Wholesalers who want to convert their showrooms into true profit centers have to think retail.



Here's how I've come up with the content for this article in the continuing saga of wholesaler showrooms.

I left Sacramento, CA, my home city, two and a half weeks ago. I have visited four companies in four states - training and consulting. I also squeezed in a couple of full-day seminars for the National Kitchen and Bath Association. I've been in Minnesota, Michigan, Massachusetts, Rhode Island, Connecticut and New Jersey. I've seen a lot of the Midwest and the East Coast. And I thought I was retired!

The four wholesalers I worked with these past weeks have a lot in common. All of them were smaller to mid-size, all family owned, all second generation operated, all in smaller marketplaces, all have had showrooms for 15 or more years and all have been operating their showrooms in the traditional wholesale way. I'll explain. All have been showing and selling the traditional wholesale products (Kohler or American Standard, Delta, Moen, Elkay along with some Toto, Eljer, Jacuzzi and a small variety of other manufacturers). All of their showrooms looked pretty much the same - low ceilings with only fair lighting, the use of manufacturers' boxes and boards, names on everything, a bit dated and not terribly well maintained.

At all four businesses salespeople averaged $35,000 - $50,000 in monthly sales. The gross profit margin ranged from 25% to 33%. Salespeople were compensated mostly on an hourly basis with no, or very little, commission and incentives. The annual compensation for salespeople ranged from the low $30,000 to almost $50,000.

None of the four companies treated the showrooms as a profit center. None of them knew for sure if they were making or losing money in that segment of their business. None had business plans, annual budgets or monthly financials. You know from reading this column that just drives me nuts!

All the showrooms are located at the wholesale location. As you might expect, some locations were better than others. Some were pretty bad!

All four of these companies and their owners have something else in common. They recognize the wonderful opportunity the showroom offers them. They also recognize they really don't know or understand the showroom business as well as they should. Wholesale is just that - manage inventories, receivables, expenses and people - and do the best job possible servicing the plumbing and HVAC tradespeople.

The showroom business is retail. It requires marketing (advertising, promotions and public relations). It requires a whole lot of customer-friendly actions: good location, friendly hours, nicely done showrooms, a variety of products, well trained/knowledgeable salespeople and incredible service to the customers.

The owners of each of the businesses I visited on this swing have all made a well-thought-out decision to learn more - a lot more - about how to build and operate good showrooms. All have opened up their minds and wallets to help turn their very average, break-even operations into true profit centers.

Certainly change will take time. It will require a plan. It will require a commitment. It will be very different from what they've been used to. All of them believe an important part of their future success will be growing larger, more profitable showroom businesses.

Following is a bullet point list of things I have urged each of these clients to consider doing. They may not all jump on every idea, but each suggestion they adopt will make them better. I'll try to break out the “to-do” list by management areas.

Financial Management

• Develop an annual showroom budget each and every year. Include sales, gross profit percent and dollars, and expenses broken out by as many categories as possible. Adjust as necessary.
• Do monthly profit and loss statements for each showroom operation. Yes, you may have to interpolate some expenses (rent, utilities, insurance, etc.). But you have to treat the showroom as a profit center. Are you making or losing money? And how much?
• A balance sheet for the showrooms would be great - but the assets and liabilities are probably mixed in with the overall business and might be tough to break out. I can live without this.
• I'd also like to see cash flow projections for the showroom portion of your business - but this, too, might be tough to do.
• You need a plan on how to grow sales revenues (see Marketing).
• Develop a plan on how to grow gross profit margin. Most wholesalers are in the 25%-33% range. Eight points is a huge range and makes a difference to the bottom line. But even 33% is too low. You should be at 35%+. It's doable, it's realistic, it's achievable and it's what you need to achieve to maximize your return on investment (more under Marketing).

Human Resource Management

• A written, detailed job description for every showroom employee is a must. Everyone deserves to know what's expected of them in their jobs.
• At least once a year (I like twice a year better) you should be doing job performance reviews. Not a compensation review - a performance review. Everyone wants and deserves to know how they are doing. It's your chance (and obligation) to coach and mentor employees to better performance and productivity.
• Your employees should have a compensation program that rewards for performance and productivity. I believe every salesperson should have sales and gross profit goals. They have to be reasonable and achievable. They have to be good for the employee and the company. I like a “combination” base pay plus commission program - a sliding scale program that rewards both sales and margin growth.

General

• You should develop a three-year business plan for the showroom segment of your business. Break it out by: this is where we are, this is where we want to go and this is how we're going to get there.
• You should have a long list of “Showroom Best Practices” that spell out exactly how your showrooms will be operated and maintained. Most of the “Best Practices” are everyone's responsibility.
• There should be written “Policies and Procedures” for the showroom.
• The owners and managers have to make a commitment to the showroom in time, money and involvement. Part of this is learning retail. You know wholesale - and you're good at it. Now learn retail - it's an all-new opportunity and challenge.

Marketing Management

• Have a detailed, written marketing plan: what, when, where and how much! This would include all advertising, promotions and public relations. You should budget as close to 5% of showroom sales as possible. You should be able to recoup 2% from your vendors with co-op advertising.
• Diversify your product offering. Feature your traditional vendors, but add some others that will be unique to you - some that will be attractive to your clients and will allow you to make better margins. (On these products the buy multiplier will be better and the sell discount will be a whole lot less.)
• Diversify your customer base. Only one of the wholesalers I worked with this month still “protects” the plumber. All the others will sell the consumer, builder, remodeler, etc., but they haven't really learned to market themselves to this big new market segment.
• You can't give the plumbing trades the same deep discount on products sold through the showroom that you do over the counter or through the outside/inside wholesale salesperson. Next month I'll show you how to change this and not drive the plumber away.
• Develop your brand for your showroom business. Use a different name and consider a different, more customer-friendly location. Develop your five +/- value-added features that make you better, different and unique from your competition.
• Put your price and your model numbers on the display products. From this moment forward, don't ever do a quote reflecting the real manufacturer model numbers and don't quote the manufacturer list price less a discount. Take charge of this important part of the selling process.
• Learn and practice selling skills. It's an art and a skill that must be learned and practiced. Nothing happens until the sale is made. Make this a vital and important part of running your business.
• Develop and implement a formal, written training program for your new and “old” showroom sales team. Good training begins day one and never ends.

Oh my, there is so much more in all of the above areas. I'm out of space for this article. Before I close, I have to say thank you to the four wholesalers I've just had the pleasure of working with. Each of you has recognized the tremendous opportunity the showroom business offers and after a lot of years drifting in first gear, you're kicking it into second gear and have goals set to move into overdrive. It's folks like you that keep me going! When I see good things happening in an industry I have an incredible love and passion for, it's a really good feeling. Thank you!

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• Hank Darlington