Friday, September 10, 2010

Feeding your competition

I have this great story and in the last 48 hours it’s become something I had to share with everyone. It involved a small vendor who works out of a U-Haul, a shop that supports him, and a 65 year old customer who has two scooters on the back of his motorhome who has visited 3 stores and called 6 shops in the Florida panhandle before deciding who could get him the best parts prices to repair his TNG Venice.

My first caller yesterday morning was a store that hadn’t placed an order in 8 months and his total for the year was around twenty dollars. Today he wanted to order another ten in parts. The funny thing is before he ordered he proceeded to tell me how he was slow and there was no business, but he was buying a thousand dollars in parts from some guy working out of a U-Haul and no longer needed MRP or his WPS accounts. I thought it was pretty balsy for someone to say that ( I ignored his comment and I realized you have to take everything with a grain of salt since he just wanted to buy without meeting our minimums) I explained to him that the U-Haul guy was the reason his business was going out of business and his sales were slow. He said and I quote “I don’t care if his mobile U-Haul competes with me, we’ve been here over 5 years, I want price.” The best thing about this quote is how it would haunt him the next day. So before I told him he had to live up to our minimums and that we had spoken to the store ten times this year I proceeded to explain why U-Haul guy was helping destroy his shop of 5 years. Then I told him we could talk about his order.

Now say what you want, but MRP like every company is here to make money. Unlike the U-Haul guy this dealership buys from were not a retailer. I’m not directly competing with the store by selling on Ebay and online direct. U-Haul guy is helping destroy brands since their suggested retail prices are nowhere near where they should be on eBay every morning when he’s on there. He’s also in the same area as the dealer so the dealer thinks he’s being helped all he’s doing is sending the U-Haul guy more business. This is one more clear example of everything that is wrong with the powersports industry right now.

I think part of the reason there is so much desperation out there is because dealers allowed distributors to destroy the market by liquidating bikes at auction, sell online direct, and sell parts to the public. I strongly believe the Chinese importer that sells parts direct to the public for whatever reason has basically cannibalized their own long term growth. Then again this is the type of business decision made by someone only thinking about immediate revenue, immediate gratification, and has no interest in building a brand or worrying about if your client will be here next year.

So any distributor in my position has to think - I have employees and overhead. I pay insurance. The guy that works out of U-Haul or his garage doesn’t have liability insurance, workers comp, property taxes, marketing expenses or provide a website with thousands of parts on there. You’re comparing us to the this is why the fly by night guy that works from the U-Haul who has 200 SKUs and buys from WPS or Parts Unlimited because you don’t have an account there? This guy won’t be here next year and the guy that sells direct might have great revenues, but you will never see any legitimate Honda or Yamaha dealership put a sign up that reads “” on the window. You can walk into a hundred Kymco or Honda dealers from Argentina to Canada and there might be an MRP sign in the window. So I think we need to look at what bigger companies do to truly answer this dilemma.

I face this every day if I sold direct to the public and hired four or five guys at $8 an hour to slave on the phones I could run three or four dealers out of business next week. I could sit here and I would instantly loose a good client like Scootertronics or Buggy USA. They stock, race, go to the track with scooters or buggies. They would never fly our colors or try to promote the line, because they would know in the back of their head that instead of sending them leads we are taking them.

I know a lot of people criticize FRED FOX and company, but that’s who we aspire to be everyday as we’ve built up MRP from 3,000 SKUs to over 12,000 in the course of 18 months. I can say a million things about and how it closed, how it drop shipped from a million suppliers cannibalizing scooter dealer sales before it shut down, I can talk about DK selling direct to the public, but let’s talk about the fact that PARTS UNLIMITED is the 400 pound gorilla because they decided it’s not in Lemans' business plan to support each and every dealer out there especially not the guy buying $100 a year or the guy that tells you he can buy from a U-Haul or China. They don’t want the lawnmower shop that buys $200 a year and because of that they have grown and maintained themselves. There are other distributors that look for and cater to the lawnmower shops and to tell you the truth they want to play the volume game. Sell to more small shops at less money like Walmart and do more volume, but all we do is drive down pricepoints which are already unsustainable. They have 300,000 or more SKUs available to them. Sure it might upset smaller shops all the time that they have to buy $5,000 a year to keep an account open, but think about what a brand name means. This is the most difficult thing to explain in an industry where the cost of entry is at an all time low. The guy that invested $5,000 in 40 scooters and opened a store wants the same pricing and same treatment as the Vespa dealer that spent $5,000 on two scooters. The truth is just because it’s scooters they are not the same business plan. Both stores do share one thing right now – THEY BOTH NEED TO REPAIR EVERYTHING TO SURVIVE.

So I put forward the following contention: Can the Vespa shop survive in todays market ( anywhere other than a primary market like NYC or Chicago ) solely on the Vespa – Piaggio franchise. The absolute answer is no. This is now a widely accepted Universal truth. I think this theory is now proven and in today’s market the smart owner is telling their repair center “hey guys we need to start repairing Yamahas and Kymcos as well as Piaggio.” Same applies to the Honda shop that normally wouldn’t repair a SYM or Kymco.

Now the Chinese only dealer is faced with a question and a new contention emerges. As they have struggled and prices are at all time low on new vehicles. The small Chinese only shop has tried to offer better product moving up from Qingi to say CFMOTO or a better 2T scooter like ETON at a higher price point. Still, they think all the parts should cost the same and the bikes are the same. They clearly are not. The new contention should be “as a Chinese only shop should we be repairing more than just inexpensive Chinese scooters?” this owner might take more time to think about this, but the answer is also a resolute yes. Because the shop needs to be able to buy CFMOTO or TNG parts to survive in this market.

So I think my contentions apply directly to the market we face. You have a dealership. You absolutely need a Kymco part, if you are not a Kymco dealer then you have buy it from a Kymco dealer. THIS MAKES SENSE because Kymco is in the business of keeping the brand and business alive, it has a value, THEY ARE NOT MEANT TO BE AT EVERY LOCATION. We took this same business decision and my outlook is the fact that we have a value that sometimes is only realized when someone comes in with a Malaguti scooter or a Keeway ( and Keeway North America discontinued these parts and MRP got them at auction ) and you’re client is desperate for these parts. We come in and save the day and help you make some money. That’s our value. That’s why we have dealers that buy $25,000 a year and are loyal to the brand. They have the business intelligence to not put up website links to direct competitors online on their site. They know the market itself has to be sustainable and for it to be sustainable you cannot take sales away from legitimate stores even online. Dealers have to pay rent, employees, taxes, insurance, and have a million issues every single day. So to those hardworking guys I would be doing them a disservice ever time we sell to the guy that buys $20 a year because they make a strong effort to support us and have helped up acquire all the companies we have in the last 18 months.

So I look at Parts Unlimited and I say yes they are the 400 pound gorilla. I both admire them and want to get in the ring with them. That’s what life is about, if your goal is to hide then don’t sign up for the army. If you want have a franchise read the fine print if you’re going to represent KYMCO then you HAVE to live up to what they ask for, if not don’t do it. Don’t get married and pretend you’re a bachelor.

So back to my caller yesterday I told the client listen at this point you’ve purchased under $50 this year. He said he understood, but that U-HAUL Guy had everything he could ever need and if he needed more he could buy it direct in China online. So I said I can’t in good faith keep you onboard you will have to buy like a Jobber at a higher price or from another store because I have to be fair to my employees, my policies, and my business. He said he didn’t need the part.

Today his wife called. A sixty five year old man had a Venice 49cc that he needed to fix URGENTLY like it was the end of the world since he had dropped it accidentally from the back of his motorhome. She explained to me she didn’t know they hadn’t purchased the minimum on the MRP account and proceeded to tell me this amazing story.

Mr. U-Haul drove into the Motorhome community they service and dropped off flyers to all the motorhomes that he repaired mopeds and scooters ( despite having no license, no location, and doesn’t have a tax ID) The TNG owner had gone to the U-Haul guy and he couldn’t get a quote ( doesn’t have an MRP account) then Mr. U-Haul guy said he would be opening a parts account with MRP next week.

The smart savy customer went to their shop because he needed to leave town this weekend and wanted his scooter running. He told her the story about what Mr U-Haul was doing. They freaked out. They purchased $400 in MRP parts. Turns out everything I predicted, everything I had said was true. Will they stop buying from Mr U-Haul? probably not. Because the powersports industry has a short term memory and now getting screwed by distributors or suppliers is becoming the standard.

Still now they see the value of working with someone that has the parts that Mr. U-Haul cannot get. Now they see the value of working with someone that won’t be driving into the motorhome community taking their clients. It’s a shame it comes to this it really is, but if anything I told them they were only helping build up the guy that would eventually try to take their business. Call it Cassandra’s curse if you will, but this is the state of the industry.

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