Wednesday, February 16, 2011

What makes a dealer a dealer when the internet is taking over?

We'll be talking at the show about what makes a store a store. What is a dealer really? Why do we need stores?

I'm re-posting my concerns on drop-shipping, suppliers in Asian selling on Ebay, and the reliance of the business on online sales.

First off Online cannot give service. Hence why shops like Super Centers sign up local dealers to be approved discount "installers." Most stores charge customers more for buying things on Ebay if they have to install them, makes sense right? Signing up for one of these programs kills your profits. You do all the work and get non of the profit.

Most dealers don't have time to work on a site so they buy a pre-made site like PSN or from a cookie cutter company, but these only work if you promote them. If you feature the same parts as other companies with the same applications how is your site different? There is also a new supply side experiment where consumers buy from the OEM, the OEM auctions the client off to the dealers, and the dealer with the item at the lowest price gets the client. This kills the margins to the dealer.

You see where I am going with this all the trends kill the margins at the dealer. THE STORE GETS SCREWED!

Next up Drop-shipping online. YES, it works. However, in the motorcycle industry it can only work if there is growth and the dealer invests. What is drop-shipping?
it is defined as supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. As in all retail businesses, the retailers make their profit on the difference between the wholesale and retail price.

Drop shipping also eliminates some duplication of effort, since only one warehouse will pick, pack and ship the product. This approach can reduce total inventory management and shipping costs. These cost reductions can subsequently reduce the price to the consume

The drawback is you have to have minimums. If you let people have a drop shipping site with no mechanical experience, no investment, all you are doing is diluting the value of your products. More drop-shippers DO NOT EQUAL MORE SALES.

It's like Leo Vince selling on Ebay and consumer direct. Yes, the Ebay direct and old inventory sales have dramatically increased for them, but do they help the dealers? Does it really increase exhaust sales? Does changing distributors every two years really help the brand grow or are you cannibalizing one sale for another? I don't have the answers but it's one trend in the business.

I think if you have too many drop shippers all selling Homogeneous product all you do is dilute the brand, the dealers, and push the market down. You also make MAP policies impossible to enforce.

So you need to have Requirements, Minimums a store needs to meet for them to be considered a DEALER. The first one should obviously be sell only to retail locations and second to someone that can help consumers with tech issues. If every time someone buys something retail on a site the consumer calls the distributor at some point the distributor will ask himself why he needs that guy working from home in his garage.

Small stores can benefit from drop-shipping but they should invest in stocking, knowing the product, and giving support. Then there is MAP. They need to make sure the enforce the MAP policies.

MAP Policies and why you should care:
Minimum advertised pricing (MAP) policies. Some companies cares, most these days don’t. You should find out who you are talking to at the show. Also, if you have a distributor that owns physical stores and an online store that sells direct can he really enforce them?

1. I have a terrible time enforcing MAP, so do most people. This is the truth. You have to trust people. I get an email from one dealer complaining about another, you investigate, you ask him to change his website. It changes for a week and next month he does it again.

2. So MAP is there, but is it enforced?
Thanks to the internet riders are shopping for PG&A on a national level, raising the competition for all dealers. So the Internet does affect you. They don’t care about your costs, your family, your employees, and I hate to say it but even the nicest customer will bad mouth you online if he feels you gave him a bad price. This is the reality of the business. I’ve seen emails from consumers to dealers saying “If you don’t lower the price I am going to trash you on the message boards.” What to do in this case? Some dealers budge and even sell at cost. If you know me, you know I would say offer him a compromise, if he doesn’t agree. Loose the sale. Sometimes it’s better to loose the sale than to compromise your business.

This is the only industry where smaller repair shops have gotten used to the Ebay mentality. They call another dealer and say I need to buy a throttle cable for a Honda. The guy answering the phone has never done business with him and he’s already asking for a significant discount. Immediately he tells him he can buy it cheaper in China or from another supplier. Now this is all true, but we have to meet minimums to qualify.

Let’s get something straight, we’re not meant to do business with everyone. To be a member of Sam’s Club you have to pay a yearly membership. That’s a good business strategy for them because over 50% of their profits are from the membership fees. You don’t like it, go elsewhere.

Second. Requirements.
WPS, Tucker Rockey and several other big name distributors have looked the other way in recent years selling to people working from home and not checking to see if the dealer closed and some guy still buys and drop ships all day despite working from his house. As the industry contracts this was a necessary oversight as distributors looked the other way. Minimums and complying with requirements are about to come back. The sales reps are visiting dealers again and shutting down fronts and people selling from their homes because they have come to realize it kills their traditional dealers. Distributors and sales reps that don’t enforce this are only asking for pain. The truth is several distributors have been on expansion mode for years just cannibalizing each others sales and killing the dealers.

Parts Unlimited never budged on this. You still have to buy the $5k minimum a year and it’s worth it from every dealer I talk to. Even if you have to compete with Dennis Kirk and other issues, you still need it.

The scooter industry is in shambles. Most distributors don’t care who they sell to and will sell retail all day long. Most exhaust manufacturers in the USA sell more on EBAY than they do to dealers. The respectable ones have dropped WPS, Tucker, even PU and started focusing on direct sales to the public because it’s more profitable than selling to the dealers. That’s the sad reality. This is all in the endless circle of pain caused by the deterioration of the OEM = Distributor = Dealer = Consumer chain. Now it’s factory in China selling on EBay, Pro-Summer working from home drop shipping (in his mind a garage with two scooters equals a business), and the Dealer trying to import scooters and batteries on his own to save a few dollars. This is also quickly coming to an end as EPA sends out fines.

However, parts suppliers especially ones in Asia have no respect for traditional supply lines anymore. They hire agents, they set up fake companies. It is growth at any cost. They sell to WPS, PU, Tucker and others and find ways to sell around them. Nothing personal it’s just the way they do business. Still these techniques invalidate any marketing or hard work our industry does. It’s like all the fake Joe Rocket and Moose items you see on Ebay. It kills the livelihood of people in the business.

In the last ten years not a month goes by without some story of a dealer trying to go around a supplier contacting the factory in Italy, a third party, or a parts manufacturer to buy direct. It’s so common that dealer’s think they are being cute when in reality it just costs you points with your suppliers. If you support you brands they will support you. This leads me to my final point today supporting the brands.

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