Q&A: Richard Gilkes, Executive Director, HTSA

Vendors need more outlets for their products than ever, including distributors, military, warehouse clubs and more. It's prostitution. They are selling wherever they can.

Limited distribution used to be the hallmark of the electronics industry. It is very difficult for manufacturers to keep their factories running if they limit their distribution.

Manufacturers' outlets have gotten wider and wider. That's a problem!

One thing that could be very good for the industry might be the recent Supreme Court judgment that allows manufacturers to set a minimum advertised price (MAP). This will allow manufacturers to segment their product lines and set MAPs for particular segments.

At the end of the day, everyone needs to make money. These club warehouses can survive on 15 percent gross margin. Best Buy and Circuit City can survive on 22 percent to 27 percent gross margin.

A specialty retailer needs to earn about 40 percent gross. Even Tweeter couldn't make a profit with a 41 percent gross.

The point is that different channels have different margin needs. With everyone foreboding a weak holiday sales season coming up, manufacturers might realize that setting MAPs for particular products targeted for specific channels is the way to go.

There is too much short-term thinking among vendors, concentrating on end-of-month or quarterly numbers. I believe it's a long-term game. I am disappointed when I see some of the tactics vendors go through to move merchandise.

I would rather see them stay true to their brands. Doubling their factory size will catch up with them eventually.

Overall, the market needs to say nimble and adept. Some mass-merchandiser or warehouse club is going to be selling a 42-inch plasma for $599 this season, hoping that they can sell a bracket, installation and service agreement to earn 10 points. That's crazy.

HTSA members are in a good place right now. The wealthy still seem to be buying.

Our members have moved away from competing in the low-cost flat-panel market. The biggest problem facing custom installation companies is their efficiency.

Many companies operate with six-week backlogs due to finite labor. Most consumers don't want to wait that long.

In what areas can members expect growth?

I have identified six categories for improvement for HTSA members:

• Networking: Every house needs a home network.


• Lighting Control: Selling lighting control helps sell audio systems.


• Furniture: Mass merchandisers do a lousy job selling furniture.


• Control: Our members are already selling control systems, but they need to sell more.


• Audio: We've been distracted by video. We need to use the iPod to reinvigorate audio sales.


• Dedicated Home Theaters: I am not talking about multipurpose rooms, but big-ticket dedicated spaces.

Some HTSA members want the group to grow larger. You currently have 62 members and 43 vendor partners. Why have you resisted changing the bylaws to allow for more membership growth?

We could have 400 to 500 members if we reduced the requirement to $2 million or allowed appliance resellers in. Four years ago, we changed the bylaws to allow non-retail, custom-only companies into the group.

We did that because many of our members were migrating to custom.

We have 62 members now, but I don't think we will ever even get to 75 members. I don't want to be 100 members.We have two annual events that would lose their personal touch if we grew that large.

We like to have lots of fun at our spring and fall events, and that size of an organization would change the fun.