Electronics distributors adapt to downturn

In the marine electronics space – as in other sectors – tough economic conditions have forced players who want to survive to adapt.

With more and more electronics dealers exploring the low-overhead, skinny-margin Internet arena, and manufacturers looking to move inventory while controlling minimum pricing standards, distributors are caught up in the struggle, functioning as The Marriage Ref, Dr. Phil and Dave Ramsey all rolled into one.

But, of course, it’s their very nature to be stuck in the middle. So how do you step through the melee of business closings and consolidations wrought by the recent market downturn? According to some of the big names in the world of electronics distributors, you get back to your roots, while exploring some creative new strategies.

“As a 45-year-old company, when we saw we were going into a market down cycle, our efforts immediately went to our customer base who brought us to the dance in the first place,” says Eddie Winder, president of Win-Tron Electronics. “We focused on who pays the bills and have helped ourselves by helping them get through these tough economic times.”

Managing the relationships
The ebb and flow of Internet-based businesses has created a tough situation for manufacturers trying to keep the playing field level. And it has fallen somewhat to distributors to police MAPs (Minimum Advertised Price) and MRPs (Minimum Retail Price).

“We really try to make sure we are supporting both sides to help keep the price up for the dealer base so they can still manage to make a decent amount on the profit line,” says Mike Yarbro, president of SeaWide Distribution. “But there’s not a set formula. Sometimes you go to all the effort and in times like this, they just want the sale. You have to choose your battles.”

But there may be a silver lining, depending on your perspective. The companies that are succeeding now view themselves as a marketing extension of the manufacturers. And there is undeniable opportunity for distributors in forging an indelible link in the supply chain.

“Most manufacturers and reps have become more tightly knit,” says Brian Swanke, president of CWR Electronics. “Really, inventory management is the key to this business, and you have to realize that we’re all partners and work together. I think our relationships really have gotten better as we’ve become closer and more trusting.”

Tough times tend to reveal a company’s character. Take, for instance, electronics distributors that were on the outside looking in with a sizeable stack of receivables as Genmar filed for Chapter 11 reorganization last summer.

“It was tricky during the Genmar situation because we were essentially unsecured creditors,” said Brandon Lang, national sales manager for C.P.S. Distributors. “During the interim, we continued to supply the individual businesses and now our relationship with them has grown because of that. We found ways to make it work while a lot of others didn’t. Our relationships are far stronger now than they’ve ever been.”

Along with those closer relationships has also come an emerging chance for distributors to influence innovation on the product side by sharing the hands-on knowledge gleaned from dealers at the consumer level.

“We’re really teamed up with the manufacturers to help design systems,” says Larry Shandy, president of C.P.S. Distributors. “The standard boat stereos are not helping sell boats. We need things like 6-speaker, duals stations with iPod hookups that will help convince new buyers.”

Choosing a marketing strategy
Marketing strategies are constantly being adjusted to follow market trends. So when electronics distributors saw new boat sales crash, it drove innovations on the marketing side. For instance, Win-Tron began to channel its energies into the upgrade market, figuring that boaters would be keeping their boats longer, but would still have the desire to improve the lifestyle features. One upgrade example is KVH Trac Vision, which offers in-motion satellite television for viewing even while underway.

“People still want to take their family out on the boat, but they just aren’t going to buy new,” Winder says. “We’ve been seeing people making upgrades to their boat’s entertainment systems like new stereos and TVs.”

The past two years, SeaWide has taken a different spin on its traditional marketing by partnering with manufacturers for high-profile giveaways. Garmin dealers, for instance, were entered to win a BMW lease or $50,000 for qualified purchases. SeaWide has also partnered with Raymarine to offer a fishing trip with Capt. Ray Rosher of billfish tournament fame.

“The numbers don’t lie when you run a promotion like that,” Yarbro says. “The response we get not only pushes sales, but it creates a buzz in the industry. People talk about it, and we’ve definitely seen substantial sales increases.”
C.P.S. Distributors’ approach is to emphasize its ability to offer a single premium name brand to each component throughout a consumer’s boat.

“Part of our audio/video strategy is that we can deliver complete packages to boat builders to accomplish each different need,” says Shandy. “Who wants to have three or four different remotes to deal with? And quality wise, there are a lot of boat builders who are getting a rude awakening that the guy with the best sound system wins. Boat owners are used to premium sound systems at home.”

Pressure to make the best of the current economic climate has also revealed opportunities to leverage a company’s assets or play up its core competencies. Taking advantage of the stir created by the Internet – which has led to an instant-gratification mindset – CWR offers quick-ship guarantees and an extensive online suite of product downloads such as installation manuals and detailed product information.

Pursuing diversification
Several distributors are opting to diversify their businesses in today’s market, exploring other complementary product categories as opportunities present themselves.

“We’ve always been electronics to the core, but we’ve started to branch out,” Swanke says. “We now consider ourselves an outdoor recreation distributor with items such as soft goods, fenders, dock accessories and towropes. That’s now about 20 to 25 percent of our business.”

While consolidations and shuttered businesses can look bad on the surface, particularly when it means orphaned inventory for manufacturers, closer inspection shows robust and potentially lucrative activity for distributors willing to roll the dice.

“We go out and bring in inventories either from competitors who are liquidating or from manufacturers who have close-outs, exclusives or discontinued items,” says Yarbro. “It’s a little more of a gamble, but we’re always looking for that key opportunity to put us ahead of the game.”

Looking forward
There are signs that things are starting to turn around for marine electronics distributors. Not big, in-your-face, signs but signs nonetheless. The perfect storm of 2008 still looms as a cautionary milestone, but there are enough small indicators to justify an undercurrent of hope.

“We’re seeing more signs of life as dealers are adding stock,” Yarbro says. “And we’re absolutely putting more people on the ground this year to get in front of our customers to sell product and service accounts. The problem now is in shortages from manufacturers that scaled back production. We’re starting to see demand catching up with the supply.”

The noticeable uptick after a couple of years of tentative sales has made even the most jaded distributors take notice and begin to adjust their game plans accordingly.

“We’ve taken a more aggressive approach after being fairly conservative last year,” says Lang. “We’ve ramped everything up with more travel and more face-to-face time with customers.”

As the playing field has been tipped, flipped and resodded, distributors are finding that the combination of hard-nosed, back-to-basics strategies and clever, roll-with-the-punches marketing ideas are earning them a share of the market and putting them in prime position for a strong rebound.
— BY?Stephen Rosenberg