Darlington on Showrooms: Who's The Boss?
In July I had the pleasure of doing some work for one of the country's largest faucet manufacturers. My assignment was to develop some ideas on how they could sell more of their higher end products through plumbing wholesaler showrooms. I discovered there were six main hurdles to address:
- 1. Their product is mass distributed. Virtually every wholesaler has it and the big boxes are selling it.
2. The wholesaler is locked in on pricing. The manufacturer dictates wholesalers' purchase cost and the plumbing trade dictates the selling price. Rounding off numbers, a wholesaler showroom only makes 20%+ gross profit margin on sell.
3. Is the styling, finish and product offering of the manufacturer what the end user (the homeowner) wanted?
4. Are the manufacturer's salespeople as strong in selling higher end products and calling on showrooms as they are on servicing commodity products and calling on the wholesaler?
5. Is the manufacturer getting its message through to the wholesaler's showroom salespeople?
6. How good a job has the manufacturer done on advertising, promoting, pre-selling its products to the buying public?
All of the manufacturers that depend on the plumbing wholesaler as their main channel of distribution face these same hurdles. With the exception of the new channel of distribution through the big boxes, very little has changed in the 40+ years I've been in the industry.
Of the six concerns listed above, wholesalers can only do something about No. 2. They can't change their cost on the product and 20% on sell barely covers operating expenses.
So the $64 dollar question is: Can wholesalers change the discount on the sell side - especially on showroom sales - to justify their being in business? They not only can, they have to.
Who is really running the wholesaler's business? The manufacturer, the plumber or the wholesaler?
Would you agree that the cost of building and operating a showroom is considerably higher than the traditional wholesale side? It is! So wouldn't you also agree that the wholesaler should be able to make more on selling showroom products?
You, the owners and managers of the wholesale business, must take charge of your own destiny. Stop letting the plumbers tell you what your sell price is going to be. You tell them. Okay, I know if your competitors don't change their sell discount that it would be almost impossible for you to do so. But the guy down the street and across town doesn't have a showroom. He doesn't offer the same services you do.
The first thing you folks with showrooms have to do is identify what your "value-added" features and benefits are. I call this your "Value-Added Package." Here are a number of things that might be included in your package:
- You have invested $X in an X-sq.-ft. showroom.
- You display a broad range of finished plumbing products. Clients can see and touch these products - they don't have to select them from brochures and catalogs.
- You have a well-trained, highly knowledgeable staff of sales consultants who will spend as much time as necessary working with homeowners, builders and designers.
- You offer a long list of "customer-friendly" services that help make your clients want to buy from you.
After you have identified all the things that make up your "Value-Added Package," learn how to articulate them to your customers, including plumbers. If you can justify and convince (sell) plumbers that you truly do offer more than just a product through your showroom, you should be able to convince them that you have to earn more to cover the costs of these added services. This has been done and is being done by several wholesalers that are taking charge of their own destiny.
Here is one example: A fairly large wholesaler in the western part of the United States that owns a larger-than-average share of market in its area. It has been operating a nicely done 5,000-sq.-ft. showroom for 15 years. A year and a half ago the wholesaler put a pencil to its showroom operation and discovered that it was a break-even business at best. It was probably losing money because of the added costs of running a showroom on one side and the "dictated" selling discounts on the other. The owner decided to take his problem right to the plumber. He met individually with his 15 largest plumbing showroom customers. He did the unheard of exercise of sharing his showroom profit and loss statement (how many of you even have one to share?) with these key plumbers. He asked whether the plumbers really appreciated what the showroom did for them. The answers were unanimously yes. Then the owner explained in detail why the costs of building out and operating a showroom were more. Next he articulated his showroom's Value-Added Package. All of this led up to the justification of having to make more profit on showroom sales. Finally, the wholesaler told the plumbers that there were two options. No. 1, lose the showroom or No. 2, change the discount-off-list price on all showroom sales. The regular warehouse/ counter discount would remain the same. Here is the surprising, but beautiful, ending to the story. All but one of the plumbers said to keep the showroom open. They wanted and needed it. They okayed the change in the discount on showroom-specified products. The initial change was from 40% off list to 32% off list. This improved the sell margin from 20% plus-or-minus to 28% plus-or-minus (still not great, but a whole lot better!). A year and a half later, the wholesaler has been able to improve its margin a little bit more. The showroom continues to grow its sales and the plumbers are happy. The wholesaler is putting its same mark-up (15% plus-or-minus) on the cost of products and is making more than before (because it is 15% mark-up on a larger number).
I know three other wholesalers that have done the same thing with their showroom plumber clients. Combine this with teaching the showroom sales consultant how to sell for margin and now the showroom is truly a "profit center."
Do you have the know-how and intestinal fortitude to take charge of this segment of your business? I hope so! If you have questions, comments or need help, give me a call or fire off an e-mail.