Darlington on Showrooms: Partnering For Profits
After interviewing several plumbing contractors and wholesalers across the country for an article I recently wrote for Plumbing and Mechanical magazine (a sister publication of Supply House Times), I, the "guru of showrooms," learned something interesting. I already knew many of the terrific advantages that a well-run showroom could offer a plumbing contractor, but I discovered there's an evolution taking place across America concerning how showrooms and contractors are working together.
First, more and more higher-end homeowners and/or builders not only want to select the product, but also purchase the product direct from the showroom. The strong feeling is that it's their money, their style, finish and color preference - and they want to control the purchase of the products. This doesn't apply just to finished plumbing products. It also involves light fixtures, tile, kitchen cabinets, appliances, countertops, etc.
Until now, the plumbing contractor has been fighting (and in too many cases he still is) the loss of the buy/sell of the finished plumbing fixtures and faucets. How many times has a showroom salesperson, builder or homeowner heard the contractor say, "unless I buy all the product I won't warrant it" or "I won't install anything I don't purchase" and then follow up with all the problems that can/will happen if he doesn't control the sale.
Some of what the contractors say is true. If there are problems with the product who is going to fix it? Who's going to pay the plumber for the callbacks and extra work? Quite frankly, when I owned my business I got worn out listening to these kinds of "threatening" comments and the plumber's attitude of "my way or no way."
The Plumbers' PerspectiveFrom the interviews I did with plumbers in Florida, Nevada and California it would appear that many are beginning to listen and react positively instead of only negatively. Praise the Lord! It's about time!
Consider the following:
- Plumbing contactors contribute very little to the sale.
- They don't have the "big bucks" investment in the showroom.
- It's not their salespeople who are doing all the work with the homeowner and builder.
- It's not their warehouse being used for the "tag and hold" product.
- It's not their money tied up in inventory and accounts receivable.
So, having said that, why would the plumbers expect to make 25-35% markup on the finished products? They haven't earned it!
Turn back the clock 25 years and you'll find that electricians used to furnish all the light fixtures for residential construction. Today they furnish zero, nada, none of the higher end product. Why? They, too, didn't do anything to earn it.
My guess (and that's all it is) is that in 15 years plumbing contractors won't be involved in the buy/sell of higher-end plumbing products. The same thing will happen there as it did with the electrician.
I know the "Catch 22" that wholesalers are in. They have built some wonderful showrooms (and some not so wonderful also). The plumbing contractors are their core business. They can't afford to upset them. But they also can't earn a fair return on their showroom investments when they can't sell the homeowner and custom builders and remodelers direct.
Another big disadvantage is that the plumbing contractor expects to get the same discount through the showroom that he gets on over-the-counter or bulk products. Too many showrooms operate their showrooms at a loss - yes, loss, not even a breakeven - just to satisfy their major fixture and faucet vendors. Well, margins on commodity products have deteriorated and operating expenses continue to escalate to a point that having any part of their business not earning a fair return just won't get it!
But here's the good news. All the plumbing contractors I interviewed have stepped back. They have taken a new look at reality and realized that they could totally lose all parts of the buy/sell on high-end products or they could work with the showrooms and continue to receive a "piece of the action." Here's how they're doing it:
- By allowing the showroom to change their discount on products specified and sold through the showroom. Instead of a 40% off manufacturer suggested list price they've agreed to 30%, 33% or 35% off, the rationale being that they (the contractors) will continue to put the same mark-up on the product that they have before. Simple math tells them that they will be making more, not less. Use this example: 40% off a $10,000 job = $6000 cost times a 10% mark up = $600 profit vs. 30% off a $10,000 job = $7000 cost times the same 10% mark up = $700 profit. Both the contractor and the showroom make more.
- The contractors I talked with have learned that the install on decorative plumbing products takes longer, so they have increased the estimated time of install by fixture and faucet. They have increased the labor time to install a pewter, widespread faucet to more than the time to install a chrome, single-control faucet. If their rates are $75.00 per hour and the install time on the same $10,000 custom job is 20 hours instead of 12 hours on a "standard" job, they'll make eight hours x $75.00 = $600 more on the install.
- All of the contractors said they would prefer to have the finished product sale go through them, but that they would install a job that either the homeowner or builder purchased. They pointed out that the running around to fix problems wouldn't be their responsibility and they would have to charge a "call back" fee if necessary. Several of the plumbers I spoke with said they would estimate how much the finished products would have cost and they still put their going mark-up on these jobs. Plus, they'd still be charging more time for labor because the more decorative products require it. Once again, everyone wins.
Personally, I'm not sure if plumbers putting a mark-up on product they haven't supplied is fair - or how long the builder or owner will tolerate it, but that's what free enterprise is all about. Whatever the market will bear has ruled and will rule in this case.
I also learned that many plumbers are no longer "fighting" the specialty, decorative products. It doesn't have to be Delta, Moen, Kohler, American Standard, Elkay, etc. They've come to acknowledge that there are a lot of other very good-looking, well-made products out there. As long as they earn a large enough piece of the pie to make it profitable for them to stay in business, these changes work. Let's face it, part of the loaf is better than none at all. Just ask the electricians how they feel about this - because today they don't share in any of the loaf at all.
One Wholesaler's SolutionHere's an innovative, and in my opinion a very "gutsy" move that one of my wholesale distributor consulting clients did to help make his showroom worth keeping. He made the showroom a separate profit center (everyone should). He discovered that trying to protect the plumber (his core customer) and extending the same "long" discounts through the showroom that he did on the wholesale side was causing him to lose money in his showroom profit center. Since losing money wasn't why the wholesaler had invested half a million dollars into his 6,000-sq.-ft. showroom, he decided to communicate directly, openly and honestly with his largest showroom plumbing contractors. The wholesaler sat individually with these plumbers and showed them his profit and loss statement for the previous twelve months. The statement showed almost $5 million in sales at a 25.5% gross profit margin. But the bottom line showed a six-figure loss. The wholesaler said there were two options:
- Close the showroom, or
- Change the plumbers' discount off manufacturer list by 7 - 10 points on showroom-specified products only.
The wholesaler also pointed out that the plumber could actually make more by using the same mark-up and continuing to charge more for labor. Out of 15 plumbers approached, only one said he wouldn't go along with the change in discount. He said he could still get the maximum discount from the wholesaler's main competitor across town. What he forgot was that this wholesaler didn't have a showroom.
All this transpired six months ago. Since then I've talked with several of these plumbing contractors and they're very happy with the results. The gross profit margin of the wholesaler has grown to 33% (and is continuing to grow through some creative selling) which has put an additional $375,000 to the showroom's bottom line. This was a classic example of the wholesaler and plumbing contractor working as partners and working out a win-win situation for all concerned.
So yes, there is an evolution taking place in how wholesaler showrooms are going to market and how many plumbing contractors are reacting to it. It's good, very good, and after fighting the battle myself for more than 20 years, I'm pleased and excited to see the changes.
I just hope more wholesalers and more plumbers will work together to develop partnerships that are profitable for both of them like the one described above. Be pro-active - don't wait for it to happen. Be a leader and make it happen!