Over the past dozen or so years I’ve had the unique pleasure of consulting with several dozen plumbing wholesalers. Most of them are located in the United States, but several in Canada, too. I have worked with small, medium and large wholesalers and I’ve seen good, bad and everything in between. The part I enjoy most about my third career (first a professional manager in the plumbing/HVAC wholesale business; next owning my own showroom business; and now a consultant, writer, author, lecturer) is developing an ongoing relationship with my clients. Nothing feels better than watching a client put some (hopefully many) of my recommendations to work for them and seeing their showroom businesses grow and achieve the status of a well-run business. Many wholesalers are realizing the tremendous opportunities that showrooms offer - and more wholesalers are starting to operate some very well-run showroom businesses.

This is a profile of a plumbing wholesaler’s showroom business that in nine short years has evolved from almost nothing into a very nice business. 

The owner of this business gave me the okay to do this profile - but I was asked not to disclose the company name, geographic location, etc.  I am respecting that request.

This is a second-generation-owned business (with a third-generation son about to enter the business). It’s a small-to-medium size firm that operates four branches in relatively small communities. They sell plumbing and PVC - no HVAC. The plumbing contractor is their main customer and business breaks out to about 80% residential and 20% commercial. They’ve certainly felt the downturn in the economy, but they’ve tightened their belts and are doing a good job riding out these slower times. They operate one showroom, started nine years ago. They plan to open their second showroom in the next 12 months. (Yes, they are being pro-active even in these tougher times.)

When I first met with these folks seven years ago, their showroom was located next to the counter area in their office/main warehouse location. It was fairly typical of wholesaler showrooms. It had about 2,000 sq. ft. of display area. The products on display were all the traditional wholesaler products (American Standard, Delta, Moen, Elkay, etc.). These are all great products, but they are the same products being sold by other wholesalers and the big boxes. The showroom build-out was okay, but nothing great. They used all the manufacturer-provided boxes and boards and there was very little accessorization. Sales were in the neighborhood of $1 million and the gross profit was about 27% (they thought this was pretty good because it was a few points higher than the rest of their sales). The two showroom sales consultants were paid an hourly rate (earning about $30,000 per year). The sales consultants reported to the branch manager who didn’t know anything about this segment of the business and didn’t give it much of his time.

Top management hadn’t gotten very involved and hadn’t made much effort to learn this more retail-oriented business. They would sell to homeowners and/or building contractors, but only after making sure the sale wouldn’t upset their plumbing contractors, who represented about 85% of their sales.Over the past dozen or so years I’ve had the unique pleasure of consulting with several dozen plumbing wholesalers. Most of them are located in the United States, but several in Canada, too. I have worked with small, medium and large wholesalers and I’ve seen good, bad and everything in between. The part I enjoy most about my third career (first a professional manager in the plumbing/HVAC wholesale business; next owning my own showroom business; and now a consultant, writer, author, lecturer) is developing an ongoing relationship with my clients. Nothing feels better than watching a client put some (hopefully many) of my recommendations to work for them and seeing their showroom businesses grow and achieve the status of a well-run business. Many wholesalers are realizing the tremendous opportunities that showrooms offer - and more wholesalers are starting to operate some very well-run showroom businesses.

This is a profile of a plumbing wholesaler’s showroom business that in nine short years has evolved from almost nothing into a very nice business. 

The owner of this business gave me the okay to do this profile - but I was asked not to disclose the company name, geographic location, etc.  I am respecting that request.

This is a second-generation-owned business (with a third-generation son about to enter the business). It’s a small-to-medium size firm that operates four branches in relatively small communities. They sell plumbing and PVC - no HVAC. The plumbing contractor is their main customer and business breaks out to about 80% residential and 20% commercial. They’ve certainly felt the downturn in the economy, but they’ve tightened their belts and are doing a good job riding out these slower times. They operate one showroom, started nine years ago. They plan to open their second showroom in the next 12 months. (Yes, they are being pro-active even in these tougher times.)

When I first met with these folks seven years ago, their showroom was located next to the counter area in their office/main warehouse location. It was fairly typical of wholesaler showrooms. It had about 2,000 sq. ft. of display area. The products on display were all the traditional wholesaler products (American Standard, Delta, Moen, Elkay, etc.). These are all great products, but they are the same products being sold by other wholesalers and the big boxes. The showroom build-out was okay, but nothing great. They used all the manufacturer-provided boxes and boards and there was very little accessorization. Sales were in the neighborhood of $1 million and the gross profit was about 27% (they thought this was pretty good because it was a few points higher than the rest of their sales).

The two showroom sales consultants were paid an hourly rate (earning about $30,000 per year). The sales consultants reported to the branch manager who didn’t know anything about this segment of the business and didn’t give it much of his time. Top management hadn’t gotten very involved and hadn’t made much effort to learn this more retail-oriented business. They would sell to homeowners and/or building contractors, but only after making sure the sale wouldn’t upset their plumbing contractors, who represented about 85% of their sales.

Here comes Hank! On my first visit, I spent three days on-site. I met with the owner, top management, the branch manager and of course, the two sales consultants. I did an analysis of the showroom and the products that were displayed and sold. I did some “mystery shopping” of their main competitors and tried my best to analyze the financial numbers. (This wasn’t easy because the showroom numbers were all mixed up with branch sales, expenses, etc.).  I concluded the visit by giving the owner a 16-page, bullet point report, broken out into four sections: general comments, financial, human resource and marketing. In essence I recommended either making some major and fairly drastic changes or getting out of the showroom business and sticking to what they knew best - running a well-managed wholesale business.

Some of my key recommendations were:

• Move the showroom off-site to a much more retail-friendly location.
  
  
• Consider changing the name of the showroom business to something more descriptive.
  
  
• Treat the showroom as a separate profit center with its own annual/monthly budget and monthly financial reports.
  
  
• Develop a five-year business plan for the showroom.
  
  
• Diversify the products being offered. Keep the current vendor partners, but add a number of non-traditional wholesaler products.
  
  
• Develop a marketing strategy to go after more builder and homeowner business.
  
  
• Raise the gross profit margins. The goal: Improve the margin by two points every year until the goal of 40% is reached.
  
  
• Develop a list of showroom Best Practices.
  
  
• Use their own boxes and boards for displays.
  
  
• Open on Saturdays and one evening during the week.
  
  
• The owner, top management and branch manager must learn more about how to operate a retail business.
  
  
• Learn how to be great merchandisers.
  
  
• Write job descriptions for the showroom personnel and do at least once-a-year job performance evaluations.
  
  
• Put the sales consultants on a commission-plus-base-salary program (driven by sales and gross profit percentage) that would allow them to increase their income by 50% or more.

There was a whole lot more included in that initial 16-page consulting report, but these were some of the main items.

The owner and his management team made the decision to buy into many (even most) of my recommendations. They moved to an off-site location five years ago. They did a terrific job building out about 5,500 sq. ft. of very customer-friendly space. They changed the name of their showroom business (including the wholesale name as a byline). They diversified products and customers, and in 2008 enjoyed sales of $5 million with a gross profit margin of 41.96%. (Read this number again: from 27% gross profit seven years ago to almost 42% GP in 2008. Huge!) Their expenses run in the 31.5% range. I think you would agree that the owner is enjoying the return on his investment in his showroom business a whole lot more than he was seven years ago.  Yes, 2008 sales were down about 10%. They are expecting 2009 to be another flat year - but by zeroing in on homeowners and remodeling, they hope to grow a foundation of customers that will make them even stronger than before when the economy does come back. (And it will!)

<B>See the link below</B>for a chart that shows actual numbers from 2008, broken out by customer category and product category. (Yes, their showroom profit and loss statement breaks out the numbers by each of these categories.)

This is a nice diversification of products, but I’m encouraging this client to get into full house lighting, tile and granite, and maybe even kitchen cabinets. I want them to make their showroom a “one-stop shopping” destination. Please note that where plumbing was 100% of the showroom sales seven years ago, in 2008 it was two-thirds of the total. How about those margins on all the non-plumbing items? This is how you make money in the showroom business.

I continue to visit this client about once a year and we keep in touch via email and telephone at least once a month. New ideas are continually presenting themselves.

A big thanks to the owner of this business for allowing me to share this “profile.”  These folks are going to enter the 2009 Showroom of the Year contest - so maybe you’ll be hearing more about them. Look for more information on the 2009 contest at www.supplyht.com and www.bathandkitchenpro.com and start thinking about putting your nomination together.

Links

• Darlington's Chart