PRO, HES Formally Merge to Create ProSource

The buying groups have been gradually moving in that direction almost since the initial alliance was announced in 2008 and joint buying committees were later created. But the groups’ respective boards were formally combined at CES with Huppin’s/OneCall CEO Murray Huppin, who had headed PRO’s board, emerging as chairman. Hamlin & Kersey Home Center CEO and former HES Chairman Andy Kersey will be treasurer of the combined group.

To accommodate a much larger combined group -- PRO’s 15 dealers and HES’s more than 400 -- ProSource has been split into three segments, including power custom installers, e-commerce/showroom retailers, and smaller custom installers, Workman said. There are about 60-70 power custom installers, some with annual revenue around $25-$30 million, he said. ProSource expects to add a net 15 dealers this year and there will be “some shifting” of members into the various segments, Workman said.

ProSource will remain a BrandSource Division, but will have a separate profit and loss statement, Workman said. There will be separate buying group meetings for former PRO and HES dealers since both organizations had already committed to them, Workman said. But as for future gatherings, “we'll examine some efficiencies in that area,” said Workman without giving details. “PRO and HES names will go away this year and everything will be shifted over to ProSource,” Workman said. “It was confusing and the legacy names go completely away."

Many PRO members, who were cautious when the alliance with HES was first announced, seemed to have warmed to the idea of a fully combined group. The formal merger will strengthen ProSource’s negotiating leverage with vendors and resolve confusion about the group that had existed with some CE suppliers, ProSource members told us. And while some former PRO members worried about losing the tight-knit feeling of the smaller group, most seemed resigned to the need for combining the organizations.

"On paper there is a lot of synergy that could happen,” said Robert Cole, an HES president before joining PRO. “We are going to tier it so we still have the solidarity of PRO, but it’s going to be challenging and not easy,” said Cole, president of World Wide Stereo in suburban Philadelphia. “But it’s dealing with reality because the huge regionals have all gone away” and smaller dealers are now competing with national chains, he said. “The vendors will now have to stand up and respond,” Cole said.

ProSource had combined revenue of $3 billion in 2013, about flat with the previous year, as a 31 percent gain in custom installation sales and 9 percent gain in audio-related revenue was offset by a “double-digit” decline in TVs, Workman said. ProSource’s TV business could improve this year on growth in 4K sets, which are forecast to sell about 700,000 units in the U.S. this year, Workman said. “We're not in the commodity segment of the 4K business so we're not trading the dollars as much as these other retailers will, so for us it will be more pure growth,” Workman said.

ProSource will continue seeking vendor programs that will give members product or promotional differentiators, Workman said. In the past, ProSource has had deals with D&M Holdings, Klipsch and others. One program that is on hold was PRO Group’s agreement with eBay to set up “storefronts,” Workman said. About a half dozen PRO members have these storefronts and eBay will continue to maintain them, but eBay didn’t want to expand “at the rates we negotiated,” Workman said. “They have committed to maintaining those dealers that came on board. It doesn’t work for every dealer, but it really does work for the largest and most sophisticated of the e-commerce players” within ProSource, he said.