PRO Group, BrandSource Finding Common Ground, Retailers Say

The buying groups had a joint vendor meeting in February where they received some interest from suppliers in special buying opportunities, said Steve Caldero, chief operating officer at PRO Group member Ken Crane’s Home Entertainment, which was attending the Brand Source summit for the first time. But some CE manufacturers wouldn’t make any commitments yet, he said. The buying groups are aligning their buying committees, while maintaining separate identities and purchase decisions.

“It may take a year before we know how this all is going to work out because you probably have to go through a full cycle of buying and pricing to fully evaluate it,” said Harry Buntyn, a BrandSource manager for the South Atlantic region. PRO and BrandSource are still working through buying programs put in place prior to their forming the alliance in August, Caldero said.

“The results might have been more visible now,” had the U.S. economic crisis not emerged last fall, shortly after the alliance was formed, said Jeff Zeglin, president of Zeglin’s Home TV and Appliance, which has stores in Davenport, Iowa, and Moline, Ill. “It’s very hard to judge right, but we're seeing some changes” in the way CE manufacturers are approaching the groups, Zeglin said.

The groups are near a jointly negotiated agreement with Samsung for access to a limited distribution line of high-end plasma sets and LED-based LCD TVs, several dealers said. Samsung’s 860 ultra-slim plasma series consists of 50W ($2,699) and 58W ($3,799) models featuring a built-in tuner, Yahoo widgets and are 1.2 inches thick. The agreement appears aimed at preserving Samsung’s LCD TV market share, while seeking to gain potential sales freed up by Pioneer’s dropping plasma TV, dealers said. “We were going after Kuro before Pioneer made the announcement, so the 860 series was already designed” to match high-end requirements, said Steve Panosian, director of marketing for plasma at Samsung.

Klipsch also will supply an exclusive line of Energy loudspeakers as part of a new agreement with the PRO/HES alliance, HES Executive Vice President Jim Ristow said. In addition to new products, BrandSource has been able to secure lower dealer cost on entry-level products, retailers said.

Some CE vendors are still weighing whether to align with PRO/HES. Mitsubishi has met jointly with the buying groups, but it plans to continue negotiating separate buying agreements and isn’t yet planning any special deals, said Max Wasinger, vice president of sales. “I'm not sure it changes things that much because we're still negotiating with them separately,” Wasinger said.

HES’ Expert Warehouse, which has distribution facilities in Atlanta, Hackensack, N.J. and Reno, has added Definitive Technology speakers and Niveus media centers to its merchandise mix. Expert Warehouse posted a 35 percent revenue increase in 2008 and is up 33 percent year-to-date, Ristow said. Expert Warehouse’s sales are nearing $200 million across 24 brands and offers free shipping with orders of $5,000 or more, BrandSource CEO Bob Lawrence said.

BrandSource and PRO Group dealers have benefited from Circuit’s demise, retailers said. In the Los Angeles/Orange County area, it’s estimated that Circuit City produced $800 million in revenue from at least 20 stores, Caldero said. And Circuit City generated $10.7 billion in annual revenue. BrandSource launched promotions last fall offering to replace Circuit gift and credit cards with its own and tacking on retail financing.

To raise the profile of the group, BrandSource plans to be “very aggressive” in consumer rebates and gift cards this year, Lawrence said. “All that business isn’t going to Best Buy and we're hoping to get a piece of it,” Caldero said. Huppin’s/OneCall has seen sales rise “a little bit” in two markets it shares with closed Circuit stores, President Murray Huppin said. In February, BrandSource launched a program offering Circuit City credit card holders a $25 gift certificate and 12-month, no-interest financing in exchange for their private label cards.

To secure more business, BrandSource dealers need to highlight their ties to a national organization, Lawrence said. CE vendors have questioned why BrandSource retailers don’t do more to promote the brand, Lawrence said. In CES meetings, CE vendors told Lawrence they didn’t “understand why every BrandSource member didn’t have the brand all over the outside of a store,” Lawrence said. “We have a huge opportunity. If as a supplier I have view of the whole market, and I grasp this and see that BrandSource has this built and ready to go, why is it that manufacturers get it better than a lot of us? We are the only alternative to the national retailers and the manufacturers don’t want to be completely beholden” to one or two major dealers, Lawrence said.

BrandSource Summit Notebook…

Despite suffering a 9.8 percent decline in major appliance shipments, BrandSource’s group revenue rose to $3.8 billion last year from $3.5 billion a year earlier, Lawrence said. The downturn in appliances has improved to a “low single digit” decline in the first part of this year, but overall industry margins are down 5 to 8 percent due to “competitive pressures” from national chains,” BrandSource said. Flat-panel TV prices are expected to continue to decline this year, with the market for “ultra-premium” products -- those priced at $3,000 or more -- virtually disappearing, Ristow said. The TV market will likely top out in the $2,000 to $3,000 range, he said. A 46W or 47W LCD will likely sell this year for $1,300 to $2,500 depending on features, while a 50W 1080p plasma falls in the $1,000 to $2,500 range, Ristow said.

----

Rent-to-own buying group Trib, which is operating its own convention as part of its BrandSource alliance, recorded $3.6 million in purchase orders Sunday during its annual “Hot Show” auction. About 400 RTO dealers took part in an auction that offered 40 products at exclusive deep discounts. The RTO portion of the BrandSource summit covers about 128,000- square-feet of the Hilton’s convention area and includes 80 exhibitors.