Azione Retailers Include HES Defectors, Buying Group Novices

Vendor attendees at the launch event included multiple representatives from Harman, Nortek subsidiary Elan, Peerless AV, marketing company Revenew Systems, Universal Remote Control and SurgeX. Other vendor attendees with single representation included Access Networks, Almo Distributing, Canton, Digital Projection, Epson, IC Realtime, Integra, JL Audio, Leon Speakers, Liberty AV Solutions, MCS Productions, Merchant Lynx, Monitor Audio, NetSertive, Perfect Path, Salamander, Seura, Sonance, Stewart Filmscreen, TCF Inventory Finance, Warrantech and WyreStorm.

In an informal survey of Azione dealer members, Consumer Electronics Daily found that some dealers were joining a buying group for the first time, while others were lured from the HES buying group, where they were dissatisfied with various issues including group size and product availability and procedures through Brand Source’s Expert Warehouse. Patrick McFadden, president of The Big Picture Home Theater Company in Wilmette, Ill., a “guest” dealer, said he was leaving HES to join Azione because the latter is a “tighter-knit group” that “sets the tone for vendors that we're all in this together.” Historically, McFadden told us, buying groups are “all about beating up vendors for lower prices.” At Azione, he said, his hope is that “we'll talk to each other and it won’t be adversarial."

Dealer Stone Glidden, of King of Prussia, Pa., quit HES to join Azione because of a better fit with other member dealers, said Tom Stone, principal. HES included members from high-end AV, big-box retailers and appliance stores, while Azione is “90 percent custom installation like us,” he said. Azione will give like-minded dealers a chance to form a “brain trust,” Stone told us. Enough good ideas will “more than make up for” the $3,000 annual member fees, Stone said. Although any volume discounts that accrue from the buying power will be welcome, Stone said, “It’s not just the dollars and cents. It’s the ideas that come out of the group, finding ones that are applicable to our business and doing them,” he said.

Several dealers referred to the need to find ways to build profitability in the wake of plummeting video margins. “It was time to do something,” Gene Crawford, owner of Crawford Entertainment Systems, of Louisville, Ky., told us, on his decision to join Azione. “Given that a 55-inch TV has the margin of a pen, we're all looking for ideas,” he said. “What do you do now?"

Smart Home Theaters, of The Colony, Texas, left HES several weeks ago because “inventory wasn’t available as often as we wanted,” said Pat Devlin, president. Devlin hopes Azione will be more valuable in helping business development. Custom Audio, Erie, Pa., joined Azione because of the product mix and the opportunity to share ideas, owner Sondralee Orengia told us. Orengia, who hasn’t been part of a buying group before, doesn’t know yet whether the financial benefit will outweigh the cost of membership, but “we're looking for contacts and someone to call when we have questions.”

Custom installation company DES, of Springdale, Ark., left HES recently to join Azione and “make relationships,” said Kevin Lambidonis, CEO, who said he felt “indifferent” to HES because “it was too big.” The dealer carries a lot of brands in the Azione portfolio, Lambidonis said, and the fit was natural.

Colorado-based custom installation company ESC hasn’t been part of a buying group in its 24-year history, said David Daniels, CEO, who said the draw to Azione was the “potential to make more money.” Daniels wanted to be part of a group that included dealers and vendors, and he hopes to learn from other dealers “what they do well.” Automated Environments, Phoenix, joined Azione to get “deeper discounts and increase profitability,” said Eric Knez, chief operations manager. The product lines are “things you can count on,” he said, saying the benefit to share ideas with other dealers “pushed us over the edge."

Word of mouth could work in Azione’s favor as the group seeks to expand and reach its interim goal of 150 members by year-end. Myer-Emco founder Jon Myer, whose first firm has shuttered is part of the group in his new Myer Connex venture and Phoenix-based Custom Systems Integration joined because of “dealers here I respect,” CEO Eric Hulstedt told us. “If they made the decision that says a lot,” Hulstedt said. Hulstedt joined Azione from HES, where he experienced “headaches dealing with different people and getting product.” At Azione, he’s hoping for more insight into how other independent dealers run their business and for “better programs."

Azione came to St. Louis this week with lofty goals, including reaching a dealer roster of 250 companies and the hope for a private-label brand, Glikes told attendees at the kick-off meeting Tuesday. Eric Thies, CEO of Los Angeles-area DSI Entertainment Systems, told the group he’s excited about the idea of “leveraging buying power” to have manufacturers build products “no one else can buy.” Right now, a company would “tell us to get lost,” based on the dealer count, Thies said, “but if we had 250 members” and could guarantee a vendor “hundreds of thousands in sales,” vendors would listen, he said.

A private-label brand is exciting to Thies because “we all buy the same type of commodity products,” he said, and “you can find almost anything on the Internet for a lower price.” With a private label, “we set our own margins,” he said. Custom installation dealers all need a “really good mix of high-profit items because we're having everything taken away from us one by one,” Thies said, citing thinning margins on TVs, source gear and touch panels, all of which used to deliver respectable margins. “We have to get as much margin as possible on items we do sell,” he said. While Glikes supported the idea of private-labeled products, he cautioned that barriers to entry were steep. “I'd love to go to a TV manufacturer and say, ‘give us a great 55-inch TV and let us make 30 points,’ but they'd want 10,000 units,” Glikes said, adding, “I've been down this road before."

Manufacturer executives we canvassed said they think Azione faces abundant challenges launching a private-label venture. Speakers would be easier to private-label than electronics because of all the regulatory issues and procedures involved with electronics, said Mike Pyle, global hi-fi market manager for Harman’s Mark Levinson and Revel brands. Getting regulatory approvals for electronics is a “much more expensive process” than for speakers, he said. Elan parent company Nortek is the largest vertically integrated manufacturer globally with a $1.5 billion manufacturing facility in China, said Jim Koenig, western regional sales manager for the Elan and Sunfire brands. Numerous questions loom about private labeling, Koenig said, including whether Azione could meet minimum purchase volumes, who would handle R&D and warranty issues. He cited several “intangibles,” including quality control problems for which China is “notorious.” If Azione bought a thousand pairs of speakers and 100 were bad, “who would eat them?” he said.

Brand credibility would also be an issue, he said. Consumers want to know a brand’s legacy and who will support the brand, he said. Nortek knows because the company launched its own brand, Aton, in 2007, Koenig noted. “People said, ‘if I don’t know the brand, I'm not buying,'” he said. Jason Sloan, chief sales officer at Sonance, was noncommittal about whether his company would build a private-label brand for Azione, especially based on current dealer numbers. That decision would be based on volume commitments, he said, saying “hidden costs are hard to articulate” and the decision, when the time comes, will be made on “running the numbers to see if it makes sense. It’s all math,” he told us, but “as the group grows, I'd rather be on the front side than on the back side.”