3D ‘Could Take Off’

Diversify Into Connected Home to Stay Successful, HES Dealers Urged

February 23, 2011 by Rebecca Day|Top News

ORLANDO, Fla. -- With HDTV on the downside of the CE product life cycle and average flat-panel selling prices down 30 percent since 2008, Home Entertainment Source leaders Sunday opened their Summit by urging dealers to embrace “the connected world.” Brand Source CEO Bob Lawrence said independent dealers are “stuck between Groundhog Day and Survivor. Every time we come up with great products, all of a sudden the margin goes out of it and it becomes a commodity product.” Between MAP policies and cut-throat pricing, Lawrence said, “we're letting companies like Walmart and Amazon destroy our [flat-panel] business.” Saying dealers were at the Summit because they're “survivors,” Lawrence said they have to diversify to remain successful.

Although HES President Vance Pflanz spoke of a “resurgence in TV” brought about by 3D TV -- an assessment not borne out by industry numbers -- the overriding theme at the HES meeting was that dealers have to look beyond the TV set for profitability. Pflanz said dealers have to continue on the “familiar path” that has supported dealers for years but also take “side trips to explore new innovative ideas.” He said HES members should renew relationships with customers so “they perceive that we are the acknowledged leaders providing the latest consumer technologies."

Jim Ristow, executive vice president of HES, referred to the “180” that occurred between CES 2010 and CES 2011, when the next big thing swung from 3D TV to connectivity. He blamed 3D’s “not being as robust as everyone thought” on big-box stores’ inability to “execute” and on lack of programming and consumer demand. TV prices are expected to stabilize this year, partly because the cost of goods has bottomed out, but also because connectivity and 3D could “take off” and raise average selling prices, Ristow said. It won’t be easy to reverse course, he said. World TV sales are down 25 percent since 2008, so many more sets must be sold “to get the same amount of revenue,” Ristow said. The downward trend slowed to 7-10 percent in 2010, he said, and will be “similar for 2011.” Acknowledging that “it’s not easy to make money,” Ristow said that’s part of the product life cycle.

HES is supporting the connected home initiative with the Connected Source, a hands-on store-within-a-store model that promises dealers “very little time and effort to get started.” The demo system, supported by key manufacturers, is designed to help dealers display and demo “the latest technologies” in their current showrooms and show customers product upgrade possibilities using hands-on demos to introduce them to new products and services. Ristow told Consumer Electronics Daily that the buying group is talking with a number of router manufacturers to add to its stable of networking products.

HES is encouraging dealers to convert a demo sound room to the Connected Source space. Systems are prepackaged and turnkey, Ristow said. HES is supporting the concept with “plan-a-grams” and is launching beta versions now, with a full launch scheduled later in the year, he said. Ristow said the program is in response to dealers’ request for help getting into the connected home business with offerings for mainstream customers that are “simple and scalable."

For 2011, Ristow pointed to a resurgent stock market and the absence of a predicted double-dip recession to result in “slow, steady growth” for the industry. Audio, once in decline, has shown resurgence, he said, posting an 8 percent increase in average selling prices in 2010, with a 27 percent increase expected for 2011. Sales of audio video receivers are up from demand for HDMI 1.4 switching, and soundbars are “booming,” he said. The pendulum has swung favorably for multiroom audio and video, too, he said. Down 32 percent 2007 to 2009, the category was up an estimated 28 percent in 2010 and is expected to grow 30 percent in 2011 to $284 million, driven largely by wireless technology, he said. Sonos, a wireless multi-room product that few HES dealers carried just four years ago, accounts for 30 percent of the multiroom market “and continues to grow,” he said.

Dealers we spoke with at the Summit agreed that they have to embrace connected technology but weren’t sure what form that would take. “That’s 100 percent correct,” said Charles Bock, owner of Stereo Barn in Sinking Spring, Pa. “These days you have to be nimble.” He sees connected solutions as a way to take advantage of established customer relationships. “The beauty of it is we can sell to existing customers,” he said, saying customers want to stay ahead of technology and be able to expand their systems to additional rooms.

"They're on target promoting the connected space,” said Greg Hiemenz, owner of Stereo Types in Charlottesville, Va. “That business is mushrooming” because of video streaming from Netflix, Vudu and Amazon, along with whole-house music. Regarding increased tech support that might be required from systems that combine equipment from various disciplines, Hiemenz said: “That’s what we've been doing all along."

HES Summit Notebook

Hoping to boost awareness of Brand Source as a brand that independent retailers can use to gain visibility and identity, the group has partnered with Kathy Ireland Worldwide, a $1.5 billion business representing 50,000 independent retail stores in 29 countries. Brand Source CEO Bob Lawrence told members at its Summit 2011 that the only way they could take on the box stores was through a unified, nationwide branding campaign. He called the deal, in which Kathy Ireland will be an “ambassador” for Brand Source, “a game changer.” Aimed at women, the arrangement could include exclusive products bearing Ireland’s name, TV commercials and “a multitude of things we can do to help make members more profitable,” he said.

When we asked about Kathy Ireland-branded products being sold through the Brand Source network, Ireland told us, “that’s something we're still discussing and we're strategizing the opportunities to see what makes the most sense.” Brand Source has found “interest from CE suppliers already” in Kathy Ireland-branded products, which would depart from the traditional male demographic that’s been the marketing focus of electronics, Lawrence said. “This opens up a whole new market and we believe the suppliers and our members will embrace that,” he said. Lawrence said the group is “just beginning to figure out how to benefit from the relationship.” Ireland said she would use her website and Twitter to promote Brand Source’s independent dealers.

Included in KIWW’s palette of product categories are furniture, flooring, lighting and accessories, window treatments, home office and entertainment. Ireland told us the partnership benefits her company because she built her brand with a “grass-roots foundation with the independent retailer” that brings a similar level of customer service and customer relations. KIWW recently launched more than 30,000 designs of bridal gowns and special-occasion dresses, she said, and the customers who become loyal to that brand could evolve into Brand Source customers. “This is the woman who’s starting this phase in her life and she’s going to have to purchase products including appliances, electronics and furnishings for the first time,” she said. Ireland described her company’s website as a solutions destination for women, “not an e-commerce site.” She said, “We don’t sell anything, and we don’t plan to.” License Global magazine lists Kathy Ireland Worldwide as number 28 of the top 125 licensors worldwide.

HES announced new direct vendor partnership agreements at the Brand Source Summit 2011: AV furniture maker Salamander Designs and turnkey security system company Smith & Wesson. The Smith & Wesson deal is HES’s effort to grab a share of the $4 billion security industry without having to “build a new business model inside of our businesses,” said Executive Vice President Jim Ristow. The relationship includes monitoring, service, training and support.” Ristow called it “security made easy with a name everybody can trust.” Citing the new ProSource alliance with the PRO Group, Ristow disclosed new partner companies for the group’s Expert Warehouse program. Ristow said Expert Warehouse was created from the video side but that dealers were increasingly asking for broader product accessibility. New vendors to Expert Warehouse are audio companies Klipsch, Marantz, Denon, Paradigm and Anthem and accessories vendor Monster.

Few additional details were provided in the “first public announcement” of Pioneer and Sharp’s joint marketing venture with the Elite brand at the HES meeting in Orlando. According to Russ Johnston, executive vice president of Pioneer’s home entertainment division, there’s been a “void in the marketplace” since Pioneer Elite left the flat-panel business. Tom Evans, associate vice president for the Elite brand at Sharp, said the engineering team has been working “very hard to provide a distinct product for the market” and leveraging Sharp’s 10G LCD plant to bring out a product “that’s like no other that’s available today.” Johnston told us the strategy of a home theater focused product -- nothing under 50 inches for secondary rooms -- will be preserved. The three things that the Elite brand brought to the market, he said, were limited distribution that “excludes online sales,” decent margins and differentiated technology. High-end TV margins used to be in the 30 percent range, he said, and “now they're well below that.” Johnston said Elite has to fit into the market with the same formula as it did in years past and allow specialty dealers to “take back the space.” Regarding whether the companies might explore a plasma model in future generations, Johnston cited Sharp’s leverage with its 10G LCD plant. He didn’t rule out the possibility that the Kuro brand will re-emerge, but said there are no plans to revive it “at this point.”