Distributors Expand House Brands to Pump Up Integrator Margins
Distributors invest in house brands and add products from Apple, Bose and others to stem the growing retail/etail buying trend.
Distributors continue to play an increasingly important role in the custom electronics industry supply chain as valued partners for integrators in terms of education, inventory management, product recommendations and even specific assistance on project design.
But there is one trend that is a bit alarming in the industry: the increasing number of products being purchased at retail.
According to the 2016 CE Pro State of the Industry Study, 37 percent of all product purchases by integrators are made via distribution, while about 40 percent of purchases are made factory direct from manufacturers.
However, both percentages have slowly decreased over recent years as integrators find themselves purchasing more products at retail/etail, eliminating their opportunity for a solid equipment market. Retail/etail is now the source for more than 23 percent of all products bought by integrators.
We are not talking about just hand tools, but touchpanels, flat-panel displays, thermostats and wireless audio are just some of the product categories integrators are buying at retail, thus losing the opportunity to gain significant margin.
CE Pro 2016 Guide to Distribution
In response to those recent trends, distributors are responding with the introduction of “house brands” in certain product categories. These house brands are designed and engineered by distributors, then usually outsourced to a third-party manufacturer to build to the spec.
So instead of being the middle man in the product sales chain, distributors are able to control the product specifications and the supply. But most importantly, they are able to offer the products at a lower price point, yet higher margin, for the integrators.
CE Pro spoke with several leading distributors about this trend, as well as what is happening in education, the growth of product purchases via retail, and general product trends.
'House Brands' Are Not All Equal
Dennis Holzer, executive director at PowerHouse Alliance, says the 12-member group has developed house brands for several categories.
“We continue to monitor all categories for opportunities that may make sense for additional house brands in the future,” he notes. “House brands can be both good and/or bad for integrators depending on how a distributor approaches them. Sometimes, a distributor selling house brands will buy off-the-shelf products from overseas, but not necessarily from a tier-one type quality manufacturer/vendor that invests a significant amount of dollars on research and development to ensure the product and quality is top notch. In this case, house brands can be bad for integrators because quality is not the No. 1 factor; it is simply a battle to sell at the lowest price.
“However, PowerHouse Alliance has migrated to house brands only with high-quality products and manufacturers that simply remove some of the fancier features that may not be necessary for every install, to make a stripped-down version that is durable and also has good margins. In this case, house brands are good for integrators, because they can have confidence knowing there is value and support in the products they sell,” notes Holzer.
At AVAD, David Sherman, vendor business manager, has a similar message.
“We are constantly evaluating the needs of our integrators to guarantee that we can offer solutions that meet the needs of our customers,” he notes. “Currently, AVAD has expanded and developed two brands, PROconnect and Proflex, that provide integrators with robust structured wiring, wall plates, HDMI cables, power, mounts, racks and accessories, subwoofers and soundbars. We hope to grow the list in the future, as we’re working to identify more of our own, in-house brands to provide our integrators the best solutions for any project.”
Sherman continues, “House brands have the potential to offer an exceptional value to the end user and should provide a fair profit center to the integrator. However, there is a fine line between a product being good for the dealer and being good for the client. The goal, we believe, is engineering product that does both. The PROconnect and Proflex lines, designed and engineered by AVAD, are created with the client and the dealer in mind.”
Another supplier that has jumped both feet in on house brands is Skywalker AV Supply.
“At Skywalker AV Supply, we believe it’s a good thing,” says Phil Billingham, marketing director. “With the rise of online shopping, the market has changed dramatically. The ability to help dealers compete with retail has become more of a challenge than ever. Consumers can effortlessly price check the dealers on just about everything, which ultimately eats into their profit. By manufacturing our own house brands, we can protect our dealers from being shopped because we control the price, feature set, and availability of these items.”
According to Randy Criebaum, president at Skywalker AV Supply, “Our product mix is about 50/50 in terms of products we manufacture and products we distribute. We manufacture 12 different brands across 22 categories, including Saga speakers, Element Hz HDMI devices, Royal racks and mounts, Vivid projection screens, Retina surveillance equipment, InstallMates tools, Construct Pro interconnects & structured wiring accessories, Skyline bulk wire, and Termight drill bits. We also have three legacy brands that offer a variety of items; Advantage, Choice Select and Skywalker Signature Series.”
Distributor WAVE Electronics chose to partner with noted manufacturer Sonance on its new architectural speaker line, called Elura by Sonance. Developed as a premium but affordable range of solutions, the Elura line includes the Elura S6.5 IW in-wall loudspeaker, which employs a two-way design with a 6.5-inch paper/dry-carbon fiber cone with rubber surround and a 1-inch ferrofluid-cooled, silk pivoting dome tweeter. The amp-friendly, 8-ohm speaker is 91dB efficient, and it produces a rated frequency response of 45Hz to 20kHz.
Jason Knott is Chief Content Officer for Emerald Expositions Connected Brands. Jason has covered low-voltage electronics as an editor since 1990, serving as editor and publisher of Security Sales & Integration. He joined CE Pro in 2000 and serves as Editor-in-Chief of that brand. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He has been a member of the CEDIA Business Working Group since 2010. Jason graduated from the University of Southern California. Have a suggestion or a topic you want to read more about? Email Jason at firstname.lastname@example.org
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