Wealth Of Opportunities, Challenges Face Distributors

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With additional consumer electronics manufacturers handing off more and more of their direct sales and logistical functions, and the continued boom in HDTV and just about all things digital, distributors are enjoying more sales and a much higher profile than they've had in years.

Distributors are also being called on to deliver added services to both retailers and suppliers that involve an advisory role via a swift exchange of data on retail sell-through, pricing and the like to both types of their trade partners.

Manufacturers and retailers have distinct needs and concerns. One problem is something that the industry has no control over: higher energy and raw material costs. The other, which can be controlled by the industry, is product availability.

“Right now I think availability in the industry is the biggest concern. Will we have the right goods for the fall selling season? That's the question,” said Fred Towns, senior VP of New Age Electronics. “With energy prices going higher, some are saying that consumers will stay home and invest in their entertainment systems, since they are cautious about travel. If we have product availability, we will be in good shape.”

David Lorsch, president/CEO of DBL Distributing, detailed some of the concerns over higher energy costs affecting everyone, and higher raw material costs that impact manufacturers. “Higher energy costs are cutting into disposable income now. We as an industry create wants and needs. Consumers don't need a flat panel — you want one. But anyone with a significant trip to work, 30 miles each way, they lose a couple of hundred dollars a month, and that's ours.”

Lorsch said that in the short term, “People will cope, but long term it will cost more out of pocket for the consumer to live. That will have an effect.”

He noted that consumers are unaware of higher costs of metals used in CE hardware and accessories. “Copper has gone up 50 percent. I spoke to one cable manufacturer who said he was afraid to raise prices now. Silver and gold are expensive now too.” Lorsch suggested that consumers “won't see higher prices on accessories” that use much of those metals until next year but that hardware prices should not be effected.

Doug Rothman, executive VP of M. Rothman & Co., put it this way: “The biggest issue we've had to date is product availability. We would have enjoyed considerable growth had we been able to get the product we needed.”

Vince Shuster, sales VP of Electrograph, said that his company's main concern is “supply of popular SKUs” since the distributor has seen “demand outracing supply.” While his company stocks “many lines of display products and technologies for the custom installer to complete projects when the end user is not brand specific,” Shuster noted that for retailers it is a different story.

“Retailers are often subject to the end-user requirement for specific models that may be constrained through the traditional supply chain.” Shuster added, “We ask that the retailer and end user keep an open mind to derivative models that may be a higher price/performance value proposition.”

Mike Hench, president of The EDGE Distributors Group, agrees that supply is a major concern with “large-format plasma displays in the forefront.” What EDGE has done to try and ease the problem is to carry “alternate technologies, like flat-panel LCD, so the impact of a plasma shortage is reduced. Obviously, it's not the solution for every installation, but it is an option to be considered.”

Being able to accurately forecast product needs is also a key skill for retailers and distributors. Darren Marino, executive sales VP for BDI-Laguna, said that many display manufacturers are “hesitant” about retail forecasts for the second half, and that “there is reason for concern because some retailers will over-forecast” to ensure delivery of some product.

From what he has seen so far this year, “Any hot display products from anyone are really only available one out of four weeks a month.”

Dan Schwab, marketing VP of D&H Distributing, said that while retailers are concerned about supplies, “We are seeing a lot of optimism from them. One challenge they find is how to balance convergence. Which categories do they want to carry? How do they reposition themselves? They see more custom install business out there. While the big-box retailers are getting involved, can they do the higher end? A number of our customers are looking to do more consultation and service, which is healthy.”

Another concern on the part of the industry as a whole is eroding prices for HDTV. Warren Chaiken, president/COO of Almo, noted he has concerns about “pricing stability with our vendor partners.” But demand “continues to vastly exceed supply in plasma and flat-screen TVs,” and “for the last 16 months our industry continues to chase supply to attempt to meet demand. I don't see this changing in the foreseeable future.”

Recently, more manufacturers are turning to distributors. D&H's Schwab put it in an historical context, saying that for vendors, “The shift to distribution is efficiency. We see it going full circle since the 1970s and 1980s when we were one of 50 RCA distributors. Some vendors think they will lose touch with their retailers.”

He noted that the bottom line is that today vs. two or three years ago, “Retailers are getting more support now [with distributors] than in the past couple of years when suppliers were cutting back.”

Hench of EDGE commented that manufacturers “fall into two basic categories — those who want to control their dealer base and those who want to do business without controls or constraints.” He said that EDGE's vendor customers want to know that their dealers will be trained to install their products, will follow business practices “in step with those of the manufacturer's direct dealers [and] that the distributor will ... monitor compliance” of these activities.

Towns of New Age said one thing his firm has found is that manufacturers value “outsource solutions that can maintain their brand and share data back to the retail customer. If we give them the ability to forecast via electronic data, they tell us, 'We are better connected with our retail partner at a lower cost.' Many then come forward for more options for us.”

Electrograph's Schuster said that distributors can not only provide “value to the supply chain,” but calm “migrating concerns for [retailers] that have traditionally purchased on a direct basis.”

Chaiken of Almo bluntly said that “in today's environment [manufacturers] need to focus on their core competencies and distribution has never been one. Manufacturers need distributors to become part of the supply chain ... [and] forecasting, inventory availability and sell-through data are keys to driving the extended supply chain.”

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