Shining Light on the Industry
Terry Oates, President, King’s Great Buys Plus, Evansville, Ind.: The biggest challenge is margin degradation, particularly the way vendors choose to go to marketplace with IRs (instant rebates) and whatnot. You look at your margins on the front side, and there really isn’t any profit in it until you get the money on the back side, and they don’t pay quickly; you’re in a losing proposition.
But for the most part, most vendors pay their bills pretty quickly, so it’s not as big an issue as it once was. But if you’re looking at a statement just based on what the surface margin is, there’s no money in it. Therein lies the challenge.
Quite frankly, I think that’s one of the reasons the vendor community has chosen to go to UMRP (Unilateral Minimum Retail Pricing) on a lot of their products. There is a contingent of retailers out there that choose not to make any money, or that choose to use the advantages they have from a buying perspective to drive the price down.
Oftentimes, the big boxes are merely delivering product; they’re not selling anything. In fact, we’ve seen with some big boxes that they don’t even have certain products on the floor, but will put them on their websites. They’ll destroy the margin opportunity for all their competitors by destroying it on their website, and then have somebody fulfill the sale. It’s just a strategic move. And I understand, I get it, but I don’t agree with it—particularly from the vendor’s point of view, because they’re getting no value at all.
And I think at least the smarter vendors are starting to wake up and smell the coffee. Dealers like ourselves—and I’d say most regionals fall into the same category we do—we stand and deliver the message and sell better product. At the end of the day, if we don’t tell customers the value proposition that product offers, it never gets delivered, period, because they’re certainly not going to get a very good presentation in a big-box store. That’s our reason to be, if you will.
The UPP policies are a step in the right direction, but I think there’s going to have to be a further analysis of that. I think we’re going to see a proliferation of programs that resemble them, and maybe even product that’s differentiated for our channel that ultimately can allow the manufacturer to make money. Because if they can’t make money on better product, there’s no reason for them to be, either.