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Premium Emphasis Driving ProSource Tech Profits Higher

Less than a decade ago, the profits of regional specialty retailers – and even custom integrators – took a beating due to the Great Recession as well as brutal price erosion which has been the nature of consumer electronics since the Victrola phonograph.

Specialty electronics retailers followed the example of custom integrators and realized, “We couldn’t be all things to all people,” said Dave Workman, president/CEO of ProSource, the 560 member reseller buying group that represents more than $5 billion in AV and related sales. “We refocused on what we could and what we couldn’t do.”

ProSource and its members changed its business plan to emphasize premium products and services. The strategy reduces its exposure in commodity items national retailers focused on and has resulted in a 34 percent increase in premium TV sales last year, with an estimated 25 percent growth in the category during 2018.

Workman commented after ProSource’s dealer meeting in Nashville that in the volatile TV category, “We had better [sales] numbers than the industry across the board” in TV and other key home-related tech categories. “TV industry [dollar] sales were down eight percent due to commodity [models]. Our advantage is that we were run out of the commodity business years ago.” ProSource’s TV growth is an example of their entire electronics strategy as a whole, an emphasis on premium products. In this case, “OLED and large panel are our sweet spot.”

Two decades ago, TV price increases – no matter the features – were practically impossible for vendors to implement given retail distribution and the emphasis by vendors and retailers on market share gains versus profit margins.

ProSource’s refocusing on premium TVs and top line goods came around the same time Sony “realized they couldn’t be all things to all people. They refocused on what they needed to do,” Workman said. For instance, Sony began to emphasize premium TV products. As he said, “LG developed a [premium] program and this year Samsung has joined them after deciding, ‘Hey, this channel is important to us as well.’”

The result is that profitability has returned to specialty retailers and increased for custom installers, especially for $1,500-and-above premium TVs that are usually 55 inches or larger. As for services, Workman noted that large screen TVs, especially in the 75 inch category, are usually “too large for someone to put on the back of their truck and then maneuver it into place with friends.” Installation and service are keys to ProSource’s business plan to keep profits flowing.

And the profitable growth is not just in premium TVs, because last year ProSource’s audio components sales increased 23 percent while there was a 12 percent gain in speaker sales. Workman said that in addition to those two categories, the group has experienced “strong growth in Bluetooth speakers and headphones” by bringing products and deals to dealers in those areas that “are not accessible to national retailers.”

As for the connected home, Workman said, “We are knee deep” in the category in terms of installation and even in the do-it-yourself area, a term “that is for the most part, overused.” The reason is “there is still a lot of assistance required for most customers especially if you have to loom several devices together” onto a network.

ProSource is working on more programs for its membership that can be presented to customers and is looking at “recurring revenue models.” These will provide its customers with ongoing “remote monitoring capabilities” so dealers can service home networks economically on a monthly basis without the need to “roll a truck out” to a customer’s house every time there is a problem – assuming the hardware was installed properly, Workman noted.

ProSource is part of the Associated Volume Buyers (AVB) merchandising group, which also houses Brandsource. Since it has many major appliance retailers as members, the issue of smart appliances linking to a connected home systems is often discussed. Workman said that major appliance dealers will eventually “have no choice but learn how to integrate” these products “into their businesses.” He added that ProSource, AVB and BrandSource are “working on real solutions” to help retailers “deliver turnkey solutions” which will be presented when AVB meets this summer.

When that plan gets rolled out it will be based on the successful premium technology with expert installation and service concepts that have been proven profitable in ProSource’s electronics business.

Steve Smith