Scan-Downs, Bundles Criticized

NATM Retailers Say They're Surviving in Tough Environment

September 30, 2010 by Jeff Berman|Top News

DALLAS -- Retailer members of the NATM Buying Corp. are surviving, if not exactly thriving, in 2010, in a challenging business environment in which they face slow sales across most product categories, weakening margins, and what they deem to be an over-use of scan-down rebate offers and bundles by manufacturers, said NATM President and Executive Director Bill Trawick and several NATM members. It’s the first time in Trawick’s 13 years with NATM that he hasn’t been able to tell the conference how great business is, he said.

There’s “not a lot of great things happening” now, Trawick said. But he said, “We have a lot of retailers who are still doing business” in NATM, and some, including BrandsMart in South Florida and Electronic Express in Tennessee, continue to open new stores despite the challenges. The group has also maintained market share, he said.

NATM’s 11 members saw combined sales of about $3.5 billion in 2009 and Trawick projected that total sales will come in “a lot higher” in 2010, at about $5 billion. But he said the increase was largely due to the return of P.C. Richard & Son to the group. That retailer has 63 stores in New York, New Jersey, Connecticut and Pennsylvania, and continues to open new locations. It and Abt Electronics returned to NATM in 2010, replacing Bernie’s, which went out of business, and Queen City. Bernie’s and Queen City accounted for fewer stores combined than P.C. Richard alone. Abt still has only one store, in Glenview, Ill.

For a long while, TV revenue was down while unit sales grew. But Trawick said NATM’s members, much like the rest of the CE industry, are now seeing unit sales also fall and they're now down from 2009. CE overall is running about flat with 2009, he said. There was “significant growth” in the first 4-5 months of 2010 and there were shortages on certain products, including 3D TVs early on, he said. But sales fell and there’s now “plenty of inventory” on nearly all products, he said. NATM members’ customers still see value in entry-level TVs and don’t want to spend extra for 1080p now, he said. But, like various NATM retailers, he said large-screen LED-enabled LCD TVs are selling well and plasma TVs are “having a pretty good year.” Unlike last year, Trawick predicted there will be ample supply on most TV screen sizes in the back half of this year.

Appliance sales are up slightly year to date from 2009 for NATM members, but 2009 was “not a great year,” said Trawick. NATM is “certainly not happy where it is now,” he said. The retailers saw good growth in the category for the first six months of 2010, driven by energy rebates, but sales declined after that, he said.

"Margins continue to decline” on most products, not helped by scan-down deals promoted by manufacturers in which prices are reduced and dealers have to wait to be only partially reimbursed by vendors for the discount, Trawick said. The growth of bundle offers only makes matters worse, he said. NATM retailers told Consumer Electronics Daily that bundled items often tend to be products they would have been able to make strong margins on if they weren’t being given away.

Scan-downs started in force about four years ago, Edward Maloney, president of Cowboy Maloney’s Electric City in Mississippi, told us. “I don’t know if it’s gotten any worse,” but it’s not getting any better, he said. It can “take up to two months” for vendors to reimburse dealers for the discount that’s been given, and it’s “not a full reimbursement” -- typically only about 50-60 percent, although it varies by manufacturer, he said. Retailers “complain all the time” about scan-downs, but all manufacturers do it now and you “can’t break the chain.” It’s “ugly” for retailers, but “it’s good for the consumer” because they're getting a good deal, he said.

A further problem with scan-downs is that the deals are often offered for only a limited time, Abt Vice President Billy Abt said. Consumers come into Abt’s store and expect to get a discount that’s no longer being offered, and the retailer often winds up working something out with the customer to make them happy, he said.

NATM is “looking forward to Black Friday” because there will be a lot of promotions although that will include more bundling, Trawick said. He conceded he wasn’t certain what the results will be. There were stronger Labor Day promotions than usual this year, but they “didn’t drive the business” very much, he said. Holiday season promotions will start in early November and there’s more supplier participation in the programs this year, he said. Some manufacturers are also relaxing their minimum advertised price (MAP) requirements, so retailers “can do whatever they want” with prices, he said.

The introduction of 3D is posing more challenges, and “I'm not sure it’s being explained” properly to consumers, Trawick said. The lack of 3D broadcasting is likely hurting sales, and some in the industry may have over-estimated initial 3D TV sales, he said. But he said 3D TV sales are growing and most in the industry remain “very positive” about 3D opportunity. Consumers aren’t yet seeing “the value” proposition of it, but he suspects that will change “as the price comes down,” he said.

"Two of the real bright spots” for NATM retailers have been iPads and smartphones in 2010, Trawick said. But he said only certain NATM members are authorized to sell Apple devices. Many consumers have shifted their spending away from TVs to lower-cost smartphones and other portable devices, as well as computers, said Michael Maund, NATM director of operations. Many consumers already bought new TVs recently and aren’t so quick to buy new models now, so there’s “a softness” in overall TV sales, said Trawick. NATM retailers, meanwhile, are also “getting a bump” from e-reader sales, he said.

CE sales had “an unbelievable run” for more than 20 years before this year’s slowdown, Trawick said. There hasn’t been a real turnaround to the economy this year, he said, predicting that might not happen until the back half of next year. Consumers are saving their money and holding off even on many appliance purchases, he said. But the economy will “turn around,” and there will be a lot of consumer demand for products that NATM members sell when that happens, Maund said.

NATM members, meanwhile, are turning to more sourcing of products from Chinese manufacturers, Trawick said. In CE, that likely will include accessories, but not TVs, he said. The group is also looking to start programs designed to reduce members’ operational costs, he said. Not planned is a group e-commerce solution, he said. Some NATM members offer it on their own, some keeping shipments to consumers within their own markets only as a convenience, he said.

More NATM members are also entering the videogame category or, as P.C. Richard did recently, expanding their assortments in it, Trawick said. This week’s conference is NATM’s first that’s been attended by representatives of all three console makers: Microsoft, Nintendo of America and Sony Computer Entertainment America. Similarly, there are more computer makers at the conference than in years past, including Dell for the first time, said Maund.

NATM Notebook

Electronic Express will open a new store in Murfreesboro, Tenn., next month, President Sam Yazdian told us. The store will replace a much smaller 8,000-square-foot location “almost across the street,” keeping its store count at 17, he said. The retailer bought a building offering about 26,000 square feet that was previously a Goody’s clothing store, he said. It will add major appliances, as well as three sound rooms that there was no space for in the older location that’s closing, he said. The new store will also feature a section that’s about 2,500 square feet to spotlight computers and broadband connectivity, he said. Also planned for the new store is an expanded selection of videogame products, with an eye on hopefully rolling out that enhanced assortment at other stores also, he said. It now tends to only sell five or six of the most popular new game releases on each platform, he said. A “soft” opening of the new store will be in mid-October, with a grand opening to follow “toward the end of October,” he said. The company’s stores average about 20,000 square feet, he said. Last year, it took over the locations of two small Circuit City stores and one CompUSA store to open three new stores, he said. It plans to replace another 8,000-square-foot store in Q1 next year, in Tullahoma, Tenn., with a nearby store that will have about 20,000 square feet of space, he told us. Other new stores are planned. “We're looking in a couple of markets,” with plans to open its first locations outside Tennessee in an unspecified neighboring state, he said. The earliest that will happen is Q2 or Q3 next year, he told us.

Twenty-three vendors have small booths at the conference this year, Maund said. That’s up from 17 last year (CED Sept 17/09 p2). Manufacturers typically schedule appointments in advance with NATM members, but those without them were given booth spaces for the first time last year. It’s impossible to find enough time to schedule meetings for each retailer with every supplier attending the conference, Trawick said. The booths give retailers the opportunity to see products from companies they would otherwise not get to see, he said.

The state of NATM address by Bill Trawick that was planned for Tuesday night was delayed until Wednesday night, he said. Many attendees weren’t able to get to the conference on time Tuesday, some due to weather-related issues, so it decided to wait an extra day, he said. About 100 attendees were delayed, Trawick said.