer is taking a hit from higher shipping costs due to skyrocketing energy prices.

Workman noted, "The CE business is not immune [to the economy] ... It is surely a softer market than last year, but things are getting better. There are transitions across the group and [individual] retail members will take appropriate actions."

An example is Southern California's Ken Crane's, which has been hit with all the negative economic factors the rest of the country has dealt with. Additionally, its consumers have had to deal with the aftermath of last fall's wildfires and the Hollywood writers' strike.

Steve Caldero, senior VP/COO of Ken Crane's, confirmed that last month the chain laid off 18 employees, including video buyer Steve Colky, to "right-size the business due to the weakened local economy." The chain is still going to officially open the Lee Adams Discount Store location it bought last year in Ontario, Calif., as a Ken Crane's store this month.

Store openings are always a sign of retailer optimism. Sixth Avenue Electronics recently reported that it will open its 13th store this week in Lynbrook, N.Y., on Long Island. Tom Galanis and Mike Temiz of Sixth Avenue told TWICE that its third Long Island location will have a 30,000-square-foot selling floor plus 25,000 square feet of warehousing space.

ListenUp's founder and PRO Group board member Walt Stinson said, "In our conversations with members I found that our members are generally optimistic. Sure, there is a lot of negative stuff out there about the economy. [PRO has] looked out a year or two and there was quite a bit of optimism. Video has been a bubble with the [digital TV] government deadline, but our people are seeing that audio is now getting more attention, reflected in comp store increases in audio. Consumers want control systems, so we see a healthier mix of products being sold."

Workman agreed, saying, "Not to put out misguided optimism, but the second half should be good. Between the Olympics, the emphasis on the HDTV conversion and the fact that the shock effect of higher gasoline prices might have worn off by then, we feel that consumers will deny themselves pleasure for just so long."

Finally, the issue of higher prices for new products due to increased Chinese manufacturing costs was also a topic of conversation here. "We might see a slowing of price compression," said Workman, who was frank about the situation.

"The most damaging thing vendors could do at this point is to protect the consumers' [retail price] with our margin. If they have to raise prices, give us a chance to sell at that [higher] price," he said.

Workman fears that national chains will cut price to gain share. He is urging manufacturers, "Give us a chance to keep our margin."

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