A Publication of WTVP

Robert Klaus, a life-long resident of the Peoria area, is the President of the Klaus Companies, formerly known as Klaus Radio, Inc. The company, headquartered in Peoria, has served a large region of the Midwest since 1919. In its 75th anniversary year, the business name has been changed to The Klaus Companies, in order to more accurately reflect the diverse nature of its business.

Klaus, with five offices throughout the Midwest, is a wholesale distributor of major name-brand products, such as Whirlpool, Roper, Panasonic, Sony, KitchenAid, GE, Maxell, Texas Instruments, and RCA. In fact, Klaus is RCA’s oldest distributor under continuous ownership and management. The company, which employs approximately 150 workers, is the largest wholesale distributor in Central Illinois and Eastern Iowa.

Klaus, however, is much more than a distributor. Klaus’ Multi-Media Division features an array of sophisticated products enabling companies to make professional presentations, by using computers with video and still images as well as sound, animation, CD-ROM, and laserdisc in combination. The division carries a large inventory of high-tech products and accessories such as computerized video editing workstations, and also provides turnkey control systems for corporate boardrooms, auditoriums and medical facilities. Its closed circuit TV applications include the latest in fiber optic and wireless digital controls.

The Home Appliance Division services the builder channel of the Builder Appliance Division with the Whirlpool, Roper, and KitchenAid brands as well as GE, Hotpoint, and JennAir lines. It also provides contract builders with kitchen and bath products, and services apartment replacement accounts and government agencies.

An Industrial Electronics Division inventories a broad line of electronic components, wire, tools, test equipment, and calculators. Professional sales representatives in five locations service industry, educational and medical facilities, government agencies, utilities, and service businesses. The Appliance Parts Division provides service to a broad base of appliance dealers and independent servicemen.

Klaus also distributes televisions, radios, VCRs, and telephones to the lodging and healthcare industries through its Lodging and Healthcare Division. The complete product line is supplied by Thomson Consumer Electronics, the largest U.S. manufacturer of color TVs and related video products, including RCA and GE.

ACME Business Machines joined Klaus in 1989, continuing a 30-year tradition of marketing and supporting point-of-sale and labor reporting systems. It is the exclusive reseller for the NCR, MICROS and KRONOS product lines in Central Illinois, serving the retail, hospitality, healthcare, and manufacturing markets.

The Wellington Division features a 6,000-square-foot showroom with many cabinet and appliance vignettes representing the Timberlake Cabinet line, and special settings for kitchen, bath, and appliances, as well as the RCA Home Theatre.

How did The Klaus Companies get started some 75 years ago?

Well, being a 75-year-old company, Klaus Radio obviously began without me. In 1919, my father started the company in the back of his father’s harness shop in Eureka, Illinois. When the first horseless carriage came through Eureka, he decided that the harness business was not going to be a good family business in the long term. He had a strong interest in the “wireless” – prior to the time of radio, when communications came by telegraph – and eventually became a ham radio operator. He communicated with David Sarnoff who was soon to be made president of a new company called the Radio Corporation of America, which was a spin-off of General Electric and AT&T after World War I. David Sarnoff – later to be known as General Sarnoff – has a vision of advanced communications techniques, from radio to television, to the point of the cellular phones we have today.

After World War II, black and white television began to come on strong, followed by color television. Even prior to that, however, my father was asked to be the first RCA consumer electronics distributor back in 1923.

We have seen a lot of changes over the 75 years we have been in business. We now call ourselves The Klaus Companies. The name Klaus Radio served us well for many years, but it is no longer indicative of the scope of our business.

What is the world of wholesale distribution like today? What changes have taken place in the industry?

In the traditional wholesale, two-step, distribution process, we sold to the independent retail dealer – which was the life-blood of our business – in all of the small, rural, secondary markets, which were our major markets. We had a primary area of responsibility which ran from the Indiana border west through Illinois and half-way across Iowa, with dealers in small towns as well as larger cities with multiple dealers. We supplied those dealers with consumer electronics and appliances.

The industry has totally changed today. Wholesale distribution used to be a matter of being the primary distributor of a manufactured product within a certain area – selling the products to independent dealers. Within the last few years, the advent of the mass merchandiser and the superstores – whether national or regional – has changed the landscape in the retail appliance and electronics business.

Electronics has changed the most, with product lines getting away from the “big boxes.” Console television and stereo furniture is somewhat a thing of the pats. Component systems and table models are very mobile; you can go into the store, pick it up, put it in your trunk, and go home. The servicing concept has changed along with the merchandising concept.

The “superstores” are squeezing the small, independent, servicing dealer. To stay in business, they have to add value to the product to be able to survive. Without question, service is one of the things that will help them survive.

The changes in distribution didn’t just sneak up on us; we saw it coming. Many of the things that change the channel of business start on either coast, in the larger metropolitan areas. We saw the small independent becoming almost a dinosaur in these markets. This phenomenon is not unique to the electronics industry, but has happened across the board in distribution; just look at the clothing business. An evolution has taken place in retailing today. The advent of the outlet mall has changed things. Outlet malls all over the country are selling things at reduced prices from direct factory outlets.

Here’s another example of how distribution has changed: the location of inventory is no longer the big factor in distribution today, with the delivery system being what it is. We have same-day service on all of our parts, for example. When we receive a phone call or fax for an order, we ship it out the same day, providing that we receive the order before 4:00 in the afternoon. The just-in-time orders – so necessary for industry today – are handled very effectively without necessarily having warehouses in the particular areas where the customers are located.

It’s frustrating to many people today to recognize that, with many products, repair work is almost a thing of the past. In consumer electronic equipment, for example, it is not really cost effective to repair many items as opposed to buying a new one. How do you react to that?

Technology and reliability are the reasons. The technology in the electronics business has changed to rapidly and the products are incredibly reliable.

In our front lobby, we have the first color television set the company ever sold – sold to a farmer down in Arenzville, Illinois. Within 6-8 months it was outdated. It probably retailed at around $1000 when he bought the set, which we replaced with another set.

The electronic industry, unfortunately, always gets into the market quickly and cuts the price. This has been especially true with digital watches, calculators, and video games, as well as audio-related products such as VCRs and TVs.

The United States had an effective monopoly in the electronics and appliance markets following World War II, but today there is global competition in the industry; it is truly a world market. What is your perspective on the global marketplace?

An example is RCA, started in 1919, spun off by GE in the late 1980s. They took RCA, a conglomerate, and dissected it, selling the consumer division – the division we deal with – to a company owned by the French government – Thomson Electronics. Thomson today still owns RCA, the largest electronic manufacturer worldwide, with a number of brands. RCA is the dominant brand because the U.S. is the largest consumer in the world.

So RCA – which was right up there with motherhood, apple pie, and Chevrolet in American history – is owned by a French company; however, it has gone full circle. Japan and Korea were the major manufacturing sites for electronics not long ago. Now all RCA televisions 13 inches and larger are made in Bloomington, Indiana, even though it is a French-owned company.

Automation and robotics have brought some manufacturing back to the United States, as is the case with RCA. Zenith, on the other hand, is a U.S. company, but they don’t manufacture TVs in the U.S.; their television sets are made in Mexico. So many changes have taken place as these companies have become global companies.

With such a global economy, it’s hard to talk any more about domestic products versus foreign products. Yet, there are many people who still talk about the need to buy U.S. products. Where does this scenario leave us today?

It’s hard to know these days when you are really “buying American.” Foreign-owned companies build their products in the United States and American companies build their products overseas. It’s true in the consumer electronics and appliance business just as it is true in the automobile industry, the apparel and shoe industry, and other industries.

The cost of labor affects all of this. Typically, however, as the standard of living increases in countries like Japan, Korea, and Malaysia, their costs increase, and they no longer have the big advantage they once had in labor costs. For years, labor was the intense factor in all products, but automation has sharply curtailed that. That’s why the United States has regained a major foothold in industry.

What trends do you anticipate in your industry? Having started in the industry when things were comparatively simple, is it frustrating today to try to stay on top of the rapidly advancing technology?

High definition TV and digital broadcasting are on the agenda. Television stations and cable television systems will have to be able to transmit high definition; and users will have to have the electronic equipment capable of receiving it.

One of the hazards of our business has always centered around the problem of changing technology. Specifically, inventory much be carefully monitored. A substantial inventory can become obsolete or overpriced rather quickly. In our distribution business, we have historically been basically a marketing force, although we have always had repair and service people, primarily as educational resources for the servicing dealers.

Today in our professional video division, some of the CD-ROM or other related systems we put together can almost be obsolete, or dramatically overpriced, by the time they get to the customer. It’s a very dynamic industry.

With the information highway, fiber optics and related things, we have to try to stay on the cutting edge. Communication and electronic devices that we deal with from an industrial standpoint soon find their way into the consumer market as well. The communication equipment available to connect you to other people, whether you are at home, in your car, on a plane, on vacation or wherever, allows you to be in touch with your stockbroker at all times.

The trends in the home appliance industry are a little more predictable, because a 22 cubic-foot refrigerator, and special constraints for other kitchen products, also remain somewhat constant. The energy situation is different, and challenges are continually changing, through government legislation or advanced technology.

Diversification is good, but can lead a company into deep trouble if not controlled properly. How have you handled diversification within your company?

We have explained the business rather dramatically over the years from our base of consumer electronics. We have always had a parts department, and back in the late ‘50s and early ‘60s we made the decision to go into industrial electronics, serving industry on an OEM basis, or maintenance basis, with electronic devices and parts, as well as the finished products of many different things industry uses. That has grown into a rather substantial business. We have the Industrial Electronics Division from which we have expanded into a professional video division which is our Multi-Media Division. We do a substantial amount of business with industry, government, education, and the healthcare industry; and we also provide surveillance devices and closed-circuit television.

We recently have focused on the builder channel of the appliance business – which is remodeling, new housing, multi-family construction, housing projects, HUD projects, etc. We have opened up a new 6,000-square-foot showroom with a number of kitchen vignettes through this division, known as Wellington’s. We think this will grow. Our near-range plans are to open up additional showrooms in surrounding communities like Bloomington, Champaign, Springfield, Quad Cities, Dekalb, LaSalle, Iowa City, and Cedar Rapids. We have sales people traveling from the Indiana border across Illinois as far south as Champaign and Quincy; and north to the collar counties near Chicago, to Rockford, Dubuque, Iowa, and halfway across Iowa. These people service the building contractor selling cabinets along with brand name appliances. We also have a line of Pearl therapeutic tubs. We have the RCA custom home theatre line, combining television screens from 27 inch to 60 inch screens, along with VCR, disc, and audio equipment in one system.

You always have to have a little luck when you diversify, and timing is always important. Our diversifications have had synergies with the rest of the business. For example, the kitchen cabinet business has a great tie-in with appliances, since most appliances center around the kitchen.

A few years back we bought the ACME Cash Register company, a 35-year-old company in Peoria, changing the name of the company to ACME Business Machines. We supply a lot of things that cash registers utilize. We have the NCR franchise and the MICROS line of products – a very fast-growing point-of-purchase product, catering to the hospitality industry. Hotels, bars and restaurants can utilize case registers to control their inventories, so they can keep a running total of how many items they have sold – from pies to steaks to martinis. It can all be itemized and inventoried, allowing for much better control of the business. This is another example of a case where we are selling to end users, instead of doing pure distribution, with which we are most familiar. We also carry labor distribution devices, what may have once been known as timeclocks. Law firms use devices such as this to log the time they work with various clients. Hospitals use them to allocate time of employees to particular groups within the hospital – allocating their costs to the various groups. We have some convenient flow of product between our Industrial Division and ACME Business Machines.

Our most recent venture into the kitchen cabinet business is with our Wellington’s Company. This is a very close fit with the appliance business provided through the builder channel. The home is the most important asset that a family has, and the kitchen area generally is a focal point of the home and people are very proud of that area, and will continually enhance or update that area of their home. We are very excited about the cabinet business involving our new company, Wellington’s.

A direct route from Peoria to Chicago has been cited as a substantial transportation need of the Peoria area. How badly is a new highway to Chicago needed, and how would it affect your business?

The highway would be very important to Peoria from a growth standpoint. In our particular business, our products are more on an east-west network; consequently I-74 opened up a lot for us. All of our electronic equipment seems to come from the east. But in the general scope of things, a new highway is very important to the economy.

At present, the Caterpillar/UAW labor conflict is again at the forefront of Peoria area business. How does this continuing labor unrest affect your business?

It’s a difficult situation. We do a substantial amount of business with Caterpillar and some of their suppliers. Unfortunately, labor disputes do have a ripple effect, even in the minds of people who may not be directly involved. The news dramatizes things; and when people know that their neighbors or friends aren’t working, it tends to cause them to have second thoughts about making purchases. Many of the products we offer are postponable, so some people make a conscious decision to postpone buying a new kitchen of a new refrigerator. We service people in many communities other than Peoria where Caterpillar is the dominant employer.

It’s unfortunate that UAW workers at Caterpillar are on strike. The good news, I guess, is that all strikes eventually end. Unfortunately, they probably still won’t have a contract when the strike does end.

In relation to Caterpillar, how diversified is the Peoria area economy?

The Peoria community is still very dependent on Caterpillar, even though the Caterpillar labor force is roughly fifty percent of what it was ten years ago.

We do a substantial amount of business in the healthcare industry, which is Peoria’s second largest employer today. And education is a big share of our business, as is the government. These are examples of areas where the Peoria economy has diversified.

What is your sense of the general business climate in Peoria today?

My crystal ball is probably no better than anyone else’s. I’m optimistic, or we wouldn’t continue to expand our business. I think a lot of people feel like Peoria is a wonderful place to live, work, and raise a family.

Nationally, Peoria is perceived as a city with a strong labor influence. That is one of the primary things a company will look at when considering moving major operations into an area.

Your company is an investor in the Peoria Medical Research Corporation, a business formed to develop the local market for testing of experimental pharmaceuticals. How did you become involved in this venture?

We were invited to become one of the general partners of the Peoria Medical Research Corporation. We were aware of the major role the healthcare industry plays in Peoria, and were pleased to participate in an exciting, new venture. We are confident that the three strong hospitals, the University of Illinois School of Medicine at Peoria and the number of physicians in a variety of specialties, as well as the pharmaceutical sponsor companies, will be a big asset to Peoria. The main thrust of any clinical research organization is to bring high-quality clinical trials to the pharmaceutical client and trust to the patients. The focus of PMRI is to do exactly that. IBI