Real Evidence of Channel Breakdown

When you can get certain products from Amazon, for less than local distribution, delivered to your door (in our case, free, and usually within a day or two as Amazon has a major distribution center in the Phoenix area) and points accumulate in an AMEX account, just what is it I am missing?

The Channel is suffering from Manufactures who sell direct, and Distributors that are getting into Manufacturing or direct importing to cut the manufacturers out of the loop and increase margins. This will continue until groups of large manufacturers and distributors say no more. Manufacturers need to classify and differentiate between resellers and distributors and retail stores. It starts when companies start to sell direct because they get pinched on commodity products they are typically sold with good margins (these Items are money makers for Manufacturers) and for the distributor and the reseller but distributors wants more as Margin, as they have eroded over the last 5 years and they are looking to grow.  Then the Manufacturer is forced to compete with Job Shops and import products that have no brand or warranty just to keep commodity items moving in the market space and they do what they can to make sure that commodity business does not erode. Then you have large online and retail stores that buy at distribution pricing and selling direct to consumers cutting the installer and distributor out of the loop. And if that is not enough there are the Retail stores that try to become distributors and take the install market away from true brick and mortar distributors or E Distributors. It has become very competitive and most of it stems from an Identity crisis that Manufacturers who sell direct, Distributors who have a direct sales channel to government and consumers, online stores and big box retailers are trying to become distributors, and everyone having to try to maintain growth and increase revenue during a recession or economic down turn if you prefer. The Problem is you can’t go back, and too many people are making short sided decisions without looking at the big picture, so It will either get fixed when people have had enough, or it will at some point destroy the channel completely and then it will be a free for all that will hurt everyone.

@ Michael Hamilton

In most cases, “what you are missing” is the warranty!  Amazon IS authorized to sell many product lines…but NOT their affiliates!  I have seen Marantz and other protected lines being sold through Amazon…Amazon sells for full MSRP, but their affiliate dealers sell for quite a bit less. Your customer may end up with the shaft if they ever need a repair or replacement.  BE CAREFUL!  (and remember, if a deal looks too good to be true, it usually is!)

@John

We get incidental things like a non-HES channel mount, or items that aren’t in our programs.
We don’t buy serial-number worthy things.

But it’s the knicky-knacky things like that which are quite a bit higher in price at the distribution level.

Monoprice is also a great place to get cut-in rings, cat 5 ends, etc. We’re in their best price category and if ordered by 2:00PM PST, it shows up the next day to Az for $4.95 (multi-hundred dollar orders).

Shelves? Who can afford shelves any more? Don’t you read your own magazine? When 4letter distribution chain and their Parent sell for more than Amazon, CDW or eBay- what do you expect? Remember the fight against iPods? We lost- you led it, we remember. All electronics, Monoprice, MCMelectronics are the place to get accessories- let your client buy the equipment direct. You charge for installing it.

Why buy such large quantities and not join a buying group like Brandsource’s HES? If you’re acquiring for inventory, a gathering of like minded people with a huge open to buy budget can go a long way to improving your bottom line AND strengthening the channel. Aside from premium TVs, e.g. Runco and Elite, you’ll never get rich just selling TVs. You can make a few dollars more, though.

We routinely buy all of our incidentals; inexpensive routers, WAPS, HDMI cables, NAS drives, etc. at Amazon.  Free two day shipping and extremely easy ordering,($3.95 next day delivery).  These items are sold as a package including setup and configuration and are generally a very profitable line item as the client isn’t dissecting each piece of gear that makes up the LAN/WLAN system for example.

We’re happy for clients to supply their own TVs (or we’ll supply for a 10% mark-up) then we charge for installation, brackets, cables, baluns, remotes, etc.  The TV source just might be Amazon with free shipping depending on the distributors price.  Rounding this out are good profit margins on the speakers, amps, brackets, cables, baluns, remotes and labor.  It works.

I would be interested to see how much revenue the commenters who let their clients buy the parts on the open market do in a year.  I’m guessing that companies doing a couple million or better a year in business don’t tell the client to provide the stuff.

When dealing with the centralized procurement of retail chains or the Internet savvy consumer the argument is lost, and the service dollar too, if you try and do more than recommend. When we buy- serial numbered product- thru distribution. Everything else- bulk thru Perfect10 or other channel. And yes, we do less than a couple mill. And we don’t have the space or the credit to buy 100+ TV’s.

We also must remember that just because a dealer does a $1M in Revenue does not mean he make $1M. I’d rather generate profit than revenue - difficult to do with flat panels. if you are buying 150 panels at a time and not going direct - I would be
concerned about your profits overall…

I belong to a buying group, have been a part of HES and we STILL buy TV’s not from the group. They cost more, freight is much higher (unless you buy $5k). Inventory SUCKS whether thru distribution, direct or a buying group. You do what you have to do. We are still very profitable as it takes SERVICE as well as many other parts, components, etc. A buying group is a good idea in theory but lacking in advantage. We still belong only because it gets us additional discounts on our direct manufactureres.

I understand the benefit as an industry to belong to a group. It does overall have a more positive effect (or is it affect? ) for CI as a whole allowing more efficient measuring of volume and potentially buying power (albeit never as much as any buying group would lead one to believe). Why do I say that? I can get what I need from a multitude of sources including online and brick and motar. If you are giving away product your sealing your own doom. Customers understand you are in business to make money, if they dont, why in the world would you CHOOSE to do business with them?

It’s true that you can find any product you need for less on Amazon. It’s tough for installers to “mark up” products anymore when their customers can buy it at the same price. At Parts Express, we feel the role of a distributor today is to provide competitive pricing, in-stock same-day shipping and exceptional customer service, which means actually developing relationships with customers and proactively becoming a partner, offering applications and solutions to help their business grow and prosper. There still is a need out there for quality suppliers who will be with you before, during and after the sale, and will make sure their customers are satisfied when something goes amiss.

This is a great discussion everyone.  Bob Dylan said it best…“Times they are a changin”.  I’ve been in the industry for ten years, most recently owning an integration company in Chicago.  I’d like to toss out my perspective on a few topics mentioned here.  Sorry for the length, this discussion struck a chord with me

Amazon:
It’s pretty hard to resist buying parts here.  It’s by far the easiest website to search for parts and place orders.  Add “Prime” to the equation, where you can have parts shipped for $3.99 the next day and it’s really a no brainer.  The downside of course, as mentioned here, is that our clients can take advantage of the same low pricing as they have the same access we do.  I’m not sure we’ve seen it affect us all that much (yet).  Not counting TV’s (i’ll address those separately), the selection of parts for the custom world is still pretty low.  Most of the items we purchase from Amazon right now are small parts and adapters or no margin items like BluRay players.  These are such small line items on a proposal that you can still add a markup and the client won’t focus on them.  Most of the great brands that we support are still protected from Amazon.  If a client really wants the cheap Polk speakers on Amazon, and that’s what their hot button is, let them have them and move on.  In our experience this customer is the exception not the rule.  Hopefully our brands will remain protected though.  Some manufacturers may eventually feel forced to convert their products and join the “whore” brands found on Amazon.  Lets hope that the channel stays strong enough to avoid this.

What I take away from Amazon is how darn easy it is.  This is what we need for our industry.  If there were a place we could go to buy all of our custom brands we may be able to start to repair the channel breakdown over the web.  I’m not talking about just making supplier websites easier either.  I mean everything.  I want to see a place that is insulated from the consumer where we can buy everything.  All of our brands should be in one protected place and we leave the brands that have decided to market to the consumer on Amazon.

TV’s:
The no-margin TV is a sore spot for all.  The way I see it though is that it’s not about how bad it is right now, it’s about how good it was.  We need to accept that we can’t make great money on TV’s now and focus our energy elsewhere.  Our company has always seen the TV as the catalyst to closing jobs.  We still sell TV’s but in more of a concierge-type way.  We found that if your client is going to shop you on price they are going to shop the TV every time.  At first we were frustrated and took the attitude of, “fine go buy it yourself” but we quickly realized that it was a decision clients could not make quickly and it always seemed to delay the start of a job.  Now, we embrace the TV and use it as an opportunity to gain trust and give the client a great deal.  We now tell clients, “go ahead, hop on Amazon and whatever price you find we’ll match it locally”.  Customers love it and with certain brand parameters of course, they are able to make very quick buying decisions.  The truth is that we usually pick the TV, we just encourage them to compare our price on Amazon making them feel like part of the decision.  To make this happen we partnered with a large retailer in our area who is able to match those Amazon prices and in most cases give us a cost of $100-$200 less for our steady stream of sales.  It’s an extremely low profit (if any) sale for them, but they know that the TV will not come back if we are involved. 

For those companies out there that are able to buy 100 TV’s at a time in order to gain margin, I envy your ability to sell inventory that quickly.  Most of us just can’t.  I wonder though how much extra margin you are able to squeeze out and whether it’s worth more than the opportunity cost of that large cash spend.  Again, I believe that if there were a tool where we could all buy TV’s from the same spot, in a way that is as easy as Amazon (or large retailers) that we may start to be able to get some margin back.  Duh, “it’s called a buying group” you’re going to say, but the feedback we seem to be hearing from traditional group members (@Tuck) indicates that they don’t have a much better solution.

Rep’s:
I’ll venture a guess that any integrators out there who have been able to compare purchases from Rep’s, Distribution and Direct over the last ten years will tell you that (generally) the reps provide the best service.  The rep model forces them to eat what they kill… no sale, no pay.  It behooves a rep to provide better service in order to protect their commission stream. The problem though is that the world has changed.  The economy is not as strong, the average family can’t pull free money from their mortgage to pay for nice A/V systems like they used to.  Manufacturers are forced to make changes to maintain (not necessarily increase) margin in order to survive.  When forced to make cuts it’s tough to argue with the fact that rep’s aren’t as valuable as they used to be.  The world is much more connected now.  Technology allows manufactures to reach clients like never before.  I’d like to hear what other integrators have to say, but for us we found that once a rep signed us up to buy a brand, we hardly ever needed them again.  They were always there for the “purple squirrel” technical issues, which is great, but on a regular basis they just weren’t needed.  Is that money well spent for manufacturers? It’s tough to say, but we’re now seeing indicators that it may not be.

Potential Solution:
I mentioned the idea of having our own place where we could go to search for and buy parts.  Well about eight years ago I started to build a software system for our own company that did that.  In recent years I shared it with a few integrator friends so we could pool our efforts and reduce data entry.  Over the last year we took everything we learned while using this system and determined that in order to make it as easy as say Amazon (lofty goal I know) we needed to invite the entire industry to help out.  I have since built a brand new system that allows the A/V industry to more easily find and purchase parts.  We’ve already got a bunch of manufactures and suppliers to help us out (100,000 parts are loaded) and i’d love to get your thoughts.  The system is free and we’re going to release a closed Beta in late February / early March.  We’ll choose 50 companies to be the first to try it out and steer the development.  The system is called “SupplyStream”, our domain is “mysupplystream.com” if you want to learn more.

Gotta love it.

http://www.theverge.com/2012/1/9/2690504/crestron-zigbee-project-cayman-home-control