SED CEO Sees Turnaround In 2010

Elster was named SED's new chief in December. He succeeds the retiring Jeanie Diamond to lead the Tucker, Ga.-based distributor at a time when IT and consumer electronics spending seems poised for a comeback. Elster recently spoke with Channelweb.com's Scott Campbell about his goals for the company and what he expects in 2010. The following are excerpts from the conversation.

First of all, congratulations. You're taking over a company that recorded a 6 percent revenue tick in its first fiscal quarter ended Sept. 30, which was also the company's second consecutive profitable quarter. What are your initial goals and challenges for SED?

Thank you. The company's in a very good position today. Jeanie left it in great shape. We have a great team, a great foundation. The main goals for the company are to show the value-add to customers and to our vendor partners -- also, to be focused on the services aspect and adding new products.

Regarding services, what are some of the services you guys provide and how will that evolve this year?

We're not talking about services like [professional] services, but things like sales support, new programs, pretech support, postsales, system configuration services. That will help get us into new businesses. As we focus on new hardware opportunities, we'll be pushing new solutions. The one thing we want to help dealers do is get into new categories and introduce new products. Other services we have are fulfillment, reverse logistics, inventory management.

Speaking of getting VARs into new categories, do you guys envision programs to help partners get into more vertical markets such as health care or government?

We have been working under the radar on the gov/ed side. We've worked closely with certain vendors, like Canon, on large educational opportunities. We're working with Acer on educational opportunities. We still service a lot of small dealers, and we've seen vendors put more programs toward that market.

Can you give us a breakdown of the company's mix of computer products, consumer electronics, cellular and small appliances?

Our annual revenue last year for [fiscal] 2009 was $477 million. Consumer electronics was about 10 percent of that, but I see significant growth in that business.

Companywide, it should be about 15 to 20 percent [this fiscal year]. That includes LCD TVs, digital cameras and other products. Small appliance is a new business for us and not a material number today. The reason we got started in that business is because we were talking to customers, especially e-commerce customers, and they saw a lot of opportunity for us in that business. We just launched that 90 days ago. Cellular is a very small part of the business. It's a legacy business that we've been in for 20 years, but it's about 3 percent of our revenue. The computer or IT part still makes up the majority of the business we do.

On the consumer side, were you at CES this year and what did you come away with?

We did have a team down there. It was nice to see a big crowd, too. The biggest buzz was 3-D TV. We are a distributor of Samsung LG, Panasonic. On the CE side, we're a distributor for Polaroid, who now has Lady Gaga [as a spokesperson]. On the IT side, there was a lot with the Windows 7 launch, mobility, netbooks and the new slate products. There's a lot of excitement there as well. The other hot product we saw was the e-readers, the Kindle-type products. Audiovox is going to be coming out with one. You know as soon as one comes out, everybody comes on board. Overall, it was a great show and a great place to get to meet new vendors and our largest customers.

How cool was the 3-D TV, for someone who wasn't there?

It was very cool, and it's probably helped by the announcement that ESPN will have a channel dedicated to [3-D]. But I still think we're a year out on that. You know how prices drop in our business. To the average consumer, it's probably a year out. I think LED will be extremely important. It's only one-and-a-half inches thick. The energy cost [savings are also big]. I think the average consumer sees the thickness, but the [energy savings] is an important message to get out, too.

SED recently made some changes to the board of directors, including naming an independent director as chairman. How important was it to get some fresh blood there?

We have an excellent board. We added several new board members. We're very happy with the board we have, having different people with different areas of expertise like finance or sales, has really helped. We will continue to work with them. Our goals, as long as we execute, are to provide shareholder value. Our book value is $4 to $5 [per share]. We're not where we need to be there, but the company has been in its best shape in years.

SED is a public company, but there's been talk over the years of taking the company private. What is the long-term goal for that?

We are a public company. We've been public since 1986. My goal is to sustain profitability. We have no plans to go private. The stock is trading low right now [about $2.50 per share]. But we have no plans to go private, and we'll leave it at that.

With another profitable quarter, what's been a key to the turnaround?

No. 1 is focus, to provide that value to our customers and to work closely with the manufacturers. We've added a lot of customers to our dealer base. We're very optimistic. We continue to look for good talent. As you can imagine, there's a lot out there.

Does SED expect to see any changes in its customer mix this year?

We've seen a lot of growth in e-commerce. We have strategic relationships with the on-air shopping channels, on both the computer and consumer side. We're also after the small VAR servicing government and education. Eighty-five percent of my business is outbound phone calls. Breadth is extremely important for us.

What are some of the big issues you see with the channel for 2010? Credit was a big issue in 2009, particularly in the first half. Is that still a problem?

We've worked with a lot of smaller VARs who don't have the capital to secure larger government or educational opportunities. We work with those VARs directly to help them find funding. We don't want them to be missing out and lose a deal that they could get because they didn't have funding. Credit will always be a challenge, but it didn't affect our business last year. [Average selling prices] are always a challenge. One thing we need to push our customers to do is to diversify. You can't focus on one business. We're helping drive that to add value when they sell their product they need to look at additional offerings.

Can you give us an example of how you tell customers to diversify?

A lot of customers have retail storefronts and they've been selling PCs. Now we tell them to put small-ticket CE products in the windows. So many IT products and CE products are coming together. The cross- pollination makes sense for the IT guy to sell more CE. Our messaging to VARs is how to get into new businesses. There's money to be made.