PRO Group Urges Vendors to ‘Redefine’ Distribution Lines, Support Specialists

While specialty CE retailers once enjoyed a two-year jump on their big box rivals in selling new technology that required explanation, the “profitable shelter” they once enjoyed has virtually vanished, the PRO board said. “What has changed in the last few years is the period of time the industry is willing to support those best able to develop an emerging technology prior to migrating to the mass market,” the PRO Group said. “Because manufacturers have capitulated to the demands of mass retailers for greater access to all series of products, this channel found itself with less product differentiation each year while every other channel has seen their access to a greater share of brands and series of products increase."

The letter, e-mailed to vendors Feb. 4, comes as CE suppliers prepare to ship the first 3D-capable TVs and Blu-ray players that will require a sales pitch and demonstration, industry officials said. The one-time limited distribution strategies that CE vendors once deployed in introducing new technology have largely been dropped and mass and specialty chains are expected to receive 3D products at virtually the same time, industry officials said. And while CE manufacturers have previously pledged to better the define the differences between mass retailers and specialty dealers, most efforts have fallen short, according to CE retailers we polled.

"Should it come as any surprise that the higher end products and brands are being discounted in the market with the same pace as entry-level goods?” PRO said. “Once this has occurred, will manufacturers find themselves having the prospects for new technologies and step-up goods dictated to them by the same harvesters who successfully capitalized short term on the demand created by others? Most CE suppliers understand the “opportunities and risks” of selling products through chains like Wal-Mart and deliver goods targeting their customers with low prices, PRO said. But if an Internet or bricks and mortar retailer focus on fostering demand for step-up products with information, education and delivering service for new technologies, “then their product mix should be a reflection of this same set of value propositions with the consumer,” PRO said.

While CE vendors that distribute products through the PRO Group expect to increase sales with the organization this year, they will only get “incremental support” if they are “willing to properly address the current state of the market and the profit needs of our channel,” the PRO Group said. That will only be accomplished through a “serious redefinition” of speciality retailers “in both the brick and mortar and Internet world,” the PRO Group said. Products and technologies must be segmented to better define distribution channels and provide an “equitable allocation of goods that deliver a healthier balance between the large players and the hundreds of other retailers with whom you do business,” the PRO Group told vendors.

Several CE manufacturers we polled said they agreed with the letter, but it wasn’t clear whether that support will auger a return to more limited distribution. “Certainly the industry has moved to introduce technology in more of the mass channels much quicker than it used to” and “we're open to discussing trying to change the pace,” one CE vendor executive said.

The pace at which CE suppliers widen distribution of new technology makes it “difficult for specialist retailers to survive over time,” said Rick Sounder, executive vice president at PRO member Crutchfield. “We want each brand to declare and so we know what to expect from each of them and where to place our bets,” Sounder said. “The point of this letter is that they have to figure out how to manage the short and long term. Some of the decisions they have made to cope with the issues they are facing short term can have major implications for their options long term."

While manufacturers revamped minimum advertising pricing policies last year to address concerns about rampant price cutting, “end around maneuvers” were created to “capitalize” on those following the rules, the PRO Group said. Specialty retailers “are paying the price in top line volume” for following the guidelines and “it is unrealistic to expect that this can continue,” the PRO Group said. “If this industry does not wish to have only five or six customers left standing, then manufacturers must make decisions that match the behavior of the retailer.”

NBC-TV’s Washington, D.C., affiliate reported late Thursday that the seven-store Myer-Emco chain, a PRO Group member, was pulling the plug and would soon launch a 60-day going-out-of-business sale. CEO Jon Myer didn’t respond right away to requests for comment, but the report quoted him as telling employees in a letter that “our bank no longer is willing to finance the business, and this leaves us without the critical working capital we need to operate.” A visit to the Myer-Emco website late Thursday yielded the message: “Stay tuned, our new site will launch tomorrow."