Friday, September 10, 2010

Vendors That Compete Against Their Own Dealers

I absolutely loved this article by Arlo on Dealer News. Two things that were left out is the trend that has started in Europe and how dealers there barely survive on service. They can't make any money on parts when parts makers in the scooter world now sell direct to the public and they can't make money on scooters. Some dealers there survive on less than 7%. So the only place they make money is service.

Now if you add all the illegal shops in Rome and what the owners have had to resort to by hiring illegal workers you really have a mess nobody likes to talk about.

Arlo wrote one of the best articles I read and I wish more websites would do this. I think he just failed to mention Dennis Fox and Kirk Fox are the initials in DKscooters and this is one of the first things you learn when you enter the business. Are they owened by PU no, not directly, it's probably a trust or something that can't be looked into. Simply put they are separate corporate entities as his research indicated. Also, it doesn't really matter if its discrete or direct anymore plenty of distributors especially the Scooter World are selling direct. The Internet and the Chinese supply have made this into the wild west economic system so you can't blame anyone - It has done away with any exclusivity, any four tier sales system ( factory - distributor - dealer - consumer ) so dealers can expect even more hard times on all this.

Even brands that were established by cutting the teeth of sales reps with product demos and dealer direct like Scorpion have changed to selling to Tucker Rocky and selling direct to consumers. Tucker already has some of the loosest MAP policies around so its a free fall in the industry when it comes to dealers. The funny thing is most dealers don't have the time or the energy to compete they buy a PSN Powersports Network Website and just drop ship it all and ignore the fact they can't compete online anymore. It's a really sad state of events. I think Arlos advice is the best. Make as much noise as possible, complain, and support the brands that don't compete with the store.


Vendors That Compete Against Their Own Dealers
By Arlo Redwine

BrokenChainWhy has the industry allowed so many vendors to compete against their own dealers through online sales? Shouldn’t everyone respect the supply channel? Or do some vendors have legitimate reasons for selling directly?

Two years ago, I was attending an annual meeting of MIC members when a guest speaker told the 200 assembled vendors that they all should be selling online. “The most important way for the aftermarket to sell is the Internet,” the market analyst said. “Companies used to be worried about how it would affect their retail establishments. That way of thinking has gone by the wayside.”

This comment surprised me. When the analyst asked for questions, I asked whether he believed motorcycle dealers in particular no longer cared whether their suppliers sold directly. He gave a quick affirmative and left the stage.

As we dispersed for a coffee break, a vendor rep came up to me and said that he was glad I had asked my question. Vendor sales to consumers, he assured me, were still highly controversial.

Well, perhaps the speaker had misunderstood my question, so I confronted him during the break for clarification. He said that he’d been speaking generally, but that, yes, he believed the idea also applied to suppliers and dealers in the powersports industry. He qualified this by saying that supplier websites could link to dealership sites or incorporate dealers in profit sharing. When I noted that many — probably most — dealerships did not partake in e-commerce, he shrugged his shoulders.

Again, this was two years ago. In hindsight, it seems that the analyst was on to something. The idea of wholesalers bypassing their dealers is not as controversial as it once was. Why is this?

What’s particularly bad is when suppliers sell products for below wholesale. “That’s what we’ve seen more often — is them selling directly to the public and undercutting us,” Crystal Ashby, marketing manager for Chaparral Motorsports in San Bernardino, Calif., told me in late August. “For instance, we’ve seen particular companies selling close-out merchandise on their website for below our cost, and then we’ll call and say, ‘OK, we want to buy that for a customer at that price.’ And they won’t sell it to us at that price. They want to sell to us at our higher dealer cost.

“Any company, any distributor that sells direct to the public is really robbing everyone of a sale,” she said.

Some suppliers claim that they must sell consumer-direct to survive — or they claim they retail only noncurrent items.

Ashby is skeptical. “They’re saying that because we [the dealers] can’t facilitate all of the business, they need to help out,” she said. “Well, if they were to supply me with everything that I needed, then I could probably facilitate all of the business. But they’ll run off X amount of inventory for their distribution company and then they’ll run off X amount of inventory for their direct-to-the-public inventory. Then, when our inventory runs out, they won’t pick from that retail inventory because they’re making double, triple the margin they would be making by selling it to us.”

Another excuse I’ve heard from vendors/retailers is that in many parts of the country, no dealer exists that stocks their products. “How else can people buy our stuff?” they ask.

Ashby has an answer to this question also. “Now there is a dealer in every area because of the Internet,” she noted. And she wasn’t referring only to big Internet operations like Chaparral. Any-sized dealer today can afford e-commerce thanks to companies like ARI, 50 Below and PowerSports Network. “Every small dealer could grab a hold of one of those Internet providers,” she said. “They provide a really good package that is really easy to work with. It doesn’t take a lot to get started.” (Click here for a comprehensive buyer’s guide for the three website providers mentioned.)

FoxRacingSo which vendors are selling to the public? The first big names that come to mind are Fox Racing and Shift. The company that owns those brands has been doing it for many years, seemingly without compunction. And in my last blog posting about MAP policies, I mention Scorpion Sports’ relatively new shopping cart.

But as far as I know, neither of these companies is undercutting its dealers, the ultimate sin. I didn’t ask Ashby to name names when she made her comment about such suppliers, but perhaps I should have. If you know of any undercutting vendors, post a comment below. Please provide links supporting your claims.

Now, at this point, I pretty much have to address one of the industry’s longest-running rumors: that Parts Unlimited is somehow the true owner of prominent online retailer Dennis Kirk. If true, this would be a big story. Accordingly, a few years ago, I investigated by contacting Minnesota’s Secretary of State office for Dennis Kirk’s articles of incorporation. There are two sets of papers, which is not unusual as companies often form more than one corporation to separate assets. Dennis Kirk Inc. was incorporated in 1977; Dennis Kirk Store Inc. (the online operation maybe?) was incorporated in 1995. The sole board of directors for the latter corporation is listed as Fred Fox, the founder of LeMans.


But unless I’m mistaken, this doesn’t indicate ownership. A high-level Parts Unlimited executive once ensured me that LeMans does not own Dennis Kirk. The truth of the matter, he said, was that Dennis Kirk had long been a favorite customer of Fox’s. This alone explained Fox’s being the initial board of directors. It also explained, I suppose, past off-the-record reports from employees that Fox visits Dennis Kirk’s facility with an authoritative air.

At the time I was doing this research, Dennis Kirk declined to speak with me. But the special attention from LeMans could be reason enough for it to shy away from the trade publications.

In conclusion, I won’t assume LeMans owns Dennis Kirk when both companies deny it and I’ve seen no proof to the contrary. Besides, look at it this way: LeMans is roughly a $1 billion company. Motorcycle Superstore, the country’s largest online powersports retailer, reportedly had sales of $43 million in 2008. Even if Dennis Kirk’s sales approached that number, it’s hard to believe that LeMans would risk the goodwill of its entire dealer base just for the extra margin on such relatively small volume.

Baker[1]But enough about that. Let’s get back to the vendors that we know are selling to the public. It always amuses me when I get a press release from a vendor about its new shopping cart on its consumer website. What great news to share with your dealers! The latest companies to make such announcements are Baker Drivetrain and Saddlemen. Click here for Baker Drivetrain’s story. A Saddlemen rep said that the company is willing to sell directly but prefers customers to buy from dealers. As if customers give a rat’s ass about the vendor’s preference!

Instead of selling directly to people, established brands like Fox Racing, Scorpion and Saddlemen could be linking to their retailers’ websites. Or they could do what Kawasaki once did with respect to its online sales: give the nearest stocking dealer its usual margin for each sale. [Update: Several dealers have since told me that Kawi only paid about 3 percent.] I say Kawasaki once did this because it eventually decided to end consumer-direct sales altogether.

Another option for dealer-respecting suppliers is Shopatron, a company that specializes in allowing manufacturers to sell online without cutting out their retailers. Suzuki is just one of Shopatron’s latest clients. Click here for a short article explaining how the system works.

Before I sign off, let me say that there are some legitimate excuses for consumer-direct sales. After all, many small vendors begin by selling their wares to the public, before slowly building a dealer network. There’s a transition period. When that period should end is hard to say.

And even established vendors typically sell directly when they attend the big consumer events like Daytona or Sturgis. I suppose it’s only fair for them to recoup their costs as they market their brands. An exception would be the semi trucks of the major distributors. More than once I’ve confirmed that all such semi sales go through a local dealer.

As inventory levels remain high — and retailers and vendors struggle to survive — excessive discounting is going to tarnish some brands. Similarly, look for more and more vendors to use the economy as an excuse to become your competitor. Don’t take it lying down. Make some noise. Remind your suppliers that barring a few exceptions, the supply chain shouldn’t be broken.

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