Supplying Demand

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Keller Marine & RV sells and stocks some 25,000 parts and accessories

Keller Marine & RV sells and stocks some 25,000 parts and accessories

The world of distributors has changed significantly in the past five years, with mega-consolidations, Amazon’s rise, the lingering trade war, labor shortages and cybercrime all becoming major factors. The latest hurdle — and perhaps the most challenging to date — is determining the impact that coronavirus will have on supply chains, world financial markets and customers’ discretionary spending. At the time of this writing, the virus was well on its way to becoming a global pandemic. Here’s how industry experts are thinking about the path to the present, as well as what’s coming in the future.

Mike Conners

Mike Conners

Mike Conners

President, Land ‘N’ Sea

Our needs have not changed, but the customers’ have. Today’s customer is more computer savvy and expects omnichannel convenience. Manufacturers are now building relationships with consumers directly on online platforms, circumventing distributors. Amazon has become a priority for many manufacturers over distributors, disrupting channel pricing in the marketplace. You are seeing more consolidation in both manufacturing and distributing.

The challenge remains for distributors to adjust to today’s environment with online platforms going direct to consumers and cutting out distribution. On a positive side, our industry has many products and applications that a DIY customer can’t necessarily service or install, so distribution will continue to be the hub for the mechanics and service shops that rely on distribution for their service and product needs daily.

I believe this will continue, as the smaller companies will be challenged to find ways to compete on the same scale. Through the correct acquisition, companies can gain efficiencies and take additional costs out of the system. Some will remain low-margin providers while others will invest in adding value to the customer and strengthening those relationships.

Dealers are also expecting more. They want real-time access to your inventory, they want to be able to track the order, and they need to know what the pricing and freight are. Technology and data management will become key components of a distributor’s success or demise. And as this becomes commonplace, investing in cybersecurity and keeping it up to date is mandatory in today’s business environment.

Tariffs have had an impact on many industries, and ours is no different. Products coming in from China have had an impact not only on the products imported, but also on competing brands that have used the tariff situation as an opportunity to increase pricing, regardless of whether or not their product was impacted. This all gets passed on to the consumer.

With coronavirus, what we are seeing is orders that have been placed for shipment are already delayed, as factories are closed. In addition, no additional production is taking place — this will have a significant impact on the demand of many of those products coming from China. We are currently trying to get ahead of this by looking at alternate options for those products through other sources.

Mike Keller

Mike Keller

Mike Keller

President, Keller Marine & RV

Technology has changed how distributors sell to dealers. For 100 years, distributors used a paper catalog to display their products. Over the last 10, almost all distributors have made their websites the primary method of selling products, allowing distributors to introduce products to dealers much faster than an annual printed catalog. The speed to market was something that suppliers were looking for.

Computer design and modeling has come so far; suppliers can now develop products from idea to production in less than six months. The pressure from online retailers and marine suppliers led the way to this major change in the go-to-market strategy of marine wholesale distributors.

In the early years of the industry, most accessories were purchased from dealers. The marine consumer of the past had very few choices as to where they could buy accessories. Dealers were the place to purchase parts and accessories. As the retail market evolved, the introduction of marine catalog houses — known as category killers — became significant. Consumers could now buy parts and accessories without visiting the dealer. This evolution that started with catalog houses led to online retailers.

The direct effect of this change on distributors was on their product mix. Take soft goods: products that do not require installation. Since most distributors rely on dealers to sell their goods, as the dealer became less of a factor for soft goods, distributors found less success in those types of products. The successful distributors moved to emphasize the parts that the dealer would need to install. Consumers still wanted an expert to do their repairs and to make sure it was done right.

The ongoing trade war with China continues to be a major concern. 

The ongoing trade war with China continues to be a major concern. 

As a result, distributors became more focused on the back-room or service side of the dealership. This meant more training for distributors on hard parts, more descriptive detail in digital content, and making the distributor salesperson into an expert. The days of just putting soft goods in a catalog and taking orders were gone. Successful distributors reinvented themselves and found ways to assist the dealer with backroom and service parts.

Consolidation has made the industry more competitive. Some of these big firms are public corporations, which behave differently than privately held companies. The median marine distributor size has grown significantly over the past decade. This means fewer customers for suppliers and more business sophistication from the firms that remain. These existing distributors have seen their businesses change from many competitors to just a few. This change has made the surviving distributors very focused competitors, which has in most cases eroded margins for both the suppliers and the distributors.

Tariffs have been costing distributors profit margin, causing price increases of more than 25 percent on thousands of items across a multitude of product categories. It’s nearly impossible for distributors to react to that volume of price increases overnight. Therefore, distributors are losing profit margin because they can’t keep up with the rate at which they are receiving tariff price increases. When pricing changes as a result of government interference, it happens much more rapidly than through market supply and demand.

Our biggest challenge is undoubtedly online sales. Consumers prefer to sit and shop at home instead of going out and visiting retail stores. As a result, they are more educated than ever about the product that they are interested in purchasing. This makes training the dealer even more crucial; we want to create an environment where retail customers turn to the dealer in order to find knowledge and information. The challenge is to figure out how to reach these customers and show them the value of visiting a retail establishment.

As distributors, our advantage is to become the place for dealers to procure parts and pieces that can be added to a unit sale. Items that require some type of installation tend to follow distribution and the channel. We can win with these back-room parts, and parts requiring installation that consumers are unable or unwilling to take on themselves.

In the information age, information is often more valuable than the product itself. Whoever provides the best information to the customer wins. Consumers will purchase an inferior product if there is more information available to them on that product. Providing as much digital content as possible to both dealers and retail customers through
technology allows us to reach new customers.

Combating cybercrime requires persistence and diligence on the part of the distributor — it’s a daily battle. We combat it by continuing to improve our firewalls and technology. We are constantly investing in the latest patches and routers to ensure that our equipment remains state of the art, providing both ourselves and our customers with maximum safety.

The coronavirus is impacting China more than anyone wants to admit. I think we will find that there are many more people affected than the Chinese government is willing to concede. The virus is having an effect on production and will likely affect the supply chain for an amount of time that remains to be seen. In our global economy, we feel the impact of crises around the world more than ever.

Mike Medart

Mike Medart

Mike Medart

CEO, Medart Marine

Consolidation has taken over at every level in the supply chain: manufacturer, distributor and dealer. There’s now downward pressure on profit margins due to online retail sales and a lack of manufacturer defense of their brand through pricing integrity. Profit margins and controlling expenses related to sales — warehousing, shipping supplies — remain a constant challenge.

It’s worth repeating: Manufacturers and suppliers that do not design pricing and programs that allow all channels to compete profitably make the industry suffer. Properly priced and implemented unilateral pricing can be a win. However, we are now more than ever able to get a multitude of products from distributor to dealer quickly and efficiently.

Online retail has been disruptive at all levels. The “tribal” knowledge is lost and resulting in more erroneous data and information. For the distributor, processes are becoming more automated through the use of electronic data interchange and advanced technologies in warehousing. EDI streamlines the business and reduces error rates. And there’s steady progress being made with blockchain and artificial intelligence. The early adopters are winning.

Tariffs continue to be a concern. They’ve caused a lot of price instability, despite negotiated waivers. Same with the coronavirus: It will cause even bigger supply disruptions that few are willing to admit. It will finally force worldwide manufacturing to have more than one country source.

Melissa Ballard

Melissa Ballard

Melissa Ballard

Vice President of Operations, Western Marine (Canada)

The biggest change we see is the consolidation of vendors and competitors — you start to lose the business relationship that you once had with that longstanding smaller vendor. It can quickly become quite impersonal. Where we once had 10 good business partners working together and offering support, we now may only have two.

Consolidation on the competitor side can have its opportunities, as there are fewer competitors to deal with. Although the competitor is now a larger one, it is only one instead of two.

Some of the bigger supply-chain issues during the last five years have been increasing freight costs and recruitment. It’s becoming increasingly difficult to find capable and interested talent. We also worry about our aging dealers and what their plans are to keep that dealership going after their retirement.

Tariffs are driving up prices, which in turn can hurt sales. They also pose a lot of uncertainty in the marketplace. In Canada, the government is proposing a 10 percent luxury tax on recreational boats valued at more than $100,000. The U.S. luxury tax in the 1990s nearly killed that boatbuilding industry. People simply decided that they weren’t going to pay the government that “fee” because they wanted to buy an expensive boat. Their decision had little to do with their ability to pay the tax. It was more about their unwillingness to pay the government that tax. It was a principal thing. The industry didn’t come back until the tax was removed.

The use of technology in our business is making us far more efficient, and in some cases this allows us to lower our expenses. However, the products have become far more advanced, and our staff training on these in-depth products is very important. We have to be more knowledgeable than ever to keep up with customers who get most of their information beforehand via online research.

Having said that, it can also be expensive when you factor in needing backups and redundancy in case something fails. We have become so reliant on technology that we almost cannot operate without it.

So far, there has been very little concern or communication from factories on the effects of the coronavirus. We are not seeing too much disruption as of yet, but I do worry that if things continue to progress as they have been, we could certainly see some effects and product-delivery issues.

Ryan Barber

Ryan Barber

Ryan Barber

Executive Vice President, CWR Electronics

The distribution world has changed significantly in the last five years. The biggest issue we’re experiencing is manufacturers shifting from distribution to a direct-to-consumer model. While this does increase margins for the vendor, it appears to be a short-term gain with longer-term consequences. Once they realize that they haven’t actually increased either their market size or market share — that requires market expansion, not redistribution of sales — and now have to handle things our dealers used to manage, such as customer support, product recommendation/qualification, and reverse logistics, the expenses add up, and many manufacturers are moving back to distribution.

Distributor needs are changing because consumer demands are changing. The demand for content is ceaseless, and manufacturers that can provide it are doing well.

The biggest challenge we are experiencing is manufacturers that have little understanding of the value distribution provides to their supply chain. Collectively, distribution needs to do a better job of defining and promoting that message. The good news is that, recently, some manufacturers are discovering that value on their own, examining their partnerships, then reselecting distribution partners that are creating a force greater than the sum of its parts.

We have embraced technology and technological change for many years. Our perspective has always been that if we’re not at the forefront, we’re behind. Leveraging various technologies has enabled us to scale our business in a non-traditional fashion, which in turn has created efficiencies and ultimately savings that we’re able to pass along to our dealers.

Content remains king. The Internet remains the place to go for not only direct information from the manufacturers, but also opinions, reviews and criticism from current owners. We provide an unparalleled level of content to help our dealers, including low- and high-resolution images, full product details, accessory items, installation diagrams, how-to videos, PDF installation and operation manuals, dimensional drawings, and more.

Technology, especially Web integration, has certainly enabled us to gain new customers. But at the end of the day, each dealer requires and deserves a relationship of some sort that goes beyond exchanging data. Dealers have individually preferred communication preferences, especially internationally, and we have the ability to address each accordingly.

Cybercrime is a constant threat, and a dynamic one at that. We use stringent, multilayered security protocols to protect our data and that of our dealers. While this sometimes creates an inconvenience, we understand why it is necessary to protect our dealers and our business.

To date, we’ve experienced limited supply-chain impacts from the coronavirus. The bigger question is how it will impact the U.S. economy, as sales are highly dependent upon discretionary spending.

Jim Beale

Jim Beale

Jim Beale

President, Paxton Co.

We have many issues facing the marine industries that are common to everyone. As we’re on a world stage, issues just about anywhere can affect us. At home, finding and retaining good people is a constant problem, as are the rising cost of health care, government regulations and the need for our local, state and federal governments to make boating access a much higher priority.

We see mergers on all levels — vendors, customers and distributors. The mergers will make us better distributors in that we will adapt, improve and continue to earn our customers’ trust. The speed of business is constantly increasing, and with mergers, it will cause each of us to strive harder. We need to continue to grow our partnerships with our vendors and customers so that we all understand how interconnected we are.

Tariffs remain a concern because they increase prices. These increases are being passed on to the end user, and I am concerned that the prices may be pushed up too high if this continues.

Today, more than ever, the marine industry needs distributors that will deliver next-day delivery to compete with Amazon. 

With factories shut down and ports shuttered, the impact of the coronavirus on supply chains and the economy looks to be a concern for the foreseeable future.

With factories shut down and ports shuttered, the impact of the coronavirus on supply chains and the economy looks to be a concern for the foreseeable future.

Staying a Step Ahead

The S.T.E.P. purchasing event provides a central location for manufacturers to introduce products and programs to the distributor marketplace This year’s event will be held July 20-23 at Embassy Suites by Hilton O’Hare in the Rosemont Entertainment District, just outside Chicago. Last year’s conference hosted a record 60 companies. The National Marine Distributors Association says information on this year’s S.T.E.P. will be sent to distributors in April, and to manufacturing and manufacturers’ representatives in late April or early May. It is open to NMDA members and non-members. nmdaonline.com

Here are some thoughts about the value of the conference from those who have attended.

“S.T.E.P. conference is a huge opportunity for vendors to meet with several distributors in one place. It’s also a tremendous venue for distributors to see new vendors or products. It … allows us to get together in a convenient location, saving significant travel fees. I would highly recommend any vendor or distributor who is not involved with NMDA or S.T.E.P. to inquire about membership, as the benefits are tremendous for small and large companies alike.” — Mike Connors

“One of the key takeaways from the S.T.E.P. conference was learning the players in the industry better. In our current era of technology and instant connection, networking has become more important than ever.” — Mike Keller

“S.T.E.P. is the most efficient use of a distributor’s, a vendor’s and a marketing representative’s time. We discuss new products, programs, provide feedback and discuss marketing plans in a great location.” — Jim Beale

“S.T.E.P. is an effective event for those who come properly prepared with information: new physical item samples, well-thought-out pricing and programs.” — Mike Medart

“S.T.E.P. is one of, if not the best, conferences in the business. The meeting quality is excellent, many of our major manufacturers are present, and we’re able to accomplish much in just a few short days. It is our must-attend event of the year.” — Ryan Barber

“The conference is very beneficial to us and of great simportance. It is an extremely efficient way to meet with most of our top suppliers in a short period of time. We develop good relationships, have productive conversations and gain new product knowledge … all in just three days.” — Melissa Ballard

This article originally appeared in the April 2020 issue.

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