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.
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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.
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According to Helge Fischer, executive director for the Catalyst AV distribution alliance, the house brand trend is “fine” for the industry.
“There is a pricing pressure in the distribution channels, especially in the low-tech end of the market such as cable, wire and entry-level products. Catalyst has for years sold its own line of cables, wire, connectors and video brackets to bring better margin to the distribution,” he says. Fischer adds that these house brands give installers “a great place to make margin. Once you are looking at more sophisticated products, the legacy brands will cover that end of the market.”
Catalyst AV board member Wally Whinna of Allnet Distributing looks at it a bit differently. “We don’t view them as house brands,” he says. “We view them as sheltered solutions that offer integrators a product that enhances their profitability while offering the same quality and features as the traditional 'name brands.' We are not interested in cutting corners but rather in creating value.”
Whinna says house brands are good for integrators. “More profit is always advantageous when it doesn’t affect the quality or reliability of the installation. Local access to these products enhances cash flow and makes sourcing easy,” he notes.
Battling Retail/Etail Buying Options
The best way distributors can stem the retail/etail buying tide among integrators is to broaden their product offerings. That’s what AVAD is doing.
“It’s always so surprising to see that so many integrators are willing to hand over some of their profits to their competition by purchasing products at etail or retail,” comments Sherman. “Integrators have options that provide them with profit margins, without having to purchase products at retail prices. We’re constantly trying to expand our product offerings to provide dealers with all the solutions they need, in the U.S. and Canada, at each of our AVAD branches, without the integrator needing to turn to etail or retail.”
AVAD has recently added Rachio, Ring, Planar, Bose Pro, Sunfire, Peerless Outdoor, Klein Tools, JVC Professional’s commercial projectors, PROconnect Power, Sumiko and Sonus faber to its linecard.
PowerHouse recently started offering Apple products so that integrators do not have to source those products at full retail pricing.
“That is where an alliance like PowerHouse benefits the integrator,” says Holzer. “Buying from etail can be dangerous too, because there may not be the same warranty or technical support available to the integrator or end user. At PowerHouse Alliance, we provide a seamless track between our dealer and the manufacturers we represent. If you buy from an unknown website just because of price, you risk receiving no support from the manufacturer or worse, you may not be able to engage with the provider if a warranty issue arises. If the motivation to buy online is to acquire cheaper products just to increase margin on the install, integrators should be careful that they may in the long term be hurting their own credibility. The quality of an installer’s work and product installed is what their reputation stands on.”
Fischer believes retail/etail and distribution can mutually coexist.
“There is no doubt that the integrators are using the retail/etail channel to procure products, low-margin products, but distributors are still doing a great job by being the local one-stop supply house, credit is available, support, training, etc.,” he says, adding, “There is plenty of room to coexist.”
Billingham at Skywalker says integrators should always try to buy via the channel when possible, noting it doesn’t make good business sense to buy at retail in most cases.
“There are many benefits that integrators who buy via retail are missing out on. For instance, profit opportunities. Buying from true distribution offers very respectable margins that can’t be matched in the retail or etail space. Another big one is better warranties. Oftentimes we can offer better warranties than what retail has to offer. For example, if an integrator purchases Nest thermostats and cameras from Skywalker AV Supply, they’ll get a five-year warranty as opposed to the two-year warranty offered in retail environments.”
Perhaps the most logical answer to the question of whether or not integrators should be buying Nest, Sonos and other name brands via retail vs. via distribution comes from Whinna at Allnet. “We have a majority of these products available for same or next day availability, at lower prices. You also do not pay sales tax,” he says.
Education, Training Offerings Are Important
Distributors know they cannot rest on their laurels.
Tri-Ed, an Anixter Company, introduced its U.S.A. Stadium Tour program over the past year and, based on the tremendous success and turnouts at those training and networking events, the company has announced additional stops for this summer and fall. The Stadium Tours provide customers with a day of networking, product demos and trainings, a Supplier Expo, and a night out at the ballgame.
According to Pat Comunale, president, Global Security Solutions at Anixter, interactive residential, IP video and cyber security are very hot categories right now.
“Consumers are demanding interactive services to control their residential systems and video systems. Our IP training classes continue to be in high demand with our customers,” he says. “Tri-Ed has been offering IP technology trainings for several years now, both on the branch level and via our national, Roadshows and Stadium Tours. We continue to offer product and technology trainings across all the product categories — IP video, CCTV, access control, fire, intrusion, sound, communications, network cabling, and home automation — to keep our customers competitive and ahead of the learning curve.”
To help integrators even more, Tri-Ed offers an IP-EZ Programming Service as an extension to the IP trainings. “It is a true plug-n-play solution that simplifies the installation process. IP cameras purchased at Tri-Ed can be preprogrammed to the customer’s specifications and shipped to them directly, ready-to-go,” notes Comunale.
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PowerHouse recently added products from Séura, TiniFiber, VIZIO and Apple. The Alliance is also focused on networking and home automation as leading categories. Holzer notes that consumers used to have just one computer in a home. Now, all the devices — laptops, tablets, phones, home automation, security and smart TVs — are connected via the network, which has to support audio, video, lighting, temperature control, and more.
“There is so much incorrect information out there on what you should and shouldn’t do, so our integrators depend on our members’ training to get the facts straight, and continuous education helps them stay sharp and consistently aware of availability on what is both new and upcoming,” he adds.
Sherman says the most popular training offerings from AVAD right now are for Ubiquiti network routers. Meanwhile, application-based, whole-home audio products, such as HEOS and Bose, are gaining more traction. Additionally, IoT product offerings from vendors such as Nest, Ring and Lutron Caséta are providing new and continuous sales opportunities for smaller jobs that have the potential to expand in scale over time.
Skywalker has also added multiple new lines, including Niles Audio, NEAR, Klipsch, Beale Street Audio, Nest, Ring and Ubiquiti. Billingham says outdoor A/V, 70V and commercial A/V have been hot categories all spring, while network training is drawing huge crowds. The distributor also created a new upfront rewards program that offers free shipping for integrators who order online among other elements.
At Allnet, Whinna says there are several hot product categories right now, including “any product that enhances a 4K sale, matrix switchers, extenders and quality bracketing solutions. Video surveillance has been an expanding sub system being installed. We sell both value, Clearview, and the higher end solutions from IC Realtime,” he notes.
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