COMMENT: The spat between Sydney retailer Digital Cinema and Amber Technology has opened up a can of worms that could well have a major impact on the specialist channel and consumer electronics and Hi Fi distributors.
Last week Digital Cinema lodged a complaint with the Australian Competition and Consumer Commission claiming that AmberTech, who is a share-listed company, was engaging in restrictive trading practises. They have also complained over Amber Technology’s refusal to honour warranty claims on products sold by them.
At the crux of the issue is pricing and attempts by Amber to hold margin in products being sold by the specialist channel. Another issue is the emergence of online trading that allows retailers to source products from overseas distributors at significantly cheaper prices than the products being sold by Amber in Australia.
Another issue is warranty and what obligations a distributor has after selling a product in Australia. Amber Technology has admitted to refusing to honour a warranty claim on products that they initially sold to JB Hi Fi and were then on sold to Digital Cinema. Amber claims that by the time ownership had passed to Digital Cinema the products had become second hand.
The only problem is that their “second hand” claim smacks of victimisation because JB Hi Fi and Harvey Norman are on-selling Amber distributed products to several trades including installers, electricians and third party organisations who are then onselling the products to consumers as part of an overall install of consumer electronic technology.
Amber on the other hand is not telling these third party trades that their customers’ warranties are invalid.
Compounding the overall issue is a move by consumers to purchase goods online because they are up to 250 per cent cheaper from an overseas trader. Many of them know full well that the products they are purchasing online are not going to be covered by a warranty in Australia.
Amber, who is putting a whopping amount of margin into products sold to the specialist channel is prepared to sell products from Onkyo and Optoma to mass resellers like Harvey Norman, and JB Hi Fi at prices significantly cheaper prices than they sell to the specialist channel. This has angered several specialist resellers who have contacted SmartHouse since we first wrote about this issue.
Len Wallis of Len Wallis Audio in Sydney claims that consumer electronic goods are being sold to mass retailers at prices significantly cheaper than what he is being offered for the same goods by distributors in Australia.
He claims that the Digital Cinema Vs Amber Technology case is a classic example, whereby specialist retailers are able to volume buy products from a mass retailer at a 50 per cent discount, and then on-sell it to consumers at prices equal to what the mass retailers are selling the same product for.
When we first started SmartHouse back in 2002, the specialist Hi Fi and consumer electronics distributors were not selling goods via the mass retailers. They relied primarily on the specialist channel and while they did not shift a lot of volume when compared to what IT distributors were shifting, they did have significantly more margin in the products they sold than their IT counterparts.
Today the consumer electronics distributors are selling products to the likes of JB Hi Fi, David Jones, Harvey Norman and others because it delivers cash flow and volume. This has upset the specialist channel.
In 2010, conditions have changed. The IT channel is now selling consumer electronic goods such as Harmony Remotes, HDMI cables, TVs, home theatre kits and sound systems. Key to the success of the IT channel is their ability to sell volume while controlling costs due to sophisticated software.
Overseas, several IT distributors are cutting deals with Hi Fi and consumer electronics companies. Ingram Micro, who is a $2.8 Billion dollar company in Australia, sells Boston Acoustics, Bose and other high end gear via a subsidiary that specialises in the consumer electronics market.
The IT Channel is also pushing into the PRO AV distribution channel with mounts, projectors, commercial display screens and storage. Moving forward distributor margins are set to be an issue. We already know of two cases where a certain mass retailer took on board products via a consumer electronics distributor. After establishing the success of the product the retailer then attempted to buy direct cutting out the distributor. In one case the retailer stood to make an additional 30 per cent margin.
What Amber Technology executives have exploded is a situation that now involves the ACCC.
The ACCC is not going to be interested in how much margin Amber makes. What they will rule on is whether the actions of Amber Technology amounts to restrictive practises, which could end up with specialist retailers being able to buy from mass retailers.
They will also go into bat for the consumer, and whether Amber Technology had a right under Australian consumer laws to refuse a warranty claim on a product that they had sold to JB Hi Fi in the first place.
Brian Lee, the General Manager of Consumer at Amber Technology has never refuted our claims that he engaged in restrictive practises when he admitted writing to JB Hi Fi in an effort to restrict supply to Digital Cinema.
The big issue now is whether the ACCC will seek rulings that affect each and every distributor. On the other hand retailers could well end up bypassing distributors in Australia to buy direct from other retailers or distributors overseas with fear of a backlash locally.
