Unlike their Big Box counterparts, Independent dealers in the consumer electronics industry — especially Members of Nationwide Marketing Group — are doing well. Are there challenges? Of course. But there’s plenty to be excited about in the CE retail industry. NMG’s VP of CE Lee McDonald highlights what’s working, offers some advice as Black Friday approaches, dives into upcoming CE trade shows and more.
Rob Stott: All right, we are back on the Independent Thinking Podcast and it’s not often you get to pull someone like Lee McDonald out of bed super early for a podcast and to talk business but we did it on a Monday. You’ll be listening to this. I think tomorrow, is when this will officially go live so quick turnaround for us but Lee, appreciate you at the butt crack of dawn getting up and talking business this morning.
Lee McDonald: Only for you, Rob. Only for you.
Rob Stott: Well, I think you could ask anyone in Nationwide. They know I have a soft spot. Going back to my roots on the dark side of the industry with consumer electronics, from where I come from. And I say dark side only because I spent the weekend, I finished Obi Wan Kenobi. Have you seen it?
Lee McDonald: Oh, yeah. Of course. Loved it.
Rob Stott: It’s a good one. So, any Consumer Electronics fan, I think you’d be hard pressed to find one that’s not a fan of Star Wars. So to finish that up and then turn around and talk CE on a Monday, I’m happy to do it. So I appreciate you keeping my weekend rolling this morning.
Lee McDonald: Whatever I can do to help you, Rob.
Rob Stott: Awesome. Well, let’s just start with the business. How’s it been? What’s going well right now in Consumer Electronics for our Members, and what are the things you’re keeping an eye on?
Lee McDonald: Yeah, I mean, it’s probably sound like a broken record for those of your listeners who listen to Independent Thinking. Business has been good, which may not be the response that folks are expecting or would anticipate hearing out of my mouth right now, and it’s not universal. There are certainly pockets of challenge and there’s some headwinds in the industry but overall, performance of the group is strong. We just got the most recent NPD numbers, NPD, the largest group that tracks Consumer Electronics sales. If you’re an appliance retailer, I think of HFA and NKBA; and Jeff Rose is going to be upset with me. I don’t know what the equivalent is. I know there’s some equivalent in furniture bedding, maybe Mike Derro and Jeff will tell me, but NPD anyways says that the industry right now in Consumer Electronics is down 17%. So, just record scratch and pull it back to what I said because this is really good.
Lee McDonald: Nationwide Members have always, and I would imagine, will always out index the industry. So even though the industry is down pretty significantly double digits right now, that’s really been driven by low end entry level product at national retail, Best Buy, Costco. Those are the ones that are really hurting. If you were calling me and I was the merchant or lead buyer at Costco or Best Buy, I probably wouldn’t have any hair left right now. They are having some challenges, some significant struggles, dealing with lack of demand, pricing challenges, promotional roadmap, cadence, and it’s a mess for them. Regional retail and independent retail on the other hand, our Members are up double digits, so there’s a near 30-point swing between where the industry’s at, where independent retail’s performing. And I think sometimes, we take it for granted.
We talk about it a lot, how do we outperform the industry but we don’t really give the Members credit. There was a really good article John Riddle shared, he’s the CEO of Howard’s, and it was more of an appliance article. I think it was from CNBC or CBS, or I can’t reMember who the outlet was but it talked about just why you don’t want to buy from a Big Box. And there’s nothing new in that article, but it just reinforced the point like, “Hey, you’re going to make a major life purchase. Several thousand dollar appliance, several thousand dollar TV, even an entry level TV. Where do you want to buy that from? Do you want to buy that from some place that you buy your bulk lunch meat or do you want to buy it from someone that understands the technology, takes the time to listen and qualify you and make sure they’re not going to over or undersell you?”
So, these are technologies. And again, this is where the broken record comes back. And these are technologies that are designed with intent to be sold somewhere where they can be demonstrated and their technologies are demonstrable. So, I’m glad to see the Members are doing so well. There’s a lot of challenges and a lot of headwinds in the industry right now, and a lot of challenges and headwinds in the economy, but overall, the Membership is strong and I’m humbled to be a small part of that.
Rob Stott: Yeah. I know you hit on it there in how you describe it. And John’s article, I think, is a perfect example of what he shared. This space, and I think back to PrimeTime’s past and we look at the charts that get posted and things like that and how you guys are talking about where the successes are happening, and it always seems to be that the tier one, the premium TVs that are helping to drive that because as you said, our Members, you don’t go to a Big Box store looking for something of that caliber, of that level TV, typically, you want to go somewhere where someone’s knowledgeable and you can talk to them. Are TV’s the main driver of that success, or are there other areas of the business that are doing well?
Lee McDonald: I would say TV’s, they’re carrying the lion’s share of the business just because that’s the heartbeat of the ecosystem. So you buy a TV, you buy an audio system, you buy cables, warranty, protection, installation, mounting, everything else goes around the TV but so we’re seeing all categories, all ancillary categories rise. Audio is doing really well. And again, it’s really where you see the challenges, and I would hope that there’s a Member listening to this. When I really struggle with saying things like don’t believe the news because the news is, by and large, pretty accurate and truthful as long as you’re not going to Facebook for it or Instagram, but, and this is one thing where you need to maybe not distrust the news but just understand what the data is telling you and really dig into the data. So again, the data is that entry level TV, audio, Blu-ray, all kinds of different categories is really struggling, but again, that’s never where our Members have played.
They can’t make money there, that’s not what people come to see. Nobody drives 20 minutes to Marina Pacifica to see the new Howard’s, to see a $200 TV. They want to see a Thermador kitchen, they want to see all the stuff that goes around those types of quality level of products. So it is being driven by TV, but there’s some really great stuff happening in home automation and security, there’s some really great stuff happening in audio. I actually think we’re going to see, I don’t want to call it an audio Renaissance, maybe that’s a little too overzealous, but there’s some really cool stuff happening where you’re getting a Dolby Atmos and Dolby DTS. And, and a lot of these, I would say, fairly high end audio technologies. And I’m an audio skeptic. I don’t really believe that the human ear scientifically is not going to be able to hear the difference between a $1000 and a $10,000 audio cable. I’m sure I’m letting you know I’m making a bunch of angry emails from HTSN and Azione Members, like, “You can totally tell.”
But some of those technologies like Dolby DTS and Dolby Atmos, you can hear. An average person who has never been trained to listen to audio or never spent their life in a showroom like you and I have, can walk in and get a demo and be like “Yeah, that’s pretty cool.” And those technology used to be in the thousands of dollars of audio equipment. That stuff is now coming down into $500 to $700. So, I think one, you’re going to get a lot more people who are interested in spending a little bit more on audio. And then two, if you’re a Member, it’s an opportunity for you to start maybe thinking differently about how you present audio as a part of the sales process, how you display audio because the one caveat to that is it does take a little bit of tweaking. You can’t just put a row of TVs and a row of sound bars and expect someone to get a good Dolby demo, but it doesn’t take… You don’t have to build an audio room like you used to, you just probably need a couch and some other things, but it’s exciting anyways.
Rob Stott: Yeah, no, absolutely. And those are obviously two areas, TV and audio that we’ve continued to see improvements year over year. And I know there’s examples out there, some really revolutionary type technologies, but what are the other areas of the business? You hit on them a little bit with home automation and things like that, but to you personally, what are the other areas of the business where you think some opportunity exists or the potential hasn’t really been tapped into yet by the independent retailer?
Lee McDonald: Yeah. If you ever go to PrimeTime and you go to one of my merch sessions, I usually start off by saying something snarky, like “Welcome to the highest margin category, we’re going to do something like that.” And I actually do believe it in my heart of hearts. There’s more things you can attach to a TV than you can attach to appliance, or it’s not saying that those are bad categories, it’s just poking a little bit of fun at our friends, Doug and Mike Derro but I think that the opportunity for Members, especially today, is just the different attached by categories. And I think a lot of people have bad taste in their mouth from selling $150, $200 premium audio Monster cables and stuff like that and that’s not what I’m suggesting, but I’ll tell you a lot of times when I’m on the road, which is more than I want, and we do store visits constantly, there’s just an opportunity in Member’s stores on how they merchandise attachment products. So some folks do it really good.
There’s a little tree with audio cables and different stuff there, there’s PLP that talks about warranty. They talk about delivery, installation, mounts are there, they have furniture, but Rob, I don’t think there’s a one category that’s just like a lightning rod like it is right now, but there’s a lot of new technology in TVs and there’s a lot of interesting things going on in TVs. I think this year, especially with Samsung releasing OLED, even though it’s not a new technology, with some of what they’re doing on lifestyle series TVs with TCL releasing ultra large panels with high sense, really leaning into the group and what they’re doing in TVs, their TVs are beautiful, with some things that probably not quite ready to talk about but we’ll talk about at PrimeTime, there’s going to be a lot of traffic into our Member stores looking for a solution for a TV focused solution.
And there’s an opportunity to merchandise and attach around that. So if you’re not happy with the 20 to 25 point margins on TVs, I’d encourage you to reach out and let’s figure out a merchandising strategy for attachments and cables and accessories and mounts and power conditioning, and there’s just a lot of opportunity around those secondary and third tertiary categories.
Rob Stott: Absolutely. And exciting to see you, I could tell, you’re getting anxious to want to be able to assist in that the strategy for those businesses and get in there and help these Members. And another way tapped into your background and where you came up in this industry, looking ahead too, you talked about merchandising. I know we’re sitting here mid-July, people like to talk about that Christmas in July type mentality of things, but for the CE retailer, right now, and I reMember just back to my own days of covering the industry, right now is the time you’re thinking about the back half of the year. And you mentioned Black Friday, that’s the tent pole event that happens in this industry each year.
And especially in the CE category, you think about getting ready for that time of year, typically happening right now. Obviously, customers, they have their own summer shopping events that they look for but for the retailer, right now is typically when the buying happens for that back half of the year. So I’m interested, what do you reMember from your time of getting ready for Black Friday in the summer and what advice could you offer to a retailer, a CE retailer right now as they look to the back half of the year?
Lee McDonald: Get a really good therapist. Yeah. So I actually, I buried all of my buyer memories and now you’re having me dig them out. No, Black Friday was always my favorite. I always say that if you are in the industry for more than a year, you either get out really quickly or you’re dumb enough to stay around, and I was dumb enough to stay around just because I loved Black Friday, I loved the holidays. So here’s what I would say. If I was still in a merchant role today at a retailer and I was making buying decisions, I think what I struggled with for a long time, and I was a buyer at a fairly large retailer, I mean, a multi-billion dollar retailer, but even at a retailer that size, what I got frustrated with enough or often was not being the market maker or not controlling the decisions that were made from some of my largest partner, Samsung, LG, Sony.
And the reality is you’re just not, and that may sound incredibly offensive or dismissive, but it’s actually very freeing once you internalize that. And here’s what I mean by that. Once you realize that as a merchant, you are not going to dictate pricing promotion or cadence or rhythm of those large categories, that it’s really more of a partnership and you should still work on that and make sure that you’re part of the communications process. But once you realize that you don’t have the burden of trying to plan the entire holiday season for them, it frees you up to do a lot more, a lot more things. So, I wish I had that wisdom when I was running some different categories, but for our Members, what I would tell you is Black Friday is going to happen. Your stores are going to be busy, you are going to run out of inventory.
And so, I would worry less about what the major panel manufacturers, what their pricing is going to be, how terrible their margins are going to be. You know that stuff, it happens every year, like clockwork. They’re going to drop derivative bottles, people are going to violate MAP. People are going to violate UPP. It is going to happen. It has happened every year, the last decade and a half I’ve been in this role. So what I would do is I would focus on, again, those other categories, where can you be the market maker? Can you buy closeouts and mounts and cables to supplement your margin? One of the things that a former retailer that I used to work for did really well is they knew that they were going to lose $7 or $8 a tablet, but that tablet was going to get 1,000 people in line at every one of their 26 locations.
And so, they had a table when you’d walk by and the table had all the accessories. So to get, it’s like why do they put the milk in the back of the store? Because they want you to walk by everything else. They knew that people were going to be wanting to buy this tablet and so what they did is they went out and they bought 40,000 off the shelf in China cases, they bought screen protectors and screen cleaners and everything else. And the result was that that $7 loss, net loss in that tablet, went to about a $14 or $15 net profit across the entire chain by the time everything was done. And that tablet was… And they were one of the largest computer retailers in the country. In fact, they probably are the largest computer retailing company.
Today, they didn’t set the price on that. I mean, that was a national promotion. They worked in partnership with some of their vendor partners, but what they did really well was they focused on execution. So I would tell our Members, “Focus on your execution. What does your store look like? What’s your attachment strategy? What does your merchandising strategy?” That, to me, is the difference between retailers who are going to have a good Black Friday because I think all of our Members are going to have good Black Fridays. It’ll be the difference between a good Black Friday and a great Black Friday.
Rob Stott: No, I mean, it makes a lot of sense. And I think the attachment game is the one, is it a hard one to get into, to understand and really… I mean, you mentioned the mindset in looking for those tertiary opportunities and things on the fray. Attachments are a part of CE, that’s always been the case, but is it something, a mindset that to focus or what’s the bit of strategy that you can offer that might help that retailer get over the hump?
Lee McDonald: Yeah, it’s actually really hard because the merchant doesn’t own it. The merchant can go out and source some different opportunities and they can find the product, but it’s really a partnership between the merchandising team and the sales organization at a company because it requires there to be a sales culture, a consultative sales culture on the sales floor. And another retailer I worked at when I was actually on the sales floor, our metric was we had these categories, audio, mounts, cables, warranty, installation, we had all these different categories. And our goal was to attach 60 cents of attachment category product to every dollar of TV. And we drilled that constantly, and everybody was ranked. That was the top KPI in the entire company, is what were you attaching to a TV?
We knew we were going to sell TVs. We knew it. Everybody wants to buy a TV. Nobody very rarely comes in and says, “Hey, show me the latest and greatest mount you have” or “Show me the new Monster power conditioner or Panamax power…”, that just doesn’t happen. Those are technologies that have to be shown and demonstrated. So we built, or not we, the company was built around the focus of selling these other categories. And 60% was the entry level. If you weren’t 60%, you were probably on your way out. We had some folks that were a 100%, 105%, 110%, 115%. We had million dollar writers that were 100%. So they were writing million dollars in TV and a million dollars in accessories.
Rob Stott: Wow.
Lee McDonald: That is possible. It was possible then, it is possible today. There are people doing it today. And those are the companies that are really thriving in electronics and electronics retail. And it doesn’t mean you’re trying to stuff a $200 K1 on a $500 TV, that’s just not it, but it’s warranties and service and everything else. So you asked, how do you execute that at retail? You really need a good, strong partnership between your sales organization and the merchandising team. And in fact, if you have a great sales organization, they are typically the ones that deliver the demands and the needs to the merchandising team. That’s how you can tell if it’s really strong. And where I’ve worked previously, that’s the way it was because we just had an awesome sales culture. Part of the demo, we were doing audio demos, practicing audio demos every Sunday morning.
I could still give you a seven-channel, a five-channel and a two-channel demo across different genres because it has just been drilled into my mind. The music might be a few decades old and it might not be relevant today. I don’t think I’ve ever done a Lizzo two-channel demo, but I could probably figure it out if I had to. But it’s a sales culture that takes time to build, but again, that’s why our retailers and our Members are doing so well is because I think that either they already have that culture and that’s why they’re thriving, or they have the fundamentals of that in place. And it wouldn’t be too hard to tweak it.
Rob Stott: Right. Now, the thing I love about thinking about that type of call and it’s more than just asking a question. I think if you shop at a Big Box store and you think about what that purchase process is like, no one’s really walking you through, in some rare instances, you might get someone that is a… And talking specifically about CE, Big Box and that experience, you might get someone that’s passionate about a product and be all excited to show it to you, but it’s not the same experience as being in an independent retail store and the care and the attention that you get in that demo and in that walkthrough. And just you think about the attachments from a warranty state, it’s just a question thrown on at the end of the point of sale process.
That’s the level of attachment that I think of, as far as how they’re attempting to add on those types of accessories and things like that, but it’s really more of an experience. It’s the experience that lends itself to success in the attachment space for an independent retailer, so it’s just awesome to hear you talk about it and explain it that way and just how it really is different. And more than just a mindset, it’s really how you walk that customer through the experience of the product and everything that goes along with it. And the experience sells itself with those attachments.
Lee McDonald: Yeah. And I’m sure you and I can come up with a dozen anecdotal stories, solicit anecdotal stories, but the data doesn’t lie. I mean, anytime there’s a survey, consumer reports or any other consumer magazine, independent retail, doesn’t matter what the category is, it’s only at the top and it’s for those reasons, you said, I mean, it’s because somebody wants to talk to someone who is pursuing a career and not just in a part-time job. And kudos to our Members because they’re the reason that that culture exists. When this pandemic hit, these national retailers either shut down and or they stayed open but they furloughed sometimes, thousands of employees. People who had mortgages and jobs and kids. And our Members, by and large, where they could, they stayed open, and they stayed open out of necessity to serve their communities. When your refrigerator breaks during COVID, that’s pretty scary.
How do you keep your food cold? How do you feed your family? You’re not going to Best Buy to get that repaired, they’re not open. So kudos to our Members who stayed open, kept their employees staffed and paid and were able to keep that open because that’s the kind of culture and community that really is the foundation to that experience. So again, you’re not trying to push a $200 cable on someone but you’re asking the question during a sales process, like “Hey, what are you hooking this up to in your house?” Like, “Oh, you just bought a new sound bar. Well, that sound bar doesn’t have optical audio anymore. And you really need HDMI-CEC. So do you have an HDMI cable at home?”
“Well, I’m not sure.” “Okay. Well, it’s a 30-minute drive. Here’s a $15 HDMI cable or a $20 HDMI cable. If you don’t need it, just return it. More often than not, consumers aren’t going to return that cable. I mean, I have a box full of HDMI cables in my basement, and I’d still probably buy one at least once or twice a year.
Rob Stott: No. Cool to hear you dive into that. And again, like I said a little bit ago, passion bleeds through in your explanations and talking to you so it’s awesome to hear, but at the risk of completely shifting courses, I want to spend a couple minutes while we have the time talking about some of the events that are coming up at the back half of the year because I know it’s a busy time for this channel. And PrimeTime, we’ll talk about it in a second, but there’s a couple other events. We got CEDIA happening. And then it feels like it’s half a year away because it almost is, but CES is right around the corner, too, and I know we’re prepping for that.
I want to take the chance to get your take and the approach to those events that you go into them with. And what’s the goal, I guess, for you as you approach an event like CEDIA or CES that a Member wondering, what Nationwide’s doing at a CES or a CEDIA? What are we doing there? And what’s your approach and what do you like to come out of those events with?
Lee McDonald: I look at every event fairly similar and through the same lens and that’s the lens of how can I serve the Members? What does a Member want to get out of this? So it’s different for each show just because the theme of each show and the scope of each show is a little different, but for CEDIA, it’s through the lens of, okay, what does an HTSN or Azione Member need from this show? What could they benefit from? So when I walk through there, I walk through looking for opportunity. I talk to Members constantly. It’s one of my favorite parts of the job. And I’m fortunate enough that some of them trust me with the challenges and headwinds that they’ve got in their business. So I got a journal that’s actually in my office at work.
That’s just frustrations, I call it the frustration journal, where I write down all of our Member challenges and just try my best out the year to go back and see if I can solve any of them. So first thing I do when I walk through CEDIA is usually, I think the first day of any trade show and just walk around and see what’s new. What are the new brands? Is there a brand that someone asked me to look at or to check into? Is there services or the new services that are out there that would be beneficial for the Member that we could either replicate inside the organization or we partner with that company to provide those services? So that’s the first thing. And then there’s anything I could take back to the Membership at large to work.
And then the second part is reaching out to new and perspective other integrator businesses, what we’ll be doing at CEDIA? We’re going to have a fairly large presence at CEDIA this year. Obviously, with our partnership with Azione and HTSN, you know it’s a lot, so there’s a lot of different opportunities there. And what we’ve found after diving into the CI business over the last 12 months is there’s probably more opportunity than people realize, certainly myself and probably say, speak a little over my skis and say some other folks in the organization as well but there’s a lot of independent businesses who could benefit by joining a group. And I think about the catalyst for me wanting to be a part of the Nationwide staff. And the reason I fell in love with the group is my parents ran an independent business and we get ran over by national chains all the time and it was just so frustrating.
I wish I had a time machine. I’d go back and start a group for… My parents were in the restaurant business. I wish I could do something that would help them. And so when I look around and I see thousands of other businesses that are like that, it hurts. I want to go out and figure out, is there something we can do to help them? Because I wanted to stay in business. The unfortunate statistic is that around 95% of all of these businesses are going to go out, the new ones, the new ones that are not established. Let me just be clear. I don’t want to scare our Members, but these new businesses. And so I wonder, could I get that down to 75% or could we get that down? So those are really my two focuses when I go to CEDIA. And then CES is-
Rob Stott: It’s a monty… Again, that doesn’t-
Lee McDonald: There’s a whole damn-
Rob Stott: Yeah, you can’t walk around that show in a day.
Lee McDonald: Yeah. It’s like a kid in a candy store.
Rob Stott: Yeah.
Lee McDonald: So, I’m not going to lie and say that there is some very selfish self-fulfillment going on for these shows because like you said, I love this industry and I’m hyper passionate about it. I love learning about technology and I love watching just the evolution of the progress. And it’s exciting because the technology is in this constant march forward, and that bleeding edge of technology, the very forefront, that’s what comes to independent retail first. That hits our channel before it’s at a Best Buy or a Costco or anyone else, before they figure out how to package it and monetize it.
But our Members are displaying it and they’re the ones that are really driving that technology. So when I go to CES, that’s really what I’m looking for, is like all right, what’s new? What’s going to excite consumers? And then how do our Members fold this into their strategy, into their stores and their merchandising and marketing plans? Because they’re going to need us, retail or manufacturers are going to need us to show that.
Rob Stott: Yeah. No, and you hit it right. I mean, there’s, don’t get us wrong, some geekiness that shows through at those events. CEDIA too, that’s where the techie of the techiest show up is at that show. And that’s where you find the true audiophiles and videophiles. The nerds that are out there looking at that tech. You have the 16K before it shows up and stuff like that. So, you’ll see that it shows like that and certainly, a lot of fun for us to be there looking at it, and then just sharing that news and getting the insights on what’s coming to Members so that they can be ready and prep their businesses for what’s coming down the road. And then you look at a show like PrimeTime and that’s just around the corner here, a little less than a month away, four weeks just about. I think it’s crazy enough to think but as you prep for that one, I see you shaking the head. As you prep for that one, what are you looking forward to most?
Rob Stott: We could talk a whole nother episode on what’s going to be happening at PrimeTime, but what’s the one or two things that you’re most looking forward to about our time together in Orlando?
Lee McDonald: That one’s a little bit easier. The thing I always look forward to at PrimeTime is just seeing everybody, whether that’s seeing part of my team, I get to see maybe four times, five times a year in person, or just the broader Nationwide family, which is growing. That’s always the most fun for me. And hanging out with our Members, talking to them, spending meaningful time, listening to them, trying to help them and set the stage because the reality is that we prep for PrimeTime every day of every month. I mean, it never stops. There may be a week if afterwards where there’s just nervous exhaustion, but then we’re right back. We’re looking at new venues and trying to start the engine again already, but it’s seeing people and then it’s also, we work a long time to put offers together and everything else, so it’s fun to watch those unfold at the show and then watch Members’ eyes, hopefully, light up with the light.
If we’ve done our jobs, then we’re here to help and serve Members. So to me, it’s fun to work really hard. And I wish I could remember the quote. I love Teddy Roosevelt, I love American history of American presidents, but he has a quote about… I’m going to butcher it so if someone’s going to go look it up and probably post the right one, but it’s the most rewarding part of life is doing work worth doing, something like that, along those lines. And I couldn’t think of anything better, a better physical manifestation of that than PrimeTime because there’s no greater Membership, there’s no greater cause than serving our Members. And so for me, it’s watching all the different threads that you pull throughout the year come together in 36 hours, which is terrifying but very exciting.
Rob Stott: It is, and it’s right around the corner. And I know we got a lot of work left to do at prepping for it and getting ready for Members to be with us in Orlando, so looking forward to it. And as always, like you said, looking forward to catching up with the team and you and seeing everyone down there and our Members, especially. So we’ll let you go get that second cup of coffee maybe this morning already, since I dragged you out of fourth. We’ll let you go get more awake and back to work, getting ready for this show and others coming down the road. So Lee, I appreciate the time. Always awesome to chat with you. Always awesome to dive into the CE space, so appreciate you letting us do it.
Lee McDonald: Absolutely. Thanks, Rob.