Almost 43% of the businesses really don't know if their showrooms are profitable! This truly is hard to understand. Every showroom should be treated as a separate profit center.
If you're a wholesaler and operate a showroom(s), this is one article you should read. And even if you aren't in the showroom business today - but are starting to think about it - you too should read it!
The majority of wholesalers responding to SUPPLY HOUSE TIMES' 2003 Showroom Survey, 65.4%, operate only one showroom, while 34.6% operate two or more showrooms. The average annual sales of all respondents was $16 million. Respondents were fairly evenly split from across the United States, which gives us a good cross section.
The 39-question survey that was sent to 2000 wholesalers is the ONLY benchmark of showroom facts and figures you'll find anywhere. Four hundred, or 20%, of the folks who received the survey responded to it. That's an outstanding response. Thank you!
I was looking for some dramatic changes in quite a few areas. There were some, but not as many or as big as I expected. Still, the overall trend is good. Wholesalers are making a bigger commitment to operating better showroom businesses. It certainly has been a slow evolution, but the good news is, it is evolving - and in the right direction.
Some of the bigger and better changes are:
- More wholesalers are adding showrooms or getting into the business for the first time: 40.4% of the respondents indicated that they have added or started a showroom to their business in the past three years.
- A whopping 84.6% said they have done some major remodel in the same period of time.
- More wholesalers are moving their showrooms away from their wholesale facility to more customer-friendly locations. In 2000, 87.6% of the showrooms were at the wholesaler's place of business. In 2003 this dropped to 74.5%.
- The size of showrooms appears to be increasing. Fewer companies reported showrooms in the 1000-sq.-ft.-and -smaller category in 2003 vs. 2000, and a slightly larger percentage had showrooms 5000 sq. ft. or larger.
- In the 2000 survey only 50% of the showrooms had a dedicated manager. This year's survey shows that this has grown to 70%. This is excellent.
- Here's more really good news. The showroom managers and sales consultants are being paid better. In 2000, 41.4% of responding companies said they paid showroom managers $40,000 or more; in 2003, that percentage jumped to 50.9%. Also, more than 25% of companies said they pay managers $50,000 or more. The percentage of companies paying showroom salespeople $30,000 or more rose from 25.7% in 2000 to 41.5% in the 2003 survey. Yes, people are your most important asset. Just like for many things in life, you only get what you are willing to pay for.
- I've been writing these articles for many years and I've continually preached product diversification. That is, using more vendors and products to complement the traditional wholesaler products - and not all necessarily just plumbing products. Well, that diversification is happening. Look at this:
But then a few products that I would have expected to grow went in the opposite direction. For example: kitchen fixtures and brass, vanities, water-treatment equipment, tile. Even though there's some contradiction in these results, the overall trend toward more "one-stop shopping" is there.
The average number of bath fixture lines carried stayed about the same at 3.4. The average number of bath brass lines increased slightly to 4.8. A whopping 42.1% of the wholesalers indicated that they show six lines or more. A word of caution here: don't show so many faucet lines that your sales consultants and the customers become confused and you become less important to your vendor partners.
Companies that have initiated "formal" in-house training programs for their showroom personnel grew from 49% to 51%. Not a big change, but a trend in the right direction. I have a very hard time understanding why everyone doesn't do this. You're spending big bucks to build out a showroom, you go through the hiring process or at least move someone into a new position. Wouldn't it be good business (for the company and the employee) to train these employees? I certainly think so!
The number of showrooms that will sell direct to the consumer remained about the same at 84%. Those folks that offer rebates to the plumber also stayed about the same: 38% if the installer asks for the rebate; 32% automatically get the rebate and 30% don't give a rebate at all. This tells me there are still a lot of "free lunches" being given away.
Some other interesting facts are:
- Average monthly traffic remained about the same, with 75% showing 300 people or less coming into their showrooms, and the largest percentage (28.8%) reporting less than 100 monthly visitors.
- Ninety-two percent indicated that they used in-house people to design and decorate their showrooms. I have to question this choice. Wouldn't it be better to get some outside professional help? (Penny-wise and dollar-foolish.)
- Many companies replied that they carried back-up inventories on most items. On the traditional wholesaler products I understand this. But showrooms by the nature of the products shown are generally 75% or more special order (variety of finishes, colors, styles, shapes, etc.). My experience taught me to carry rough valves for the in-wall faucets, some popular fixtures and brass, a few bath accessories and that's about all. Every showroom should be able to achieve a 12- to 15-time turnover rate on showroom inventory.
- I was a bit surprised that more companies market to the upper mid-range price point (55%) and mid-range (35.5%) and only 9% to the "luxury" price range. Everything I read and hear indicates that "luxury" products are where the growth is. Do you really want to take on the big boxes head to head?
- Most companies (56%) don't have any prices on display product. Of those that do, 27.5% show manufacturer's list price.
- The percentage of showrooms that operate with one or less sales consultants was 26.4%; another 26.4% reported two employees; 24.5% operate with three, and 11.7% work with four or more. Once again, the revenues generated dictate these numbers.
- Exactly half of the salespeople are paid straight salary; 48.8% are paid a combination salary and commission and 1.3% are paid straight commission.
- Of those paid a commission, 66.7% are driven by gross profit and 28.2% by sales. I think this is good, because in my opinion gross profit dollar and percent should be the driving force of a commission plan.
- Plumbing industry sales experience is still the number one characteristic looked for in hiring a showroom consultant; retail sales experience was next. When I owned my own business I really didn't care about either one of these. I tried to find folks who were bright, hard-working, people-oriented and willing to learn. Then we trained them on plumbing knowledge and how to sell.
- Training continues to remain a very weak area - as already mentioned. Too many people rely on "on-the-job" training and their vendors to get the job done. This isn't good enough. The company has to take responsibility in this area. Everyone deserves the opportunity of great training. The payback to all involved more than justifies the investment.
- Gross profit margins on sales to consumers appear to have slipped, going from an average of 36.3% in 2000 to 34% in 2003. A whopping 68.8% enjoy less than a 36% gross profit margin. This doesn't get it! If marketed properly (customer and product diversification) a well-done showroom with well-trained people should be enjoying 35% PLUS margins (with 40% being a good goal).
- Of those showrooms that sell consumers direct (84.2%), most (79.1%) sell them at less than the manufacturer's list price but more than the contractor's price. Learning how to sell for margin is what will help you achieve the goal mentioned above.
- Most wholesalers consider the big boxes to be their main competition, followed by other wholesalers that operate showrooms.
- The following shows where showroom revenues come from (as a percent of total showroom sales):
- Plumbing contractors 26.6%
- Consumers referred by contractors 20.3%
- Consumers who came in on their own 19.9%
- Building contractors 17.3%
- Remodel contractors 9.3%
- Other 6.6%
So the consumer business is growing - and for a showroom to be really profitable, this trend has to continue. Heck, it's how people want to buy today - so let's be customer friendly.
- Regarding services offered by showrooms, I was especially pleased to see Saturday and evening hours expanding. Learning to be customer friendly has been hard for the wholesaler - but little by little it's happening.
- Forty-four percent routinely make sales calls on builders, designers and other professional specifiers. How about the other 56%? This offers a huge opportunity to grow revenues.
- It would appear that more and more folks are budgeting and planning for advertising, promotions and public relations. The survey showed that a full 5% of sales dollars are being used for these activities. Yes, a lot of this is manufacturer co-op dollars, but that's a good thing. If you want to attract customers you have to wave the right flags.
- Where these dollars are spent is all over the place. The biggest changes from the 2000 survey are:
- Consumer/metro area magazines up
- Direct mail down
- E-mail and Web site promotion up
- Newspaper down
- Local trade and home show up
- Open houses up
- Radio down
- Yellow Pages down
There are so many opportunities regarding where to spend money. You have to devise a means of tracking the results - even if it's just asking every client who comes in, "How did you hear about us?"
- The types of advertising and promotion that generated the most sales and were the most effective included:
- Yellow Pages 27.4%
- Television 12.1%
- Local Trade shows 13.7%
- Newspaper 12.1%
- Open Houses 9.7%
- Direct mail 7.3%
Here's the one answer to all the survey questions that bothers me the most:
Question: Are your showroom operations profitable?
Answer: YES 89.7% NO 10.3%
Question: How do you know?
Answer: We can isolate showroom sales 57.2% We cannot isolate sales 42.8%
This tells me that almost 43% of the businesses really don't know if their showrooms are profitable! This truly is hard to understand. They've invested a lot of money in build out, displays, people, etc. and don't know if they're enjoying a decent return on their investment. Every showroom should be treated as a separate profit center.
Another survey question for which the answers just don't make sense to me is:
Question: Which of the following is the primary reason why you operate a showroom?
Answer: Bottom line profitability 34.4% They boost our sales in high-margin luxury items 28.1% They are part of our commitment to our major suppliers 18.8% They enhance our image in the local trading area 18.8%
If you're going to invest time, money and energy into anything - shouldn't it be to make money??? I sure think so!
And the final question in the survey was "What needs to be done to improve your showroom's profitability?" As in the 2000 survey, the most popular solutions were: promote more aggressively to builders, designers, other specifiers (65.1%); improve staff selling techniques through training (47.6%); promote more aggressively to the consumer (47.0%); and promote more aggressively to the plumbing contractor (39.8%). However, unlike the 2000 survey results, promoting more aggressively to consumers was cited by fewer than those who suggested improving staff selling techniques.
I love working on these surveys. It gives me a real picture of what's going on with the wholesalers and their showrooms. The 2003 survey shows several areas of good trends. It also points out a lot of areas that can be improved.
Showrooms offer wholesalers a wonderful opportunity to grow revenues and margin. Times are a-changing and those wholesalers that are willing to change with the times will be the winners in the long haul!