EXCLUSIVE: The CEO of Panasonic Australia, Steve Rust has said that premium brands like Panasonic will in the future sell direct in Australia with consumers moving online to buy premium products like TVs, Blu ray products and convergence devices.Rust, who was previously General Manager of Toshiba, CEO of Ingram Micro Australia’s largest IT distributor and a former senior manager in Apple, also claims that the consumer electronics industry has got to change to be more like the IT industry if they are to survive.
He said that there is a “distinct possibility” that manufacturers could adopt a direct sell model in Australia in the future.
A direct sell model could become a reality. The market is fragmenting and some people want to buy direct. Apple and Sony are already doing this and other manufacturers could follow,” Rust said.
“The consumer electronics market is fast becoming a low cost commodity market, more like the IT market, as a result manufacturers have to change their go to market model. In 2009 the market for TVs was 2.7 million units. In 2010 it climbed to 3.3 million units, despite Australia only having 8 million households,” said Rust.
“The market is now changing again with a lot of purchases being second TV purchases and a lot of these are smaller sizes. Right now we have too much supply and retailers are discounting. Sales have also slowed which could be because the industry has put a lot of confusing messages out, LED Vs Plasma, 3D, and IPTV, then there is the issue of screen quality and screen size. All of this is confusing the consumer and making the market very challenging for manufacturers and retailers” said Rust.
Rust, who laid off 24 people recently, admits that Panasonic, like Sony, LG and Samsung are struggling when it comes to profitability in the consumer electronics market which is one of the reasons why the company is expanding their appliance and air conditioning businesses.
Rust claims that the consumer electronics market is becoming more and more like the automotive industry and that there will always be a market for premium brands, and a market for budget brands.
He said that he did not like the fact that mass retailers were using the marketing clout of premium brands like Panasonic, Samsung or LG to drive consumers into stores, to then see them being sold a made in China house brand TV.
In recent days several TV manufacturers have contacted ChannelNews, concerned that bottom end brands like Hisense, Changhong and Soniq are benefitting from the TV marketing of brands like Sony, Panasonic, LG and Samsung, who after driving consumers into mass market retail stores are seeing customers sold a cheap bottom end TV because retailers make more money selling a bottom end TV dressed up as a premium TV.
One major manufacturer, who spends millions on TV brand advertising said: “We are being used by retailers. The Chinese manufacturers spend next to nothing on marketing, instead they save their marketing dollars and use some of their savings to incentivise retailers to sell both their small screen sized TVs and of late, larger sized TVs, by offering retailers higher margins. As a result the big brands are starting to miss out on sales”.
Rust said: “I don’t like it and I don’t like what is happening with house brands. What we are now doing is looking at new sophisticated ways of reaching the market such as the use of social media and Twitter, Facebook and online marketing opportunities to build a relationship with a customer”.
When it was put to Rust that this sort of marketing could be used to sell direct, where manufacturers initiate marketing programs to drive consumers to their own site for a direct sell he said: “Yes, this could be the case and it could be the way that we market our product in the future”.
He added: “Apple is selling directly, Sony is selling directly and the market is changing. Fragmentation is happening and we have to deliver what consumers want and that is the ability to buy online direct from a manufacturer”.
“We are experimenting with the value proposition that we have to make to consumers who want to buy a quality product direct from manufacturers”, said Rust, who indicated this will be a reality for most major brands in the future.
“The future is about direct relationships. It’s about delivering what consumers want not, necessarily what retailers want,” he said.
He said there is a role for retailers: “A lot of new products are aspirational and consumers want to look feel and touch new aspirational products,” he said.
“Retailers right now are facing a lot of issues such as bricks and mortar Vs online, another overwhelming issue for them is the emergence of online sites and the enormous acceleration of demand for online products,” he said.
Rust, who has a background in IT and companies like Ingram Micro, who are the biggest IT distributor in the world said: “I believe that both retailers and consumer electronics manufacturers will have to operate more like the IT industry in the future. They will have to live with lower margins and more efficient distribution operations. We are now in an era of convergence. The IT industry learnt how to deal with this year’s ago, now the consumer electronics industry which is a lot more than just TVs, have got to learn how to deal with it.” he said.
“The consumer industry is an attach industry, a convergence industry, and the introduction of things like IP enabled TVs, IP and Blu ray players is taking the consumer electronics industry the same way”.