HTSA Dealers Say They See Lots To Like About Nationwide Alliance, But Questions Loom

With Think Big Think Together as the HTSA conference theme, HTSA Managing Director Bob Hana opened the meeting Tuesday with the bombshell that HTSA formed an alliance with Nationwide, the mammoth marketing and buying group best known as the buying group for white goods. The companies called the move “game-changing” for the CE world. They will remain independent organizations to maximize individual strengths but will work together “cooperatively” to expand member benefits, bolster vendor relationships and leverage strengths in marketing, demand generation, credit card financing and warehousing, they said.

As part of the alliance announcement, the organizations said Nationwide restructured what was its SEN (Specialty Electronics Nationwide) segment to become Home Technology Specialists Nationwide. In a meeting with journalists, Nationwide Senior Vice President Tom Hickman said the name change was made “to better reflect this alliance.” Despite the similarity in names, HTSN and HTSA are not coming together, HTSA board member Brian Hudkins said. HTSA has about 60 members vs. HTSN’s 400, Hana said. Sharing the Home Technology Specialist name “bonds the alliance,” Hana said.

Daniel Woody, president-Residential Technology Systems in Plymouth, Minnesota, compared the nascent relationship to a first date with many unknowns. Woody is hopeful about the marketing possibilities but doesn’t know what the costs will be to his business. “We like each other,” Woody said of the two groups, “but are we going dutch or are we picking up the bill?” A lot still has to be worked out, he said.

One dealer who asked not to be named told us he was concerned about diminishing the HTSA brand as a result of the alliance. He recognized the relationship's “give-and-take,” acknowledging the benefits his store could gain. But “it’s like if you had a Mercedes store and all of a sudden you’re selling Hyundais, too,” he said.

Brand dilution was initially a concern for HTSA board member Navot Shoresh, principal-Spire Integrated Systems in Troy, Michigan, but after looking deeper he found there will be “very clear definition between the two groups,” he said. HTSA will maintain its exclusive status, he said, adding that HTSA gets a lot of interest from outside dealers who want to join. Many applicants are rejected because they don’t fit the profile the group created around a "higher level of production,” Shoresh said. The minimum annual revenue at one time was $5 million, but that has come down and is more fluid now to where a dealer could generate $2 million and join the group, he said. "It’s more about their structure, their culture and the means of operations,” Shoresh said. Likewise, a large dealer could do $6 million in business but not fit the profile, he said.

A lot of companies that approach HTSA about joining haven’t established themselves in business long enough, Shoresh said. The alliance could be a good fit for dealers that don’t quite fit the HTSA profile but could grow into it through HTSN, he said. “We could place somebody in good hands where they could get some structure,” he said. Down the road, if the dealer grows, it could come back to HTSA and reapply, which would benefit HTSA and HTSN members, he said.

HTSA dealers we spoke to were most enthusiastic about the better financing afforded by the association with Nationwide, a $15 billion organization. Each swipe of a credit card costs a merchant a percentage of the sale ranging from 2 percent to 5 percent, Hana said. “It’s a huge cost of business to every retailer,” he said. Leveraging Nationwide's volume enables lower credit card rates, something The Sound Room President David Young told us could shave a half to a full percentage point off the cost of sale. “It’s huge,” Young said. “We do a lot of business with American Express.”

Credit card fee savings alone could total $8,000 a year at Spire, Shoresh said. Those savings would more than pay for the $7,500 annual HTSA dues, he said. Assessing other potential financial benefits from the alliance, Young and Shoresh spoke hopefully of more attractive TV pricing from larger vendors to put the specialty dealers on a cost level closer to that of big-box retailers. Also, Young said, being able to offer zero percent financing through Nationwide’s program could bring in “aspirational” customers who covet Sound Room products but couldn’t buy an expensive system in the past.

The smart home is the technology peg on which the alliance is based, representatives of both groups said. “The appliances are getting smarter and smarter, and all of these things sit on the same networks,” Hana said. “Our people put those networks in, they service them, they enable them, and it’s the sweet spot where everybody’s going to want to be. You own the network...,” he said of the increasingly connected world, “you own the home.”

Aligning with HTSA was a critical move for Nationwide as appliances get smarter, Hickman said. It was important for Nationwide to team up with a group that had technology proficiency because “that’s where the business is going,” he said. “If you start to look around corners to where this thing is going to be, this alliance gives us a leg up on everyone to get there faster,” he said.

Each organization took care to sing the praises of the other, reinforcing the synergistic nature of the relationship. HTSA members will benefit from Nationwide’s clout with credit card points and a facility in Atlanta that produces sleek videos and print ads, Nationwide CEO David Bilas said, but he pointed to the room where HTSA dealer members were meeting and said, “The knowledge is in the room we just left. That’s what they do every day. We don’t possess that, and they do.” Each company can leverage the assets of the other “to become better at what they do,” he said.

The groups will continue to have separate meetings in the spring and fall, but they will likely partner “where it makes sense,” such as at CEDIA Expo or CES, Hickman said. Bilas quipped that he’s going to HTSA’s spring 2016 meeting in San Juan, Puerto Rico, “whether they come to our meetings or not.”

Hudkins used an education metaphor for the two groups, calling HTSA “graduate school” and HTSN “college.” Some HTSN members may go on to join HTSA if they grow their business to an appropriate level and there’s the “right fit,” Hudkins said. The goal for HTSA is to grow to 80-100 dealers, he said, and HTSN can be a “school” for dealers wanting to get into the connected home before they graduate to HTSA. Bilas said: “Whether it’s through college or elementary school, we want to help these people get better at what they do,” and HTSA is “a world-class organization” with “tremendous leadership. We want to learn from it and grow with it.”

Sharing will begin at Nationwide's Atlanta facility where it produces videos and holds educational events, Bilas said. The Atlanta center will be open to all HTSA members to use, and Nationwide hopes to have all HTSA there at some point, he said. Costs haven't been made public. The Atlanta center offers seminars on topics including delivering products and selling service contracts.

HTSA board member Leon Shaw said Nationwide’s platform for delivering information to dealers will help dealers keep pace with increasingly complicated technology. “Our products aren’t getting easier,” Shaw said. “They’re getting more complex to install” and being able to log in to Nationwide’s platform to watch an installation video for a product like an Autonomic music server would be a welcome addition to the installation toolkit, he said.

Hana said Nationwide has its own YouTube platform, as opposed to “randomly associated videos you may or may not be interested in.” In the future, HTSA members will be able to go in and go to specific sections for certain vendors, he said. HTSA dealers will be able to use the platform to train installers, a growing issue for the industry. “We want younger people to come in, and they don’t graduate out of college knowing this,” he said of electronics integration know-how. It can take installation companies six years to "ramp up a new employee," Hana said, calling it "insane.” Being able to accelerate training through videos is “industry-changing,” he said.

Access to Nationwide’s production facilities holds value for smaller vendors, too, Hudkins said. He cited a company like Leon Speakers that offers customized speakers to fit a specific application or Seura TVs that can be custom-fit to locations like bathrooms. If there’s a website Hudkins can show his customers, “it’s not just some brochure,” he said. A video can better explain the benefits of custom electronics “and make them tangible,” he said. “I don’t even want to know how many millions of dollars are invested in the Atlanta facility,” he said, “but to have them available is incredibly powerful.” Nationwide has been investing in the facility for more than a decade, Hickman said, and it supports more than 3,000 independent retailers.

Woody of Residential Technology Systems believes the videos can show what HTSA dealers offer in a way they haven’t been able to do with glossy publications. He likened his company’s systems to a chef preparing a meal versus offering individual ingredients. Showing a video of the types of automated home systems his company can do will create what he called an “aha” moment for prospective clients. Once they’ve seen a system in a video, “they could be 50-60 percent committed before they pick up the phone,” he said.

Video is also the preferred medium for the generation that HTSA is desperately trying to reach, which doesn’t respond to print, Hana said. “If the younger generation wants to shop something, they look at videos first before they buy anything,” he said.

Hana downplayed the potential for dealer conflicts in areas that both HTSA and HTSN serve, saying HTSA is underserved in various markets such as Houston and Phoenix. “We could easily have another member or two complementing distribution there,” he said, adding that HTSA isn’t represented at all in many markets. Some markets won’t be big enough to warrant HTSA representation but make “perfect sense” for HTSN, he said.

Hudkins suggested that HTSA sees the alliance as a recruiting tool for the opportunities it offers. Dealers that are likely to be part of HTSN are either already a part of SEN, not affiliated with a group or may be part of another buying group, he said.

Another recruiting tool is the Nationwide warehousing program that offers just-in-time inventory management. Nationwide launched the eXchange buying portal in March as a distributor marketplace operating in real time with up to a 15-minute delay showing inventory and pricing based on distributor capability, said Dean Sottile, Nationwide senior vice president-distribution and logistics. All of the information is presented in one place within the portal for a member to shop, Sottile said. Products range from high-end custom products to individual cable. “It allows someone to do all their purchasing in one place,” he said, and in some cases allows dealers to see competitive pricing from different distributors.

Talks for the alliance have been in the works for about five months, broached first by Nationwide, Hickman said. “We knew that we needed to compete in this space better,” he said, calling HTSA “the best in the business.” Nationwide CEO Bilas said the connected home “is going to be enormous” and to be able to learn from HTSA is very valuable. The alliance brings access to products that SEN members have had trouble getting, he said. They’d have to buy products from different distributors, which affected how they could compete, leading to the formation of the eXchange, Bilas said.

There’s no financial transfer involved in the alliance, Hana said, and HTSA member fees remain the same. They also have the choice not to participate in joint programs. HTSA membership guidelines “don’t change at all” as a result of the alliance, Hana said. “It may be a little more fluid in a sense because now we’re aligned,” he said. “We’re no longer opposing groups.”

Hudkins outlined a dollars-and-cents rationale for how the alliance can help Gramophone, his Maryland-based dealership. Hudkins is always thinking about how to drive top-line growth, cut costs of goods and reduce expenses, he said. The alliance addresses all of those points through marketing reach and better vendor programs enabled by “scale that’s unmatched in the industry,” along with lower credit card expenses, he said. “People who belong to groups like this are going to make more money than they will if they’re outside of this group,” he said.

Alliances aren’t new to Nationwide, Bilas noted. It's affiliated with the Northeast Appliance and Electronics Group, whose 535 dealer members operate as part of Nationwide and leverage the strengths of that alliance while also maintaining their own identity, he said. The two have worked together for 17 years and it has worked “extremely well” because “the more people who use” the Atlanta facility, “the less expensive it is,” he said.

Continuing the respectful nod to HTSA, Bilas compared the alliance to Marriott's owning a stable of brands, with the HTSA alliance “like having the Ritz-Carlton,” he said. Nationwide is “somewhere below the Ritz, and now we get to go there,” he said.

HTSA Conference Notebook

HTSA's Hana illustrated the Nationwide alliance announcement Tuesday with a slick video produced at Nationwide’s Atlanta production facility showing the benefits of an upscale home theater, lighting control and automation. When the video ended, he told dealer members: “Imagine if that was on all of our members’ websites,” where dealers could send customized versions of the marketing video to a designer, builder or high-net-worth client. Dealers in the audience seemed to register their approval when Hana said that in 30 minutes all members would receive the video via Nationwide's MediaNet network on their smart phone apps. All HTSA members were to receive the video “completely customized” to their businesses and available for use on their websites or as a link to send to business associates or clients, Hana said. He called that just one possibility of "what we can do" through the new alliance.

The degree of knowledge-sharing between HTSA and HTSN members under the alliance between HTSA and Nationwide Marketing Group won’t be at the level of sharing within HTSA, said HTSA board member Shoresh. He referred to best-practices trading of “how you buy stuff” and “this is how you structure a company." But sharing will only go so far on a competitive level, he told us. “Good competition in your market elevates your business and the entire market together,” Shoresh said, but “we’re not talking to the same level of sharing of what we’re doing here." Marketing strategies or strategic alliances within dealers’ markets “will stay here,” he said, referring to HTSA meetings. On where the more basic teaching of “how to operate a business” sessions will take place, Shoresh said: “Yet to be determined.” HTSA, currently at roughly 60 dealers, hopes to raise that number to 80-100 but not more, he said. "When you oversaturate a market, sharing stops," he said, which is a major reason for taking part in HTSA, he said. HTSA members share "real, deep information about how they do business," and if dealers overlap in markets "that will stop," he said.

It didn't take long for former HTSA chief Richard Glikes to respond to HTSA's new alliance with Nationwide Marketing Group. Hours after HTSA announced the alliance with Nationwide, Glikes, now president of competitor Azione Unlimited, said Azione has added five members, bringing his group's member roster to 115. New Azione members are Custom Home Technologies, San Diego; SmartHome Technologies, San Antonio; Port City Sound & Security, Wilmington, North Carolina; One Touch Automation, Westfield, Indiana; and BCAV, Pompano Beach, Florida. In a news release, Glikes, with characteristic humor, said: "We look alike, act alike, educate one another, and share, share, share." He called Azione's growth "prodigious."