Wheeler on HVACR: Don't sweat the manufacturer buyouts
If such stories worry you, here are a few things to ponder:
- First, I've been on the manufacturer's side when discussions arose about buying out or dropping a supply-house chain. It isn't as easy as you think. No matter how your contracts are worded, there is always the valid fear of a lawsuit. You see, any time a manufacturer tries to pressure you into selling or threatens to take away your line, it's endangering your livelihood, as well as your company's reputation and future, especially if you've spent several years and a lot of money promoting the line. So this is not something a manufacturer can dance away from lightly without liability concerns.
- Second, there are unseen complications with such a venture. I remember a few years back when a major manufacturer took its line away from a supplier in Arkansas. The owners wanted to go out of business anyhow, so it was simple stuff, right? Not so. In that state the manufacturer was required to purchase the whole building if it wanted the line back, and the old, rundown warehouse was priced millions over what it was worth ¿ which the manufacturer paid.
- Third, manufacturers are terrible wholesalers. Their business and mindset is manufacturing. The only time they're interested in getting into the supply-house business is when there's a lot of money to be made (or when they're desperate). When they start losing money, they back out of the business as soon as possible. So, if you've been in the business long enough, you chuckle when you see the major players buying distributors, because you know they'll soon be on a selling spree, depending on who the current president is.
- Fourth, manufacturers seldom run their operations more efficiently or at a lower cost than wholesalers. They are expected to pay their employees more and provide better benefits. And corporate expects a hefty cut of the profits, so the overhead is higher. This is the same reason why they aren't strong competitors against you. They really can't sell their product any cheaper, and if they do, that's the best indication that the line is for sale.
- Fifth, the first couple years of change always cost money. Customers lose track of where they're supposed to buy, there are bookkeeping and management losses, startup costs, etc. You know, you've likely been there too. And while corporate expects and can tolerate short-term losses, losses are never good.
- Sixth, there is naturally a loss of customer loyalty. Some won't like doing business with a manufacturer. After all, if the manufacturer bought you out, maybe they're the next targets on the list. And if you've been doing things right over all these years, I'm sure there's some loyalty to you. Remember that people do business with people; manufacturers are seldom warm and cuddly friends or business partners. If a manufacturer takes your line away and gives it to a competitor, your customers probably aren't doing business with the competitor for a reason. I personally am less dedicated to selling a product line than I am to working with someone who is helpful, friendly and available.
- The seventh and final reason also ties into loyalty and people doing business with people. Over the past couple of years I've had to do business with two major manufacturer-owned wholesalers, and I'm not impressed. Although they provide engineers to place orders with over the telephone, a degree doesn't buy anything when it comes to practical knowledge. I'd rather do business with someone who knows the line and the pricing. And if a salesperson gets really good, he moves onward and upward. They also seem to have to hire anyone who can show them the proper degree on the sheepskin. So they end up with some real oddballs that you wouldn't hire or keep for long. Remember that the loyalty of your customers, or the lack of it, is directly linked to the effectiveness of your field sales staff, and any changes there usually take some time to recover from.
So my conclusion is, don't worry - "This too will pass." Just promote the product line as anyone would who's trying to make a living in this industry and be honest with your product providers. It's a great business and you can make a lot of money at it when you do it right. And if you're already doing it right, a manufacturer would be crazy to do anything to change things, unless you really want to be bought out. So my hunch is that the recent spurt of buyouts is less a manufacturer company policy (since the market is headed down) and more one of convenience for the former owners. And if the market really drops, plan to invest in a bargain-basement expansion when the manufacturers start bailing out again.