No, we’re not talking bankruptcy (although GM did file today), but dealer management.
Over the past month, Chrysler and GM have essentially reduced their dealer networks by about 1900 dealerships, (about 800 out of 3200 for Chrysler and 1100 out of about 6000 for GM). Essentially, 18-25% of their network. There have been reports that almost 40% of the Chrysler dealers who were cut had ANNUAL sales of less than 35 cars. The GM dealers that were cut represented only about 7% of sales.
Why is this of interest to the electrical industry other than lost sales opportunities?
Chrysler and GM streamlined their dealer networks, thereby reducing their cost of doing business as well as possibly improving pricing power for remaining dealers, making both parties more profitable. While they may now not be “everywhere”, they are where sales are.
Many electrical manufacturers appear to have a saturation, or intensive, distribution policy. Some appear to sell to “everyone”, thereby pleasing few, and creating competition for everyone. National chains further compound the challenge with the need to sell to all / many of the branches of a national chain.
The question becomes, could electrical manufacturers, and distributors, be more profitable if manufacturers were more discriminating in whom they authorize, or sell, their products through? Could fewer, more supportive, distributors be more beneficial (profitable) for manufacturers? Would distributors be more profitable if there was less competition for some brands (and more manufacturer sales and financial support)? Is it necessary to cover every geographic market?
Or, another way of asking the question could be, do manufacturers understand their cost of doing business with each of their distributors?
While manufacturing is a volume and plant utilization game, could the same, if not more, volume / utilization be generated by 10-20% less distributors doing business with them?
As companies pull back (distributor branch closing and consolidation, inventory reduction, distributor line consolidation), will stronger “partnering” become more important and small purchasers (smaller distributors, those who don’t purchase much from a manufacturer, etc) be reconsidered by manufacturers?
And will the electrical industry, or at least some manufacturers, become like Chrysler and GM, streamlining their channel and emerging more profitable?
If you were / are a manufacturer, what would / should your strategy be?
2 Comments
This is an interesting subject. As we look at distribution closer, we are thinking that we need to re-evaluate some of our existing relationships.
There is a cost of doing business with some of these distributors that greatly exceeds their value to our company.
We’ll just have to see.
Mid level manufacturer.
There is a cost of doing business with some distributors that is much greater than others.
Of greater concern is whether some of these distributors will actually weather the storm.
While we as a manufacturer may not want to pick and choose, we have too.
Picking the right ones is the true test!
Leave a Reply
Trending Now
The Right Inventory, and Pricing, Drives Sales and Profits
