Retail Margins Don’t Cut It in Custom World, HTSA Tells Vendors

ST. LOUIS -- “Forty points ain’t enough,” HTSA Executive Director Richard Glikes told vendors Wednesday at the fall meeting of the Home Technology Specialists Association. The comment followed a detailed presentation by HTSA member Bob Gullo, president of Electronics Design Group, Piscataway, N.J., on the design, labor and subcontractor costs involved in large-scale custom home-electronics projects. “Our vendor partners need to be educated,” Glikes said, “because some of you sell us projectors but you may not know what goes on beyond that.” He said manufacturers understand their own product categories “but may not know the depth of what we do."

Gullo’s presentation compared custom electronics sales with typical retail sales. Gullo said prior to the Internet, many HTSA members went through five cut-and-dried steps in a sale: buy products, receive them from vendors, advertise, sell and put the product in a consumer’s car. Now, when consumers can get whatever they want, HTSA members have to differentiate themselves with complicated custom projects that can involve 18 steps, including designing a system customized to clients’ needs, coordinating with subcontractors, working with architects, designers and cabinet makers, pre-wiring and installing the system and training and servicing the client post-installation.

David Weinstein, sales vice president at lighting company Lutron, said vendors are comfortable in the sphere of their own business but rarely get a glimpse into the all the “pieces and parts” required to do a project right. Michael Benedetto, sales vice president for furniture maker Salamander Designs, said his company could give more margin, “but all we hear is you need lower-, competitively-priced stuff.” He said more margin would have to be “pushed onto clients and it doesn’t seem likely” that’s going to happen. Glikes said the furniture business has been particularly hard hit by flat-panel TVs, because “you can’t put a $2,000 cabinet under a $599 TV.” Also hard hit was the Blu-ray category, he said. “How long did it take a $1,000 Blu-ray player to become -- what are they now -- free?” Benedetto countered that sales people assume a customer isn’t going to spend more for furniture than for the TV, “but I can guarantee the wife is going to spend a lot more on furniture” in a room than for entertainment.

Joaquin Rivera, director of sales for North American residential products at Stewart Filmscreen, said dealers should be in the driver’s seat regarding clients’ perception of value. “If the products come down in price, do you really have to push that?” he said, saying a salesperson is more likely to go for the easy $5,000 screen sale than a $10,000 sale that would require more effort. He also noted that manufacturers have their own costs that dealers need to consider. “We would love to give you more margin,” he said, “but we have a full production facility to support.” If dealers could bear a higher retail price, he said, they could get more margin.

"Those are the horns of the dilemma,” Glikes said, punctuating the session with a sense of urgency for the specialty channel. He said HTSA has traditionally been a group with higher price points and better sales people that’s now seriously challenged by Magnolia Home Theater. “We used to be ahead, but now we're not ahead,” he said. “Right now the leaders are the followers, and it’s not a tenable position."

Specialty dealers have won some margin back from TV vendors over the past year with limited-distribution lines, Glikes told Consumer Electronics Daily, but the buying group is pushing for more vendor support including “some semblance of exclusivity,” support for marketing initiatives and “fair margin.”

TV vendors changed distribution strategies this year after decisions to sell online “came back to haunt them,” Glikes said. Last year, Amazon had access to “virtually every product,” he said, but vendors including Sony, Panasonic and Sharp have protected lines “that allowed us some shelter.” Manufacturers don’t make money, either, without specialty distribution, and “they don’t want to have Amazon, Best Buy and Walmart as their only conduits,” he said. “They need us and we need them.” The conscious decision to put 30-40 additional margin points back in TVs has been welcome, he said, saying vendors didn’t get enough credit for those series of TVs.

Margins in the TV industry continue to be compressed by products that are “all alike,” Max Wasinger, executive vice president, sales and marketing for Mitsubishi told us. The specialty channel remains important because it is profit-oriented and sells differentiated product that needs to be demonstrated to convey the value, Wasinger said, noting that Mitsubishi also sells its Unisen and LaserVue TVs through the A/V appliance channel and Magnolia Home Theater stores. Wasinger said Mitsubishi is one of the few companies that still has direct relationships with specialty dealers, provided they maintain minimum annual sales of $100,000. Higher margins for the specialty channel “are our goal because they're market makers and we want to keep them in business,” Wasinger said. “But it’s tough out there. There’s a lot of competition."

Typically, custom installers are now giving in on no-margin flat-panel TV prices, Glikes said, and they try to make up the difference on “blind items” such as brackets, wires, harnesses, mounts and screens. “If you can match the flat-panel price, you can pretty much make up margin in other areas,” he said, with $20 the break point. “If you're $20 higher, they'll still buy from you. If you're $30 higher, they won’t.” Most dealers now just take dealers to the Best Buy website and match the price of the TV. “That alleviates all fear,” he said.