With manufacturers unable to control who sells their products online, Paul Crow of Ripples asks, is it only a matter of time before we see European-style discount warehouses open in our towns, offering brands the independents have long supported?
It’s official. The Competition and Markets Authority (CMA) has confirmed that it does not care whether or not you make money selling in your showroom – just as long as you don’t get in the way of the big boys who sell online at any price.
That’s the reality following the authority’s verdict on Ultra Finishing Limited, a company that dared to try to separate its online and retail customers by giving them different terms.
It is said that Ultra Finishing Limited introduced a minimum advertised price for internet sales, which effectively limited the ability of the retailers of its products to make online sales below a specified price level. The CMA alleges that both cases were a form of resale price maintenance and therefore infringed competition law. Any business found to have infringed the Competition Act 1998 can be fined up to 10% of its annual worldwide group turnover. That sounds like a lot of money but I am pretty confident internet sellers are costing our company more than 10% of our turnover.
Now, I don’t know if Ultra Finishing Limited still owns Mark II, the company plagued by its relationship with Tesco, but the irony is not lost on me.
You see, I was brought up in the proud railway town of Eastleigh – not a place I long to return to but one that is full of fond memories. None more so than of the times I walked down the high street to the butchers, the bakers and, if we had needed candles, I am sure there was one of those guys, too.
Then, one day, a Tesco opened and we all rejoiced at the arrival of this new-wave shopping mecca. Everything under one roof, open in the evening, free parking, a trolley to carry your goods and the same brands you usually bought, except much cheaper.
Now the high street is dead, full of coffee shops, pubs and charity shops, the people moaning the loudest about it are the locals driving past on their way to Tesco or Sainsbury’s. Do we really want the same to happen to the bathroom industry? Because it will, if we don’t do something now
My mum, like millions of others, bathed in this new era of consumerism and fed the new boys until they were bloated. And they became really bloated. With Sainsbury’s opening at the opposite end of the road, we even had a choice of retailer to reward with our gratitude for such a fantastic service. It was fair competition.
Now that same high street is dead, just a collection of coffee shops, pubs and charity shops, the people moaning the loudest about the lack of local businesses are the locals driving past them on their way to Tesco or Sainsbury’s. We are also told in the news that Tesco and other supermarkets are really harsh on their suppliers – aggressively demanding price reductions, promotional support and whatever else takes their fancy at the time. I bet Heinz didn’t encounter that problem with Harry and Maggie, who ran the local Leo’s. Do we really want the same to happen to the bathroom industry? Because it will, if we don’t do something now.
How long will it be before the huge wholesalers from Europe set up a large, trade-style warehouse in your local town or city, selling the same exclusive brands you have dedicated yourself to for years but from stock and 30% to 40% cheaper than you? The advice you will receive is to sell on service – as if you aren’t doing that already – and to assume you have the financial resources of John Lewis to proudly demand loyalty from your customers.
Are you really going to take on the giants with your service, knowledge, a smile and a cup of Nespresso? Good luck to you.
It is not so much a question of who is going to stop this from happening but who can? I am pretty sure you will not meet many manufacturers who want your business to be affected. They are proud of their brands and invest heavily in them – although they invest very little in consumer advertising. They genuinely like trading with you – you are profitable, less risky and actually quite nice to do business with. But ask them for help and they will look away. They are not even allowed to talk to you about this. You can’t email them complaining about it, either, because it is in their contracts not to say anything that could cost their large employer dearly.
So, rather than sit on the beach like King Canute staring at an internet tidal wave, what can we do? Manufacturers say they are doing their best by trying to level the playing field and will lower prices where they can to counteract differences in Europe. It makes you wonder how much money they were making before.
How long before the huge financial wholesalers from Europe set up a trade-style warehouse in your local town, offering the same exclusive brands you have dedicated yourself to for years?
This will help, of course, up to a point. But it also means that with planned reductions of up to 30%, any competitor that has ever aligned its products to these leading brands is going to have to do the same.
So what do they do with this reduced sales income? Cut costs or look for alternative places to generate sales? New showrooms, maybe? Be a bit more relaxed about who can sell their products, perhaps? Or maybe they just cut their terms with you because they were over-inflated anyway?
So what’s the answer? I wish I knew. But I can’t help but feel that the whole mechanism of linking trading terms to RRP doesn’t work. It’s not a policy the car industry seems to adopt and, although you can shop around online for a BMW, the vast majority of customers still have no other choice than to visit their local approved dealer. It’s no coincidence, either. The car industry works via franchising and, in doing so, can control more closely the terms and partnerships in place.
Independent companies that meet pre-approved standards work in true partnership with the manufacturer to their mutual benefit. Offer financing? Here, have extra terms. Support all the manufacturer’s training programmes? Here, have some more. Stock the latest models? Offer our brochures to the customer? Provide a local after-sales service? Provide a showroom where someone can see a comprehensive product collection? Offer an installation service? Tick, tick, tick! You get the picture. If it’s possible for manufacturers to tell you what you need to do to differentiate yourself from an internet-only retailer, then it must be possible for them to reward you for it and, by definition, not reward those that do not.
It all comes back to whether they want to try and how hard they are prepared to work to keep your business and their business model. In a world where data can sometimes be more profitable than the product bought to obtain it, wouldn’t it make sense for a customer’s product warranty only to be extended when they register it with their local approved dealer, from whom they bought it? And couldn’t this data be collected by the manufacturer and used to help promote its local retailers, market its new products and everything else it puts on its web pages?
If it’s possible for manufacturers to tell you clearly what you need to do to differentiate yourself from an internet-only retailer, then it must be possible for them to reward you for it and, by definition, not reward those that do not
If we are honest, the real issue is that most manufacturers are getting a little frustrated at the lack of total commitment they are getting from their customers and they welcome, and in fact need, you to sell more. The displays don’t quite look like the photo shoot, brochures don’t always make it all the way to the consumer’s coffee table and the constant offer to train the sales team is well received until the day it comes to leaving the showroom and then something important comes up. Never an issue when they invite you to Europe for free drinks, right? That’s what they tell me, anyway. But the manufacturers are not perfect, either.
The alternative plan is to set up your own e-commerce site, chuck everything you sell or could sell on there at 30%-40% off, use the images the manufacturers will give you for free and then order the products from them when you get an order so you don’t even have to carry stock. Take the money you spent on friendly, knowledgeable sales staff, invest it in Google ads and hope you find your way on to the front page that day to take an order. Good luck.
If you have the money to do it, you should do it now – the sooner the better – because it’s survival of the fittest. What will follow is business closure after business closure, merger after merger. Someone will always come out of the dark, clean up and do it properly with e-commerce solutions that cost you more than your business turns over in a year.
If we really want the bathroom industry to resemble Eastleigh High Street, then that is what will happen. In which case, why not look at a Costa coffee franchise now – you can’t sell that online? Is that really what we want?
My best advice? Invest in your showroom, turn it into the most amazing-looking place possible, suck the life out of the training available and make it the most enjoyable place for a customer to buy a bathroom. Then state, very clearly, to every one of the manufacturers the terms you will accept to have their products in it.
Make not having their products discounted online part of your trading conditions and make talking about it a policy you have in place. When they tell you it’s normal to discount 20%, let them deduct it from their invoice, not yours. In fact, take them to Lidl and Aldi and then ask them if the consumer really cares about their brand – the one that you introduced them to.
I happen to believe they will find a solution a bit sooner than you might think.