Big and bold
Kohler announces game-changing Internet policy.
Kohler Co. recently announced a game-changing policy pertaining to how its products are sold on the Internet. Perhaps you read my Supply House Times Web exclusive last month.
More on this important announcement after a few words of introduction on the subject.
Fifteen years ago I went back to New York and did several days of consulting and workshops for a mid-sized plumbing wholesaler operating six showrooms. These folks were just starting to sell direct to consumers and needed to learn more about how to be a “retailer.” While I was there, owner David Berman invited me to go upstairs to his corporate offices where he introduced me to his fledgling Internet business.
He had 10 or so folks sitting at computers with headsets on. These people had little product knowledge or selling skills, but sat there all day taking orders over the computer or telephone. They were online with Your “other” Warehouse. This was before Home Depot purchased YOW. The salesperson would get a call asking if “X” was in stock. He/she would then check YOW’s inventory, quote a price and write the order. YOW shipped the product directly to the customer.
The domain names for this startup business were faucet.com, faucetoutlet.com, lightingshowplace.com and several others. The combination of these Internet businesses was doing about $3.5 million in sales at a nice 33% GP margin. At that time, Berman told me he wanted to sell his wholesale business and wanted to devote 100% of his time and energy to building his Internet business. That’s what happened!
And three years ago, after 10 years of hard work, he sold his Internet business to his No. 1 competitor. The combination of new Internet businesses, renamed build.com, is now the leading online merchant of decorative plumbing, door hardware and lighting products with an annual sales volume approaching $500 million. Now there is a man who had a vision and ran with it!
We all know what has happened with the Internet in the past 15 years. It’s huge and growing! Just look at Amazon. Started in 1995, it had sales of $48 billion in 2011 - up 41% from 2010. With amazonsupply.com, it’s now entered the decorative plumbing and hardware business.
The Internet has changed how all of us shop – and more importantly how we operate our showroom businesses. In my September 2012 column I touched on this subject and the impact “showrooming” is having on all of you. We don’t like it, but the plain fact is Internet sales aren’t going away. The Internet is going to continue to grow, and if you want to survive you will have to make some drastic changes in how you run your showrooms.
Alphabet soupFor several years I’ve seen and heard the terms IMAP (Internet manufacturer advertised price), UMRP (unilateral or uniform manufacturer retail price) and a couple others. My goal was to try and learn exactly what those are and how they affect the showroom side of the business. Actually, my friend David Berman takes credit for introducing the term IMAP. He recognized the Internet was having a drastic negative effect on brick and mortar businesses. He wanted manufacturers to impose minimum Internet advertised and resale prices to try and protect the margins that both brick and mortar and Internet businesses could make.
It’s one thing for a manufacturer to have a policy and another to enforce it. Many of your current vendors do have an IMAP policy, but most will tell you it’s almost impossible to monitor. There are just too many distributors selling like products to too many resalers. Many of these resalers only have a website – no inventories, no showrooms, no trucks, etc. They buy the products for “X” and resell them on the Internet for “X” plus a little. These small Internet resellers are smart and tricky. They use search engine optimization to move their sites up to the top of Google searches. They may have multiple websites and can change their names at the drop of a hat, making it almost impossible for manufacturers to track them and enforce their IMAP policies.
In trying to learn more about this phenomenon, I have talked with dozens of manufacturers, wholesalers, independents and Internet operators. There are a number of manufacturers that have instituted IMAP and UMRP policies and are spending a lot of money, time and energy trying to protect their brands and their channels of distribution. Some have been more successful than others. Unfortunately, too many manufacturers have come out with policies, but have done little or nothing to enforce them. Without some serious penalties, up to and including losing the line, policies without teeth are simply window dressing. It’s possible these were done simply so they could say they have a policy.
The Kohler planFor the past several months I have been in the loop on a major new policy/program Kohler is introducing to its distributors. Kohler has been working on this for a number of years. When the biggest guy in the industry decides to try and install a program to protect its brand and channel of distribution, it’s a very big deal. I can only imagine the incredible amount of money the company has spent and will continue to spend in putting this new Authorized E-tailer Program together and backing it up in the future.
When I learned about Kohler’s new program I was excited and pleased to see one of our industry’s largest players stepping up and taking a stand.
When I realized Kohler was serious about trying to protect its distributors and their distributor customers, I felt maybe this example would encourage other manufacturers to step up and do the same thing. Hopefully this might be a trend of good things to come. The company is investing an incredible amount of time, energy and resources into a program designed to protect its total channel of distribution right down to the showrooms and the all-important consumer.
Currently there are 192 folks selling various amounts of Kohler products on the Internet. The majority are not Kohler distributors. Needless to say, prices and services are all over the place. The new Authorized E-tailer Program will start out having 17 authorized e-tailers. I don’t have room here to list these 17 companies, but if you’d like the list, send me an email and I’ll see that you get it. These select few are intended to be the only source of Kohler products available through the Internet. The 17 e-tailers have a list of policies and procedures they must follow. They were selected based on the following qualifications:
The new program is not an IMAP policy. Kohler Vice President of Brand Marketing Steve Bissell tells me this is only the beginning of trying to bring Internet sales of Kohler products under control. It will take a bit of time for the entire program to shake out and for the business to be channeled only through the authorized e-tailers. He acknowledges this is a “work in progress.”
Kohler wholesalers will only be permitted to supply product to these 17 authorized e-tailers. There are discount guidelines intended to help everyone in the Kohler channel of distribution make a reasonable return on investment.
Certainly, the biggest challenge will be in how to monitor the program. The program, as outlined in a letter from Kohler President of Kitchen and Bath America Hugh Ekberg to all Kohler distributors, lists a six-step violation procedure for distributors who do not comply with the program. The target set forth in Mr. Ekberg’s letter states Nov. 30, 2012, as the date to have moved all e-tail business from the current list of 192 Internet businesses to the new list of 17 authorized e-tailers.
There’s a whole lot more to this, but in my opinion this is huge. When “Mr. Big” in our industry steps up and takes this very bold and forward step, it can only bode well for the industry in general.
In addition to talking with Mr. Bissell at Kohler, I spoke with Lou Rohl (Rohl LLC), Globe Union President Michael Werner, TOTO Vice President Jason Fitzsimmons and a number of other industry leaders. Every one of these folks acknowledged it’s easy to come out with an IMAP and UMRP policy, but it won’t mean anything unless you put real teeth into it. In other words, display policies, discounts based on displays and purchases, and all other perks (terms, advertising allowances, etc.) will be directly affected if you don’t adhere to the policy.
One of the manufacturers I recently talked with discontinued doing business with an account giving it $600,000 a year in purchases because it refused to follow the rules. If you are a manufacturer and you have an IMAP policy or are thinking of installing one, think about how to put some serious teeth into it, or forget it all together. We don’t need any more window dressing.
This is a complicated subject and there’s so much more to it. If you’re not as up-to-speed on the subject as you should be, do what I’ve done in the past several months and do a lot of homework and research. Learn all you can because the Internet is here to stay and learning to work with it and against it will dictate your future success or failure.
Next month, I will discuss what I believe you can and should do to win this battle. Good selling!