After Rough Start to 2019, ProSource Hoping Consumer Confidence Returns

While the stock market continues to recover from drops at the end of 2018, “there’s so much fear in the marketplace that people are just kind of uncertain,” Stinson said. The equity market historically is an important indicator of consumer sentiment, although large-project purchases don’t typically respond significantly to daily ups and downs, he said: Concerns remain because in the long run, “the stock market is going to affect that pipeline.”

ProSource CEO Dave Workman said members have reported that $200,000-$400,000 “whale jobs” remain in place but some softening occurred in the $20,000-$75,000 project range. Earlier in the year, there was evidence “the pipeline was not being refilled as quickly as it was being depleted,” he said: More recent reports show order books “were starting to fill back up.”

At retail, fewer tax refunds created a “tough month” in March, said Workman, citing vendor reports: “The realization that a lot of people had to write a check to the government rather than getting money back hurt March overall retail.” After a tough start to the year, from April forward “we’re going to try to find what the new normal is for this year; I don’t think we’ve seen it yet.”

The stock market bounced back, unemployment and inflation are low and gross domestic product was higher, so fundamental economics are sound, Workman said. "We do business with the top 5 percent of the demographic who are most exposed to micro and macro events.” Transaction volume has held but at lower dollar volume, he said, repeating a comment from the Nashville meeting in March: “We lost the luxury consumer.” He’s hopeful trends will be “better than the last three months.”

On ProSource’s position in premium TV, the sweet spot for specialty dealers “is always changing,” now at 75 inches and above for LED models and 65 and above for OLED, said Workman. Despite the opportunity in the market, “the TV business is the most self-destructive business we have in the industry, where they could screw it up even if it was the land of milk and honey,” he said. That makes it a challenge to maintain dollar growth, which the category “has not been able to demonstrate." ProSource dealers’ current sweet spot for TVs is $1,500 and above.

On the potential of 8K, Workman considers current industry projections unrealistic: “CTA said 200,000 units,” he said. "If that hits 200,000, I’ll be a monkey’s uncle. There’s no way we’re going to sell 200,000 of those sets this year.” The buying group considers 100,000 a more reasonable number, said Workman, calling 8K “great future stuff.” ProSource will get a piece of that down the road. “It’s a hobby, not a business at this point.”

Responding to our question on consumer concerns about data privacy in connected homes, Workman called it a “big topic,” and one that “probably needs a lot of attention. Everything gets hacked at some point, it seems.” A stopgap measure for dealers is a digital insurance policy to protect against a lawsuit over a network data breach, he said, but next steps are uncertain. “If you had the answer, we wouldn’t be getting hacked right and left at every level of government and private enterprise. It seems no matter how many doors you put up, they find a way to put a key in it.” Increased dependence on “cyberworlds” has created a “scary” environment, he said.

Most integrators aren’t paying enough attention to cyber threats and don’t have the internal systems needed to protect networked homes, said Stinson. Many integrators aren’t using best practices for protecting passwords, he said. As a larger company, Listen Up has the resources to address that part of the business, but “most integrators struggle" with it,” he said. ProSource board member Murray Huppin, president of Huppin’s and OneCall, noted there was a panel at a conference last year, which provided resources for dealers. He said no ongoing program has been set up since, something both dealers said should be done.

New categories that can breathe new life into sales include lighting, artificial intelligence and 5G, Workman said, citing an impending “evolution-revolution” in the tech home that ProSource wants to help drive. Sales models will have to shift, he said. “Our challenge is evolving into what people want to buy and how to make money at it. The market is going to be different.” Categories with high volume today may be “virtually gone” and new categories will dominate, Workman said. Eight years ago, dealers didn’t want to touch networks: today, “it’s table stakes.” The same kind of evolution will occur over the next five years, he said.

“We’re going to be in categories that are essential and dominant in the business that either don’t exist today or we hadn’t even thought of being in,” Workman said. Dealers will have to think of business differently with changing revenue models more geared to recurring revenue. Margins on core products will be smaller, and “it’s going to be about how you assemble the solution with products that in many cases may not be as profitable as what you used to sell.” Dealers will have to figure out how to gear their businesses to different size transactions and how that fits customers.

A 5G revolution is coming, Workman said, with content driving “a tremendous amount of change.” As the smart home becomes more mainstream, ProSource dealers will have to determine their place in the 5G market, he said. “It’s clear a part of that is going to fall in our lap,” said Workman, who's learning about the fledgling technology. “As content comes to the home differently tomorrow, there’s updates and changes that are going to have to come with the home.”

Huppin said no one can know yet what 5G will mean for the consumers, but “I think we’re all going to be amazed.” There would be no Uber or Lyft without 4G, he said, and 5G will enable its own market-changing applications. Advances will be “geometric,” not linear, he said: “it’s going to be a real hockey stick.” He envisioned being able to "showroom" to customers on a smartphone how a product or system will fit into their home. “There’s going to be so many more ways to connect with the products we have.”