Darlington On Showrooms: Wholesalers Really Are Starting To Do Better!
Yay, hurray, yahoo! I can finally say what I've wanted to say for a very long time. As a general and fairly broad-based statement, wholesalers across the United States and Canada are starting to operate some well-run showrooms. For years (I've been doing this column for about 12 years) I have not been very kind to the wholesalers about how they've run their showrooms. In fact, I've wondered why the fine people that own and edit this excellent publication have kept me around. It's a magazine primarily for wholesalers and their vendors, and for years I have had very few nice words for that audience. But I have always felt that it's my charge to challenge you and my responsibility to tell it like I see it.
The showroom business is very different from the wholesale operation. The wholesale side requires excellent management of assets (inventory and receivables). The showroom has very little of either one (except the plumber and builder receivables). The wholesale side is big volume/low margin. The showroom is normally just the opposite. Operating expenses run about 10 points higher in the showroom. The wholesale business requires very little merchandising, advertising, promotions, and public relations. The showroom requires a lot of all of these. The wholesale side is just that: wholesale and all that it encompasses. The showroom operation is mostly retail - and there's a big difference in how each of these businesses is run.
Up until recently, the wholesalers were willing to invest money, time and energy in building out some pretty nice showrooms. But they were not willing to learn the retail business. Consequently, the owners of the wholesale businesses were not enjoying a very good return on their showroom investment.
It's changing - maybe slowly - but it is changing!
As many of you know, I have the pleasure and opportunity of working with a number of wholesalers and their showroom operations from the Atlantic to the Pacific and from the tip of Florida to well into the Canadian Rockies. Many of my clients are enjoying 20% sales growth each year and they've learned how to increase margin on sell from the mid-20s to the mid-30s and higher.
The showroom has allowed many wholesalers to increase sales to existing customers (the plumbers). It has also allowed them to sell both old and new products to new customers (consumers, builders, remodelers and independent kitchen and bath dealers) and to add significant dollars to the bottom line. Vendors love seeing their higher end products being shown and sold. It is also a fact that a well-run wholesale showroom offers so much more value that it can fairly easily out-hustle the big boxes.
Without reciting any company names, allow me to share some wonderful testimonials from across the United States and Canada about several wholesalers who really are running showrooms the way they should. Many are still a “work in progress,” but steady progress is being made.
CaliforniaA large multi-branch wholesaler has purchased two independent showroom businesses and they are being operated under different names. They are off-site locations and have their own management team. I estimate showroom sales at $20 million and gross profit in the mid- to high-30s. Sales would break out about 50/50 trades and consumer.
NevadaAnother multi-branch wholesaler operating with one large showroom and one smaller showroom has sales approaching $10 million. Now hear this: their margins have improved from the mid-20s to right at 37%. (That equates to another $1.2 million of gross profit dollars, folks! And, 80% of their sales are to plumbing and building contractors. If you want to know how they achieved this, give me a call.)
TexasLet's move a bit southeast to a large wholesaler that's operating about 20 showrooms. My first visit with these folks was about seven years ago when I gave a talk to their management team. They had the same 20 showrooms, but sales and margins were far from impressive. They were still trying to dance with and around the plumber. Three years ago they asked themselves who really was running their business: them or the plumber? They decided they should take charge of their own destiny and start running showrooms the way they needed to be run. Their sales are up 76% in the past three years and margins have grown by 4 points. This is still not great, but moving in the right direction! They have a great mix of sales at 1/3 plumber, 1/3 builder and 1/3 consumer.
ArkansasLet's look at a smaller wholesaler with eight branches and two showrooms. Three years ago new management took over and recognized the great potential showrooms offered. They remodeled one showroom and built a brand new one in a second location. They've opened the doors to the consumer, have stopped giving out model numbers and brochures, have started to diversify their product mix and their commitment to grow margins is working.
Mississippi and several other southern statesThis example is another large, multi-branch wholesaler that's had showrooms for years. But they really hadn't committed to making showrooms an important part of their business. This changed three years ago. They put a key management member in charge of the showrooms. The president and executive team all committed to learn this new business and to do what they need to do to make it a success. They started with a formal three-year business plan and have established vendor “partnerships” with key showroom products. Sales are growing fast, margins are inching upward and they are on the right path.
TennesseeHere's a wholesaler who wasn't in the showroom business until recently. They have just opened a small, 2,000-sq.-ft. absolutely beautiful showroom in a state where they don't even have a branch. They've put a different name on the business and are operating it as a stand-alone business. The president/owner and his top management team believe very strongly in the future of showrooms.
West Central FloridaA wholesaler with two of the nicest and largest showrooms in the industry has had terrific sales growth with margins over 30% and rising. They have a great product mix, formal training program for showroom sales staff and customer friendly, value-added benefits.
CanadaI'm working with several Canadian wholesalers in western and eastern Canada that have started to take the showroom business seriously. The early results are terrific as they continue to expand, train employees and make a commitment to showrooms.
Following is a list of several things that most of the above companies are doing - or have plans to do. These are many of the keys to opening the doors to showroom success. If these don't apply to your showroom business, you might think seriously about considering them:
-- Top management must make a full commitment, not just in the investment, but in learning an all-new business.
-- Open the doors to consumers. Market the showroom to them and become consumer friendly.
-- Diversify your product mix. You won't be successful with just the traditional wholesaler lines.
-- Develop great vendor partnerships. Be important to a few.
-- Have a formal showroom training program that includes sales skills, product knowledge, systems and procedures.
-- Only give out your model numbers and your prices.
-- Don't give out brochures.
-- Consider offsite showrooms and a different name for the business when deemed appropriate.
-- Have a showroom business plan (3-year minimum).
-- Offer customer-friendly retail hours.
-- Have an annual budget.
-- Have job descriptions.
-- Establish sales and gross profit goals.
-- Have an incentive program that encourages and rewards sales and gross profit performance.
-- Establish a minimum gross profit margin goal of 35%.
-- Teach your salespeople how to sell for margin.
-- Compensate showroom managers and sales consultants competitively. Be happy to pay more to get more!
-- Do twice-a-year performance evaluations with every showroom employee.
-- Build out great-looking and functional showrooms.
-- Learn the retail business: advertising, promotions, public relations, merchandising and customer service needs.
-- Go after the custom home builder and remodeler business.
There are a whole lot more ideas to be added to this list, but space won't allow. So, stay tuned!
Wholesalers, if you're in the showroom business, and you can't claim to be one of those that really are doing it better, now's the time to climb aboard - because the showroom train is about to leave the station!