One of the takeaways from the recent STEP conference in Chicago is that two-step distributors will always face challenges, but most are smart enough to adapt to the road ahead.
The last STEP I’d attended was 20 years ago as editor of another boating publication. It was a time when big-box stores such as Walmart and West Marine were threatening the existence of regional two-step distributors with lower margins, more SKUs and a national presence that made most boat dealer chandleries look like understocked country stores.
The local marine retailer was exactly the kind of mom-and-pop business that had fueled Walmart’s growth. Some wondered aloud at the ’98 conference if the business model was obsolete and if their much larger competitors would force them and their dealer clients out of business.
Twenty years later, I heard many of the same concerns at this STEP conference, though this time Amazon was the boogeyman. The keynote speaker was an attorney who discussed how to minimize Amazon’s impact on business and how marine manufacturers should handle the constantly changing rules of e-commerce. When he asked for a show of hands of the manufacturers present selling directly to Amazon, only one hand in the room went up. Most of the others were still selling their products through distributors. It seems, at least from this rough poll, that things haven’t changed that much in the industry.
The truth is, while the marine equipment business is adapting to the growth of e-commerce, two-step distribution remains a viable and mostly healthy business model. The relatively small number of equipment manufacturers combined with the high number of SKUs on a boat, added to the dealers, marinas and boatyards that need these products quickly, necessitates a distribution channel like two-step that can react quickly.
The two-step world, like the rest of corporate America, has itself changed with mergers, acquisitions and consolidation in the last 20 years. Judging from STEP, fewer competitors and more territories seems to have given the remaining distributors a sharper focus.
Some of the distributors pointed out that e-commerce sites might have lower prices (at least for some items), but they can’t provide the service and technical expertise that distributors can. I’d heard the same argument 20 years ago and pooh-poohed it as a last-ditch public relations effort to justify an outmoded business model. But their argument seems even more pertinent today.
“Products are more technical today than ever,” says Rick Willis, national recreational sales manager for Donovan Marine. “Service is a critical part of the business, especially if it’s an expensive product or complicated part. Joe Boater can’t look to his e-commerce site to fix a hydraulic pump. He needs a dealer or boatyard backed by a distributor.”
Many distributors also serve as marketing and training arms for smaller manufacturers. The larger distributors regularly hold new-product training sessions for dealers. “We create a level playing field for our dealers with the big e-commerce sites,” adds CRW’s Ryan Barber. “We offer online fulfillment and can ship on a dealer’s behalf, so the consumer doesn’t even know it’s not coming from the dealership.” CRW can even swap out or add an entire product line in a day for its dealers.
“Economics will take care of the market, as it did 20 years ago,” says Laura J. Leon of Medart Marine, referring to the rise and fall of many big-box stores. “I believe the Internet is challenging us to hone our skills,” she adds. “We may have to integrate more technology to get better data, take a closer look at products we’re carrying and be a bit more selective about manufacturer partners. But there’s a place for us in the industry. Manufacturers would not be able to do what they do without us. The economies of scale are just too small.”
Twenty years from now, I have no doubt the STEP conference of 2038 will have most of the same names in attendance, and talk will probably center around the newest version of Walmart or Amazon challenging two-step distribution. I’m equally sure that the business model will have morphed and adapted, but it will still be fundamentally sound.
I wrote in my column last month that Donovan Marine is owned by Brunswick Corp. Donovan, in fact, is the largest privately held marine distributor in the country.
This article originally appeared in the September 2018 issue.