Opinion: The Problem With 12 Volt Distribution

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distributors

By Ray Windsor

Distributors are accused of a lot of things in our industry.  “Distributors don’t ‘sell’ anything, they just let people buy things,” is one complaint. And they sell to everyone and anyone–consumers, your competitors, discounters across the country, other distributors who will turn the inventory for less than cost, etc…

The reality is slightly better than that.  But this reputation is not far fetched based on some of our experiences.

Still, the distributor is becoming a more important part of the supply chain.  More important to the retailer.  More important to the vendor.  Follow this…  Business is becoming more challenging for the retailer. There’s more margin pressure, price reductions, short product life span, and consumers are less brand loyal and better educated on features and prices.   Retailers therefore and rightly so, are less willing to take on as much inventory risk as in olden times or even just a few years ago.  That means when a retailer needs inventory, the distributor is a more “Just in Time” solution than waiting for the vendor.

Enter the capable distributor.  He can ship inventory within a day to most of the retailers he serves.  Retailers can keep two of a product on hand instead of 6. The retailer has lower freight costs, so improved profit.  And the distributor makes sure retailers are serviced by a competent sales and technical support staff.   Sound like a fairytale…?

More and more distributors who can’t create that reality are having a hard time keeping up.  Distributors must rise to the changing circumstances.  Just fulfilling demand and adding no other value is no longer satisfying retailers or vendors.

Distributors must offer improved inventory availability, product training and disciplined distribution or selective distribution to protect profits. Remote start training, camera installation training, are all part of the game now.

One of the biggest challenges for the distributor is to keep inventory flowing.  That requires forecasting, and that is just not a routine practice in our industry. Instead,  it is the end-of-the-month deal that manages inventory, and does so poorly.

Distributors, I believe, are going to need to lead the way away from those deals. That means imposing a little bit of tough love and saying “no.”

The days of distributors holding vendors hostage for the end of month deals AND the days of vendors holding distributors hostage for the end of the month deal must be eliminated.  Without eliminating that practice, the just-in-time model breaks down. There is either too much product on the shelf or there isn’t enough product on the shelf because the distributor and vendor are playing “chicken” with each other.  That is why inventory shows up in unpredictable places at unpredictable times at unpredictable prices.

It’s the brave distributor who approaches the vendor with forecasting and says let’s stick to it. Maybe his competitor got a better end-of-the-month deal and will gain slightly more business in the short run.  But the improvement in mid and long term business relations between distributor and vendor will be well worth the risk.

As more distributors say no to the deals, they will start to diminish and the industry will start inventory planning.

What is clear is under the current roulette wheel games, no one wins.

 

Ray Windsor is Executive Director of the Elite Distributor Alliance (EDA)

 

 

 

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6 Comments

  1. I think we can all agree on a few things…
    One, the Internet is NOT ‘going to go away’ anytime soon.
    Second, the ‘replacement’ source-unit market is continues to decline, and its accelerating.
    Third, there will always be someone willing to sell what you have, at a lower-price…
    And that customers will typically seek-out the best available ‘value’ they can find.

    So the real question is, what’s ‘your plan’ to respond to the new reality that all 12V retailers now face, in an ‘Amazon’ (“unrestricted-warfare”) CE universe? Hope you have one, and that it features select brands that offer desired solutions, compelling value, and represent a true “profit refuge.” We are specifically positioned to assist retailers with that endeavor.

  2. And the Problem with this last comment is, I walk into my distributor pick up an item my retail customer told me he can get online for less money than I can buy it for? Now how the hell am I gonna make any money off it? Why would I even waste my time looking up a price if its on e-bay or amazon for less money? What do I tell my retail customer a week later when he comes in bitching I screwed him because I overcharged by X dollars because he found it on Amazon for less the I sold it??

    Well thats gray market goods, you won’t get a factory warranty, I’m blue in the face now telling this story.
    Manufacturers need to go the same Way Rob Wempe went with Elettromedia-USA and protect the market on that brand of product, and set up MSP manufacture Set pricing. the retailer needs to make 30 to 50% to stay in business and grow, and this is how it should be addressed.
    And Distributors need to make 20%. They have to have a 2 tier pricing system.
    A retail customer should never know what a product cost, and why should they? If they want to buy it it dosn’t matter if its .10 cents or 10,000 dollars if its in the budget they will spend that, its always worked, why would you want to degrade your reputation to move boxes and pallets of product over a long hard earned reputation? Might as well change your name while you at it to Kraco or pyramid!
    If OEM equipment is 800 to 4k and has been for the past 40 years why is it the aftermarket is competing with there other hand? Factory Radios are getting a lot better than say 50 years ago or even 20 years ago, but just walk into a dealer with a broken OEM radio and they want 800 to 4k to replace it, when I could even for 1k buy a new Kenwood with heads up display steering wheel control, navigation speech and all sorts of crap dvd and media system the factory can’t offer to replace it with. Distributor cost 400 bucks dealer cost direct 600 bucks by the case from distributor 500 bucks case lot or 550 each. Cost to manufacture 340 bucks. everyone makes money and the customer is none to the wiser for each price.
    Solid policy Distributors cannot sell online caught one time you lost the line permanently and manufacture can bring lawsuits for other retailer’s lost profits. That money is to be collected and split to dealers in discounts or factory coupons.

    If the current business model is not changed and soon, you won’t have a model to show, you won’t even have a business. Competitions has gotten way out of hand. If you think this is good for the consumer you’re dead wrong, this type of price structure is really bad for business. We are losing dealer’s left and right and installers are looking for other types of jobs because this one can’t pay anymore.
    car are 10-20 times harder to deal with then 20 years ago and that’s if you can even change the radio or anything in the sound system at all.

    Fix this stuff this year, or I give it 2-3 years and you’re all going to be looking for somthing else to do.
    Retailers can’t keep selling with no profits, nor can distributors.

  3. The premise that Ray suggests makes a lot of sense. However, both the distributors and the vendors have the needle firmly planted in their arms. Nice thought, but I seriously doubt it will ever pan out.
    Greed supercedes good logic.

  4. my one dealer is always shopped online as soon as he gives a price customer goes right to the phone and prices the same exact model and 99% it cheaper online usually he can get about $10 more because he can get same day or next.
    So the manufactures are the ones at fault for the most part plus the dist because they setup there own online accounts on ebay to move product so they can keep discounts in place with vendors because its not moving fast enough off the shelves to dealers. the internet has caused this race to zero profit.

  5. It still kills me that people selling on eBay, individuals and backdoor delaers alike, get around the wholesaler/distributor markup. They sell it cheaper that a distributor and still have enough margin to ship the product for free.

    Case in point, I just had an old rep email an of month special last week (obviously didn’t read this article yet.) The regular dealer cost on a Kenwood DDX6703S is $425 and the monthly special is $399. A whopping $401 in profit he states!! I copy and paste the model number and go straight to eBay and low and behold a CA dealer with a solid reputation is selling the exact same unit for $378.80 with free shipping. A frustrating model that made me get out of that industry all together over a year ago.

    I don’t understand the race to zero margin not to mention the declining number of vehicles a double din radio can instal into these days. SMH

    1. Just had a similar issue. Distributor was out of stock on a similar Kenwood model. Went straight to eBay and found it for $100 cheaper with free shipping. That’s a huge difference in cost. Not to mention we ended up getting an upgrade to the Excellon unit for free! WTF?? How is this right?

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