HTSA Members Eye Video Strategies to Fight Thin Margins

PHOENIX -- Home Technology Specialists of America (HTSA) dealers came to the buying group’s spring conference this week facing a variety of challenges from thin video margins to potential product shortages resulting from supply chain disruptions after the Japan quake, members told us Tuesday. Product availability is a major concern at Lee Hartman & Sons in Roanoke, Va., sales manager John Cosgrove told us, saying some vendors have said it will be “difficult to get product in consistently” over the course of the year. “They're telling us, ’so-and-so in Japan can’t get in a part for a board,’ and that’s throwing everything off,” he said. Cosgrove wouldn’t name suppliers but said bulletins are starting to come in about products being one of three things: “discontinued, highly constrained or forget-about-it,” he said.

Supply isn’t a problem “right now,” HTSA Executive Director Richard Glikes told us, “but I think we're going to have a problem in 90 days.” Manufacturers “are looking out and saying, ‘we're not really sure.’ They don’t even know,” Glikes said. Using a metaphor of box retailers as large-capacity steam shovels and HTSA dealers as shovels, he said, “It’s not so hard to fill a shovel.” He maintained that “the better products” are not the ones that are a problem to get. “It’s the less expensive ones that they sell tons of,” he said. Categories that could experience shortages include video and AV receivers, he said.

Russ Johnston, Pioneer executive vice president, said it’s too early to tell about supplies of disc players and AV receivers. “It could be supplies of a little chip or a cleaning component that throws off assembly,” he said. For now, the company has enough product stockpiled for sales through September or October, “but most companies are just starting to understand the lead times,” he said. Standard lead times are six months, he said, so he expects the shortage picture to start coming into focus this summer.

Video margins are the biggest challenge at Suess Electronics in Appleton, Wis., owner Tim Suess told us. The company will be more selective about partnering with vendors that are more “selective with distribution,” and will put together product packages that make pricing less transparent to consumers. At integration company Paragon Technology Group in Aspen, Colo., operations vice president Brad Whitehead said the company needs to “fight our way out of the discount mindset” when it comes to video product. “We have to say no,” and if that means making fewer sales at cut-throat prices, he hopes to compensate for the lost revenue through higher-margin product and service. Instead of dealing with sales of individual products, the custom integrator plans to focus more on design and engineering, project management and technology solutions that don’t allow for apples-to-apples price shopping.

At Paradyme, the Sacramento, Calif., specialist, video business has dropped off “a lot” due to commoditization, said President Leon Soohoo. The challenge for retailers selling video in this climate is to get back into it in a way that’s exciting,” Soohoo said. “Without margins, the guys aren’t excited about selling it,” he said. The Sharp/Pioneer effort with the Elite-branded LCD TVs could be that product, Soohoo and other HTSA members said, “but details are still hazy.” Soohoo had been a Pioneer Elite dealer and is taking a wait-and-see attitude about the new line. “Pioneer gave us a focal point to talk about video,” Soohoo said, saying Pioneer’s Kuro was the key focus of the company’s video business when it went away and nothing has replaced it. The market “needs something like this,” he said, regarding the upcoming Sharp Elite models, “but the question is, how are they going to market the message? Whether they can actually pull it off remains to be seen."

David Wexler, principal of The Little Guys in Chicago, doesn’t like what he’s heard about the Pioneer/Sharp collaboration, which will require that Pioneer Elite dealers buy a minimum amount of electronics including disc players and AV receivers to qualify to sell the Elite TVs. “They're going to force me to sell another piece of electronics to sell a TV,” he said. “We're not going to do it. If you're trying to do the right thing, you don’t leverage a positive with a negative,” he said.

At high-volume specialty dealer Just One Touch Video & Audio Center, Santa Monica, Calif., President Joseph Akhtarzad is enthusiastic about the impending Sharp Elite line. Akhtarzad didn’t replace the Kuro when it went away “because there was nothing to replace it,” he said. The new Elite line, which according to HTSA’s Glikes will comprise 60- and 70-inch models, will be that successor, Akhtarzad said. He’s banking on margins of 40 points or higher on the Elite line, and claims to be getting 35 points on Sharp 60-inch sets. A big Sharp dealer, Akhtarzad said he has already sold 100 Sharp 70-inch LED LCD TVs that were introduced this month. “It’s hot,” he said. “At $3,000, it’s a no-brainer.” Sharp is also pricing 60-inch models at the price of competitors’ 55-inch models, giving the company a “great advantage to compete with size at the same price,” he said. Despite consumers’ infatuation with thin designs at the expense of picture quality, Akhtarzad said many consumers are also looking for differentiation and are willing to pay for it. They're also willing to pay for the Elite brand, he said. “If there’s a 60-inch Sony Bravia and an Elite 60-inch, I can get a $500 premium for the Elite,” he said.

Johnston of Pioneer said details are still being worked out regarding product and pricing of the Elite line, but he believes it will be successful where Pioneer couldn’t make Elite work because it didn’t have the production capacity that Sharp has. “If the dealer is protected, if there’s no competition and you're consistent, the dealers will support you,” he said. “It’s a brutal category.” Pioneer was “beat up when we left,” he said, “but the dual-brand strategy for Sharp will work because they don’t have the same pressure to make money with Elite,” he said.

Profitability, HTSA’s Glikes told us, is the number one challenge for members in 2011. “Our volume has been impacted so we need to make sure as we're doing less business we're doing more profitable business.” They can do that by selling more “blind items” including wall mounts. “People are very concerned about the price of a TV but are less concerned about the price of a wall bracket,” he said. “Business is built on profit, not on volume,” he added. “If you want to make money and stay in business -- and we've seen a lot of attrition -- you need to make a profit,” he said, and you can pretty much make a profit on everything but video.” The electronics business is “a blend,” he said.