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Interview with Lee Perlman, CEO of New Age Electronics

New Age Electronics (www.newageinc.com) is a privately held, $1.0 billion distributor of consumer electronics, home and office equipment, and other electronics products, located in Carson, California. Lee Perlman is CEO and co-founder of New Age. Unlike most of the companies we interview, the firm has been around almost 20 years, in what is probably one of the most cutthroat industries in high tech. Ben Kuo spoke with Lee about the competitiveness of the distribution industry, how the company has managed to grow, and Lee's view on the state of the consumer electronics industry and retailers.

Tell us a little bit about New Age and the history behind the company?

Lee Perlman: New Age was started in 1988, and the premise for starting the business was to focus on selling computer peripheral products and associated supplies to the retail community in North America. The concept for the distribution model was based on the model I created in 1977, when I was an officer and owner of Zemex Electronics, based in Connecticut. Over a period of eight years, that became the largest and first national distributor of consumer electronics. The emphasis at Zemex was low cost, very low SG&A, to deliver the products efficiently, and to serve the customer by providing everything supporting both the front and back end for the new technological products--the VCR, at that time, a $1000 item. Retailers were not used to handling them, and we had to tell them how and where to place them. We wanted them to be successful, because the key, as in every business, is knowing where the customer is going to shop. That was the key to expanding the business and growing the business through North America. When we sold that company in 1985, Adam Carroll and I were looking for the next product--the next consumer product--that would become a commoditized consumer electronics product. In this case, it was the evolution of the PC, and the peripherals, because the consumer was starting to understand how useful these could be in the home. That was the premise for starting New Age, and using the Zemex distribution model.

How big is the business now?

Lee Perlman: We have over $1 billion in sales, with our headquarters in Carson, California, and distribution facilities in Columbus, Ohio, Cranbury, New Jersey, and Miami, Florida.

Can you talk a little bit about how you decided to go into this industry, and how you've managed to grow -- I understand the distribution business is notorious for having low margins and for intense competition?

Lee Perlman: I grew up in this business, and essentially helped to create the fulfillment model to consumer electronics retailers and business dealers. The key part in terms of volume is fulfillment to key retailers--both the primary, secondary, and tertiary marketplaces in North America. Our model is based on efficiency and controlled costs. They key to our model is always controlling costs, and we have the lowest SG&A in our business, so that we can basically beat the competition most of the time--whatever the competition is, and whatever product you sell. We don't see ourselves as a distributor, we see ourselves as a manager of supply chains. That's how the business has evolved, and how scientific the business has become. As you said, the margins we work on are whispers compared to other industries, and if you don't micromanage your business in every facet, with the right people, at the right time, you get creamed. We've seen it, with the demise of Merisel and other areas of failure. If you are going to stay in the game, get the next new hot product, you must survive, and the only way to survive is by controlling costs. If you can control costs, and you have a razor focus on what your mission is and what you need to be successful, you're going to win.

There's been a lot of press lately about how electronic retailers have been having suffering, what's your view on where the electronics retailers are going?

Lee Perlman: It seems like every ten years -- and I've been in the business for 30 years -- there's a shakeup, certain players fall, and other guys come in with a different model. It's all based on where the customer is going to buy these products. Everyone is driving towards finding the right presentation so that they can attract customers. In each one of these large retail customers, there's a certain feel, how they present their advertisements in TV and in the press, and they create their own identity and brand. Like the vendors, whether that's HP, Sharp, or Panasonic, we also have our own DNA--we're the get it done guys. When it's virtually impossible to get things done, because there's too much risk, they call us to a) limit their exposure and b) come hell or high water, we get the job done. I don't have any comment on who is going to win, but there is an evolution of the shopping experience. The Internet has become more prevalent, and people are more comfortable with buying online. We have a tremendous amount of great customers selling on the Internet.

Do you find there's a lot of competition nowadays from the shippers, who are moving into logistics and warehousing?

Lee Perlman: There is tons of competition, and there are all types of third party logistics players. The key to making money, and not losing money is controlling material cost, from the beginning of the supply chain to the end of the supply chain. The end of the supply chain is when the product dies and gets returned. It's the most notorious--people lose tons of money here. Our expertise is in this business, and managing all aspects of this, from forecasting, inventory, to vendors, pushing products through to the retailer, to receiving back defective merchandise or items returned due to buyer's remorse. Every area that we touch in the supply chain, is a place for money to be saved for the vendor, for money to be made for us and our customer, the retailer.

For example, one of the most important parts of the supply chain is freight costs. However, lots of vendors just think they'll send it via FedEx, or put it on a truck, which is ridiculous. You can save millions if you focused on managing your freight. Looking at every aspect of costs is a very important part of doing business.

Thanks for the interview!


 

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