Changing Roles
By Leslie Hart
Some people believe that the more things change, the more they stay
the same. But for kitchen and bath distributors and “whotailers,”
the more things change, the more they must change. In fact, to stay
viable in today’s increasingly competitive business environment,
distributors and whotailers need to rethink their role in the
market, the services they offer, and even the very way
they do business.
That’s the finding of a recent survey by Kitchen & Bath
Design News, which painted a picture of a rapidly changing market
in which distributors and whotailers need to be redefining their
role and offering increased levels of service in order to remain
competitive.
The survey, which polled more than 135 distributors and
whotailers from across the country, looked at kitchen and bath
distributors’ and whotailers’ business practices, services offered
and greatest challenges.
The majority of those surveyed (71.4%) said they sell through both
wholesale and retail channels (see Graph 1), with some 67% of their
business coming from wholesale (see Graph 2) and only 33% coming
from retail sales.
They cited their primary customers as builders, who account for
31% of their sales, kitchen and bath dealers, designers and
remodelers, who account for 22.1% of their sales, consumers, who
make up 21% of their sales, and general contractors, who account
for 18.7% of their sales (see Graph 3). Home centers and building
supply dealers made up the remaining 7.2% of their sales.
Survey respondents had an average of 2.8 locations, with more
than a third (39.8% planning to open up more locations in the
future. Additionally, more than two thirds 68.2% said they have a
complete kitchen showroom, and more than half (56.5%) have a
complete bathroom showroom (see Graph 5).
They are also growing distributors and whotailers surveyed
reported an average sales volume of $22.1 million in 2004, and
projected that number would increase to $25.7 million in 2005. But,
despite their expectations for significant gains in 2005, many
still reported feeling “squeezed.” That’s because they face
competition from almost every avenue, including home centers, the
Internet, manufacturers selling direct, buying groups and even
consumers themselves, many of whom have watched enough home shows
to believe they really can “do it themselves” without the help of
knowledgeable professionals.
And, these challenges continue to force changes in the way these
distributors and whotailers do business.
Diversification
So, how do distributors and whotailers stay profitable in a time
when everyone seems to be looking to edge out the middle man and
buy direct?
Part of the answer is diversification, survey respondents
indicated. For instance, more than a third of those surveyed
(34.9%) said they also fabricate and sell countertops (see Graph
4). “The more services you provide, the more likely you are to hold
your own in this market,” said a West Coast distributor who
recently started offering fabrication services as well as
installation.
Explained another distributor, “We as an industry have had to
move from just being suppliers of products to becoming true
one-stop resources. Nowadays everyone expects more, and we have to
offer more. That’s just how things have evolved. Besides, if all
you have is product, you’re forced to compete on price, and we
can’t always do that with the home centers and people shopping
online.”
In addition to offering more services, some distributors are
looking to expand into the retail arena in order to increase their
profit potential. In fact, while 28.6% of those surveyed said they
did not currently sell through retail channels, 8.7% said they
expected to in the future. The reason one distributor gave was
simple: “We’re in a changing market, and the traditional role of
distributors is shrinking. So we have to expand what we offer and
who we offer it to in order to be competitive.”
However, selling to multiple markets also means being careful
not to step on toes. As a Midwest whotailer explained, “We take
exclusivity very seriously with our kitchen and bath dealers [in
their territories], because we know that they are essential to our
success.”
He continued, “With price becoming more of an issue, we’re really
focusing on service more than ever. There’s no question that the
market is moving toward more personalized service, and that’s the
direction we need to go in the future as an industry, if we expect
to be around in 10 years.”
Servicing Dealers
Indeed, according to the
majority of those surveyed, keeping up with the times means service
must get top billing whatever it takes.
This is particularly the case with their kitchen and bath dealer
and designer customers, since most believe that these partnerships
are vital to their future survival.
To that end, distributors and whotailers surveyed said they
offer a wide variety of services to kitchen and bath dealers and
designers, with promotional materials and showroom display
discounts being the most commonly offered services. Both were cited
as being offered by 63.9% of respondents (see Graph 6).
More than half of those surveyed (55.4%) also said they offer
design staff, while 43.4% offer local home show participation,
36.1% offer a showroom allowance and 26.5% offer coop advertising.
Additionally, 12% offer other services, which encompass everything
from free measuring services, technical assistance and installation
to extensive training programs and well-appointed showrooms to
assist their customers’ customers.
As one distributor noted, “I know we’re in a service business,
and I take that seriously. So, I’ll listen to any marketing or
promotional idea [that my dealer customers have], and I’ll get
behind it if it makes sense. After all, we’re in this
together.”
Said another, “We want to make [our customers’] lives easier. So,
we offer specifications on appliance selections to add into a
kitchen design, so they don’t have to worry about not being up to
date on that.”
Other distributors and whotailers noted that they offer
plumbers, electricians and remodeling contractors “basically,
anyone they don’t have on staff, we can provide to make the job go
more smoothly.”
Several distributors and whotailers also noted the importance of
having readily available inventory. As one said, “people are less
willing to tolerate delays. So having what they need in stock makes
everyone’s job easier.”
However, there was some debate as to how much inventory is
enough. Of those surveyed, 29.3% said their current inventory
represents 7-9 weeks of sales; 25.5% said their inventory
represents 4-6 weeks of sales; 24.4% said their inventory
represents 1-3 weeks of sales and 20.7% said their inventory
consists of 10 or more weeks of sales (see Graph 7).
“Inventory is a tricky business,” said a distributor from the
Southeast. “Because of technology, products are changing almost
faster than we can keep track of. And you can get everything faster
now, so you don’t need to keep as much stock. But you also don’t
want to be the guy who doesn’t have [what your customers] need.
There’s no faster turn off than telling people they have to wait
for weeks when they know they can go to a home center and get it
right now. It’s becoming more of a ‘right now’ business, so you
have to keep that in mind when you do your ordering.”
“The fast-changing technology of the appliance and plumbing
business makes it a real challenge to keep current with stock,”
concurred another. “It’s a challenge just to keep up with all the
catalog updates from the manufacturers.
Future Growth
When asked to rank the areas they expect the greatest future growth
to come from, distributors and whotailers cited custom home
builders as their number one choice, followed by consumers, general
contractors, kitchen and bath dealers, home centers/building supply
dealers, and interior designers.
But no one category will strongly outweigh the others, survey
respondents suggested. As one said, “Some people say you have to
have a single niche. But we did that before, setting ourselves up
as the middle man who got the product. But that role is all but
obsolete. Between the home centers and the Internet and buying
groups, we kept getting pushed out. So now we have to think in
broader terms and service the entire market, not just be a supplier
of product.
While some distributors believe doing a greater volume of retail
business may be the answer, others are wary about the relying on
consumers. In fact, many whotailers believe that consumers
themselves have created a challenge, thanks to the increased
interest in home remodeling and the explosion of home shows geared
for the do-it-yourselfer.
As one distributor explained it, “An educated consumer is a good
thing, but the problem we get is that many consumers watch these
shows, and it looks so easy and fast and cheap on TV, they then
think they can perform tasks themselves that really require
licensed contractors. Even worse, they have no idea of real prices
or time lines because on TV, it all gets done in minutes. That
hurts our business.”
Buying groups, too, were cited as a competitive challenge by
several distributors who worried that these would cut into their
profits. As one distributor from the West Coast stated, “They can
buy direct from the manufacturer, they get bulk buying [discounts],
and where does that leave us? Between the buying groups and the
Internet and the home centers, there just isn’t as much of a role
for the middle man as there used to be. So we have to really
redefine ourselves and what we do in order to stay relevant to this
industry.”
But addressing the competition is just part of the equation. Most
of those surveyed believed that the future of distributors and
whotailers will hinge on several factors. As a dealer in the
Northeast stated, “Obviously, the first thing we need is continued
market growth. If things stay strong there, it means there’s more
business for everyone. But we also need to be able to compete in
areas not related to price, and we have to be able to stay on top
of the technology. Qualified staff is also important.”
A number of distributors and whotailers cited capable personnel
as an essential part of their future growth. As one said, “More
than anything else, you have to get and keep good salespeople. The
best way to compete with home centers is to have a knowledgeable
sales staff. People don’t just buy products, they buy knowledge and
people. Offering that, and great service, is how you grow.”
“The lack of skilled, conscientious help is definitely a
problem,” agreed another whotailer. “We’re saying we have to be
more service-oriented, but without the right staff, that won’t
happen.”
Staying current and up-to-date was also cited by several
distributors as important to their future growth. As one
distributor stated, “We need to offer updated, current showrooms,
merchandised to promote ‘what if.’ We need to sell creative
possibilities.”
“Exclusivity is key,” believes another distributor, who noted
that loyalty is essential to creating successful, long-term
partnerships.
“Some people think loyalty is dead in the business world, but
that doesn’t have to be true. Partnerships do work as long as both
parties are committed to the same goals and respect each other.
Yet another dealer cited “value-added service and joint
marketing agreements” as offerings distributors can provide to
create lasting partnerships with kitchen and bath dealers. He
concluded, “In the end, those partnerships are what will make you
successful. Now, more than ever, no one does it alone in this
business. Working together is how everyone grows.” KBDN