Watching supply houses adjust and adapt to e-commerce
Supply houses continue to evolve as e-commerce sites settle into the marketplace.
Dakota Wholesale’s Ted Swenson sums up the battle PHCP distributors face each day with e-commerce sites.
“It’s like fighting ‘The Blob’,” the Sioux Falls, S.D.-based distributor says. “And it’s constantly changing.”
Plumbing wholesalers continue to attack and adjust to the new normal set by e-commerce sites, such AmazonSupply and the rising threat of Google Shopping for Suppliers and others, to make sure they keep their customers. For more on Google Shopping for Suppliers emergence read Dick Friedman’s column here add a link to Dick Friedman’s column.
“With things like Amazon, it’s a different animal,” Swenson says. “With their business model, they don’t care if they make any money on product.”
Getting on the same page
Swenson, a 31-year industry veteran, says manufacturers also need to understand the stakes brick-and-mortar PHCP distributors deal with when it comes to Internet sales. Swenson says manufacturers need to make sure they keep the value in their brands.
“One real concern is the manufacturers that allow their products – their only brand – to be sold through AmazonSupply,” he says. “It’s becoming more apparent to manufacturers that they have one or two brands and that’s all they have. They better protect the value of those brands. When the value is gone, I don’t know what they’re going to do.”
Swenson says plumbing manufacturers could learn something from computer behemoth Apple on how to do business both online and in brick-and-mortar stores.
“You buy an iPad and it doesn’t matter where you buy it. The basic model is $399,” he says. “Apple is smart. It’s protecting its brand value. You can’t buy it cheaper anywhere else.”
Swenson says manufacturers also must understand there is a fine line to walk regarding suppliers. While suppliers value their vendors and want to continue a prosperous relationship, there is a breaking point.
“There is not one big-name manufacturer out there that is going to make or break our business,” he notes. “We have to make money and provide customer service. We can’t just do one and not the other.”
It’s key for manufacturers and supply houses alike to understand how e-commerce fits in the PHCP industry. Swenson says the value of a brick-and-mortar store is the ability for customers to touch and see the products in real life.
“That finalizes the customer’s decision on what to buy,” he notes. “If a manufacturer chooses to ignore that value and allows e-commerce sites to sell just on price alone, showrooms are left with no alternative but to de-emphasize products that don’t allow us to stay in business.”
The way e-commerce has developed also changes the way Swenson purchases inventory.
“When a manufacturer comes into my office and shows me a product line, the first thing I do after listening to a little bit about the product is go to Google,” he says. “I check out what the product is being sold for on the Internet. I want to know what my costs are going to be and how much margin am I going to make.
“If I can’t make the margin, I don’t care what the product is. I’m not going to put effort into it. Are you going to risk all your money on a questionable return of 8% or are you going to put your money in a non-questionable return of 14%-15% that you can control? It’s not rocket science.”
Michael Werner, president and CEO of Globe Union Group, which includes Gerber Plumbing Fixtures and Danze, doesn’t believe e-commerce is a doomsday for local supply houses. He and his company are confident that when the initial shockwaves are through, distribution companies will see that the Internet provides opportunities. “The Internet is going to be a long-term player and have an impact on the industry,” he says. “If used properly, it’s going to grow our business and our plumbing distributors’ businesses.”
Werner has noticed that while major distribution companies have been able to integrate their websites, smaller distributors are overwhelmed because they generally lack the IT resources needed for e-commerce. Werner says the Internet gets millions of eyeballs to look at a product, but is terrible at closing sales. That’s where the local distributors still have the edge and should focus on bridging the gap as opposed to fighting against it.
“The world changes every 10 to 15 years,” he says. “If you look at it you’ll find plenty of open space.”
In Swenson’s opinion, conservations he has held with manufacturers on these issues have gone well. When Dakota Wholesale has been able to be more competitive with pricing, sales have doubled – a significant increase in the smaller markets of South Dakota.
“I want to buy a lot of these products,” he says. “But, they have to allow us to stay in business. They can’t cut a deal with AmazonSupply just because they buy millions of dollars. Do they buy millions of dollars worth at one time? I don’t think so. Manufacturers need to decide: Do they want three customers or 3,000 customers?”
Adjust where you can
If you watch enough “Law & Order” reruns you’ll hear the phrase “you can’t un-ring that bell” during the courtroom scenes. Once something is out there, particularly on the Internet, it can’t be taken away.
In the relatively brief time AmazonSupply has been live (since April 2012), it’s already proved to distributor consultants such as Brent Grover that supply houses need to adapt in certain areas. Grover, a managing consultant with Cleveland-based Evergreen Consulting, says while Home Depot and Lowe’s are AmazonSupply’s biggest competitors, local distributors are at risk of losing the customer impulse and/or emergency purchases.
“AmazonSupply is a threat to unplanned purchases,” he says. “Everyone is going to lose some business.”
Grover adds it would be wise for distributors to enhance their e-commerce capabilities. “The bar for entry into e-commerce has been raised,” he notes. “Now the standard is a business-to-consumer experience. Your customers are going to want to be able to place their orders at their convenience. They’re going to want to use the Internet and be able to make purchases 24 hours a day, seven days a week.”
It’s key, according to Grover, that a supply house provides product information the way customers want it displayed and give customers more control in how they place orders – either online or in the traditional manner.
When stepping into the brave new world of e-commerce, even on the smallest of scales, distributors need to be able to answer these there simple questions.
“Do you have it? When can I get it? And how much does it cost?” Grover says. “Distributors that want to be in the game are going to have to offer that basic e-commerce service and it should be seamless with their website.”
Balancing the scales
Distributors are still adamant they have the advantage against the Internet because customers want to see the high-priced products first-hand.
“People still want to see the products with their own eyes and not a small picture online,” Swenson says.
Swenson says the Internet has made items into objects that can’t be personalized. Plumbing products, especially products sold in the showroom, might need some customization to fit a customer’s home and lifestyle.
“The Internet has taken any product and turned it into a commodity, whether it’s a Rolex watch, a Mercedes-Benz or copper pipe,” Swenson says. “The problem with that is sometimes the customer wants something different. They’re not buying a DVD on the Internet where you know what you’re going to get.
“With a faucet, toilet or a cabinet, you don’t know if it’s going to properly fit just from a picture online. Are you going to spend thousands of dollars on something you can’t see, touch or feel? In most cases the answer is no.”
Banner Plumbing Supply Showroom Manager Michelle Henderson doesn’t put display model numbers on the sales floor to protect both Banner’s and her contractor’s interests.
“We’re very cautious about just giving out model numbers,” the Buffalo Grove, Ill.-based Henderson says. “I have a conversation with contractors and tell them I’m not giving out these model numbers to their clients. I want to protect both of us from Internet sales. I work very hard to make sure the client has the right components. The contractors actually appreciate this because they want to come back to me for help if any unforeseen issues arise.”
Swenson admits Dakota Wholesale is ramping up advertising to remind potential customers what the benefits are to coming in and buying from a local supply house. Swenson says 5% of all his showroom sales go toward advertising.
“A significant percentage of the cost of the product is getting it installed,” he says. “If you buy the wrong thing on the Internet and it doesn’t work out, that installer is going to charge you for installation and then to uninstall and replace it. Then you’re going to have to ship the item back to wherever you bought it and pay freight. Is that worth the slight difference you might pay to buy local? If you want to take all those risks, go for it.”
The Great Recession and the continued improvements of buying products on the Internet have changed how the buying public operates. Henderson, who has been with Banner Plumbing since 2007, says price still counts, but showing customers you’ll do right by them is critical in making the sale.
“People are still looking for that deal,” she says. “It’s different from the worst part of the recession, but it’s still a factor. People want quality. But they don’t want to be taken advantage of. They come in here very nervous because all they know about plumbing is that it’s expensive.
“At 11 p.m. when they can’t sleep, they start doing research online. I do it. You do it. We all do it. Price is not everything. If you can convey to your client that you’re to be trusted and you’ll go to the mat for them, they’ll pay a little bit more and buy from you.”
As “The Blob” continues to morph and change, distributors need to stay on the offensive.
“Suppliers understand the customer’s business,” Grover says. “They know how to meet their needs and what their priorities are. That’s intimate knowledge and e-commerce sites such as Amazon don’t have that.”