Dealerscope: How have the various business influences that have arisen lately – such as supply chain disruptions, inflation, etc. – affected or shaped dealers’ and integrators’ relationships with distributors? How have they affected or shaped dealers’ and integrators’ relationships with buying groups?
Franklin Karp, CMO, Audio Video Systems, Plainview, N.Y.: [Regarding distributors and supply chain,] the well-financed ones are in better shape regarding product availability and getting allocation from their suppliers, but overall, it’s always a crapshoot. I needed a TV for myself in the bedroom and called my next-door distributor to ask what have you got in stock. And that was how I made my decision about what to buy. It may or may not have been what I’d have taken in a perfect situation, but it was something that I was OK with anyway. He had three and put one aside for me. Last year, they were dying to get rid of inventory; now they can’t get enough of it. Big change.
[Regarding buying groups], they have done a good job, without naming a specific one, of keeping members informed. Let’s face it – other than manufacturers’ email blasts that give updates, they’ve done a good job. Some do Saturday-morning updates and some do regular updates when they get information. But it’s easier for a manufacturer to give good, solid information to one source and have that source distribute it. Also, at the same time, the buying groups are giving input in forecasting based on what they’re told will and won’t be available. They’ve also done a good job taking advantage of this time to reacquaint the staff of their membership with how to sell, 1-2-3. What’s happened over the years is people have forgotten some of the basic skills, and giving refreshers and “post-doctoral” training on Salesmanship and Business Management 101 – managing inventory and client expectations — is helpful. They’re doing constant reminders about keeping focused and keeping the ball bouncing. That’s important because it’s human nature for people to get lazy, especially when business is really flowing in and you can’t possibly handle it. Taking on too much doesn’t make sense. You have to keep things in perspective.
We’re all in the same boat, and I don’t have better access than anyone else to equipment. Some manufacturers are being very straight, and [it works best] if you manage your business and project out realistically and are not putting phantom purchase orders in, so that when it comes time to ship, you don’t need to cancel the order because you ordered 10 and only really needed two, but thought it would put you higher on the manufacturer allocation list. If you need, say, three processors, you will get timely information from good manufacturers, those who are really managing their processes, as to when those goods are going to ship. You can’t control acts of nature or the ships at the port, but smart manufacturers know within a reasonable amount of time when they’ll get goods.
Transparency during these times has become paramount. Working partnerships between the vendor, the dealer and the buying group in between have become more important than ever.
David Pidgeon, CEO, Starpower, Dallas, Texas: These influences bring you closer to the distributors. Now, they have become even more important, because they have merchandise that everybody wants. It also causes dealers to plan out better with them what their needs are. You can’t be haphazard about inventory planning now and think about it for a while, because in a week, what you need may no longer be available. You have to meet with your distributors and know who you’re dealing with; it’s about reinforcing a relationship with them that allows you to plan out. The situation [encourages] you — and them —to be more organized.
With buying groups, [these influences are] huge, too. It’s also about the planning, and about the group taking care of its members — and communicating, and keeping them updated on where all the brands stand, and where they see things going. A closer connection to the factories is made through your buying group. The groups also have the ability to do training and give you a sense of what’s going on in the country, and to work with you, hand in hand, and in helping the dealer make decisions. They also have the means to provide and share research, so that their members can have a little more foresight in their planning.
Robert Zohn, President & Founder, Value Electronics, Scarsdale, N.Y.: We’re buying more and stocking up when any audio or TV products become available. And we’ve added a few select brands to help us get a better supply.
Distributors and buying groups are very similar in how they work… In promotions and training, and in providing dealer assets and marketing funds. All seem to work together with manufacturers in concert on those programs. Distributors do cooperate in programs and all sorts of training that the buying groups do.
Inflation has been a factor… there have been price increases on quite a few items. Usually, you see prices go down, not up, so it is a bit surprising. Things that have gone up are mostly audio receivers and speakers [with both distributors and buying groups]. TVs didn’t really change much in price.
Inflation has only moderately affected things, though, as far as reducing business, because if you need to buy something, you need to buy it. And the price increases haven’t been very large – they’ve been about 10 to 15 percent across the board from most companies, mostly, as mentioned, on receivers and speakers. Hardly anything else moved [in price]. And receivers are the hardest items to get; they come in, but in very small, unpredictable allocations. It’s just a shortage of supply. And it seems to be the same case for the big-box stores as well. I don’t think manufacturers are favoring the big-box stores, as far as I can see.
Relating to the supply chain, we try to place our orders frequently, in a timely manner, as early as possible, and often. So we’re placing more orders than we normally would. And we try to be quick about placing the orders when the opportunity opens up from a distributor or a manufacturer [for those brands we buy direct from manufacturers]. If it’s a new product launch, the day that it’s available, we want to be at the front of that line. We’re buying more when we do have access to products, so that we can stock inventory and we can ride out the slow times when inventory isn’t available, And we’re carrying more brands now — we’ve broadened our brand portfolio a bit, of necessity. That’s something we ordinarily wouldn’t do. We carefully select products that we love and like and want to do business with, and also because we don’t want a lot of brands, we want to be more important and sell higher volume with the few brands that we do select and that we like. We want to be loyal to those brands when we can, but we have spread out a little bit further — absolutely of necessity.
Dealerscope: What, in general, is most helpful to your business during COVID about distributors, besides getting timely delivery and good pricing? And what, in general, is most helpful to your business about your relationship with your buying group during COVID, besides getting good pricing?
Zohn: [Relating to distributors,] getting timely ETA status reports so we can plan with our clients and accurately schedule jobs.
The Number One most important service a buying group does for its members is negotiating the best possible program with each vendor. Pricing and volume rebates are just part of the vendor program members enjoy. We also get marketing funds, priority allocations, and manufacturer support. I am very partial to my buying group, which offers many training programs for new custom installers just starting in the industry as well as lighting and shade training and certification classes. They also have digital marketing tools and training as well as great prospective employee assessment interview questions.
Pidgeon: The really good distributors want to help you and want to be there to work with you and help you get a plan together, versus just “taking orders.” It’s them being more organized and knowing what their inventories are, and knowing where they can help you in working with your people — not only in training but also in giving them the ability to see what’s in stock for quick delivery. They’ve sharpened those skills over the last 18 months. It used to be mostly order-taking, but now, it’s not that way. They are only getting so much merchandise [due to the supply chain situation], and need to know who their real partners are. This is where you find out what your relationship is. Because a true partner works with you and helps you out, and doesn’t just worry about selling to anyone, but rather, selling to the people who are committed to them. If you truly partner with a distributor, they’ll partner back. And their and your loyalty means a lot during these tough times. Also, these are the times that show you who your partners and friends are, and who’s committed to you. You have a clear sight, and it has also given everybody an opportunity to get more organized with the inventory they have.
The supply-chain situation may go on long, and I don’t see any real recovery till 2023, and even at that, it will be a partial recovery – it will be very strained, all the way through 2022; that’s what my sources I talk to say.
Karp: We, on our level, because of our buying group affiliation and size, don’t rely on distributors for training, per se, but I do read their email blasts. Some do a really good job of supporting and educating dealers on alternative, substitute products when needed. Manufacturers are not going to do that, but the distributor who knows there’s a problem getting a particular product says, ‘Hey, I’ve got this. I know it will work. Try it. If it doesn’t work, I’ll take it back.’ They’ll work with you, and that’s important.
Speaking for my buying group, they do a very good job communicating and supporting members and getting them to think longer term and plan out and not run around like a chicken without a head. They get their members to sit back, focus and take the longer view — to take a breath, and take a little Saturday-morning downtime to catch up. Monday through Friday isn’t the time to see what’s going on with vendors and see what the buying group is offering as far as additional training support. On Saturday morning you get an opportunity to have a cup of coffee, think, make a note, and say this is a great idea to follow up on. That’s important. Being bombarded with emails Monday through Friday is not helpful because most of these guys get a couple of hundred emails a day! Sometimes you’ve got reps re-sending emails the vendors send – not helpful. The truth is, you want more meaningful communications, but less frequently. The average guy does business with 30, 40, 50 vendors, and imagine all of them bombarding you on a daily basis with emails? No one has time for it; they’re too busy trying to take care of their established clients, let alone trying to work with new ones.
Dealerscope: In what ways can buying groups be helpful in 2022 in softening the impact and business fallout of COVID and any new challenges it will pose for you? And how can distributors be helpful in 2022 in softening the impact and business fallout of COVID and any new challenges it will pose for you?
Karp: From the buying group, I don’t foresee anything being any different, to be honest. We’re going to be living with this supply-chain issue for a long time; it’s not going away in six months or 12 months. As long as chip supply is an issue, from all I’ve read, it takes three years to build a new chip factory. There’s no arguing that. And couple that with what’s going on with China and Taiwan, and the political issue. If GM can’t get enough chips, how does a smaller manufacturer by comparison get what they need? I think we’re going to be living with that for a long time.
When a distributor or a buying group helps their manufacturers or members do a better job of managing client expectations, that’s important. Managing people’s expectations right now is the key. A year ago, when people were still hibernating – especially the kinds of clients we integrators deal with – and those with second homes and Hamptons homes suddenly found the Wi-Fi in those homes was inadequate because everyone’s online, we’d get calls from clients saying, ‘Can you update our Wi-Fi tomorrow?’ A year and a half ago, there was product supply, and people were anxious to get it done, and the price was not an issue. Our IT department was going crazy. Now here we are at this point – if you didn’t lay in critical WAP [wireless access point] inventory or switches two or three months ago, go and try and get the key SKUs now; they’re sold out, and good luck with that. Again, it’s managing people’s expectations. Yelling at the vendor does nothing. In this case, the squeakiest wheel doesn’t necessarily get oiled first.
Zohn: [Buying groups can] bring to the members’ new product categories related to enhancing work at home and entertaining around the home. They can continue educating and supporting the members’ websites and social media efforts with resources and specifically, SEO results.
Relating to control over COVID’s impact, business is up and strong because people want to enhance entertainment options in their homes; because of that, our category is on fire right now. People are staying home, and want better audio and bigger and better TVs. They’re now focused on these things — especially someone who’s an enthusiast, who is keenly focused on that. In a very odd way, it’s been a plus.
One issue is inventory; I don’t think there’s much that distributors can do about that. The rising prices? I don’t think they can do much about that, either. I don’t know that there’s much that can be done to soften the blow of COVID. Prices are going up. I think buying groups in that regard have a slight advantage because they have so many resources and programs that could be helpful.
But it’s more about the training, and getting your salespeople and your tech people properly trained to act and perform professionally. The buying groups are focused on helping in building members’ companies professionally.
Pidgeon: Buying groups can continue training, and keep up with communicating and helping people understand what they need to do to prepare financially, and to find where there are sources of product, and what is available. That’s what a buying group can do — provide its members with pathways to prosper.
The key word, in double-size, is communication – and also, using your member peers to talk through things with and find out what they’re doing, what they’re successful at and what they’re not. There are hundreds of members to talk to. That’s where shows and even Zoom calls are important. Of course, there’s no replacement for in-person; after all, isn’t that what we’re truly about as retailers? On a Zoom call, you can’t reach in and ‘high five’ anybody…
Dealerscope: Are there any ways, generally speaking, that buying groups, in addition to all the services they provide, have fine-tuned their services this year to make their function more useful? How? And are there any ways that distributors, in addition to the services they provide, have fine-tuned their services this year to make their function more useful? How?
Pidgeon: Buying groups could try and form groups of member retailers who are in parity with each other, with similar types and sizes of businesses, so that you’re working together more closely with businesses like yours – mini groups inside of the larger groups, as we go through these times, to be able to have someone to pick up the phone with and communicate with at your level. It would help dealers through these times to be able to understand options and pathways to success, and have available every possible lifeline to help each other. While business is good, you still have to deal with other issues such as employees, inventory, and marketing – they’re all important parts of one’s business, and many dealers can’t afford to go out and test things [on their own].
Regarding distributors, they can help dealers fine-tune by just sharing with them what’s going on with everybody else. They’re always really hitting the pavement – distributors are all very “ear to the ground” in your area, and should be able to tell dealers what is going on [at retail] in nearby states, to help them prepare for what’s coming as best they can. They have a great feel for that because they deal with so many different people.
Karp: Buying groups’ useful tools are training and the ability for them to do research and cultivate new categories for members to get involved with. The best example is the lighting fixture business. If not for buying groups, I dare say, 95 percent of integrators wouldn’t go near talking about lighting fixtures. The fact that they went out and did the research and plowed the ground with vendors who for years wanted to have nothing to do with the category, and did the hard work… now, I’m watching a category growing for integrators that less than five years ago didn’t even exist. That’s really something great that has been done for buying groups’ members.
Other categories integrators are in, like control, are changing. It’s not a secret that the average selling price in control systems is not going up. So how do you continue to drive up the ticket with a client that makes sense? Not with iPads. Lighting fixtures are a category that the groups have really started to exploit and train on; they opened the door and did what individual members, I don’t think, could have accomplished.
Distributors are doing the same thing. They’re watching what’s going on and I see them taking on the lighting fixture category. I see the emails and see fixture vendors who are going through distributors. The typical integrator operates [needing] a lot of next-day pickups, and that’s why the distributor is so important. Now that distributors are expanding in the lighting-fixture area, too, there are certain standard categories where you can just go and pick up a product and do a quick response to a contractor in a timely manner. Distributors get it – the just-in-time model for them is key and it’s what keeps a lot of dealers and integrators alive. And it’s more now.
Buying groups have become more important during these times rather than less important, no question. Regardless of what group you’re a member of, you have an edge by being a member of a group. Guys who are not affiliated are missing something.
And as for distributors, they’re critical partners as well.
Zohn: [Buying groups can] continue the in-person and online training for new employees and seasoned specialist training in new categories, like lighting and shades and smart house control.
Nancy is a contributing editor for Dealerscope.