You’ll never beat the online discounters at their own game. But there is a better way…
Showrooms have long complained that some online retailers are selling at prices they cannot even buy at trade. But, as Chris Frankland discovers, things are improving and some manufacturers are finding ways to give bricks-and-mortar retailers an edge, many of whom are realising they need to sell on the service they offer and not focus on a race to the bottom on price
There have been few issues as fiercely debated as internet pricing. And while some retailers say things are getting better, many still complain that some online-only sellers’ prices are lower than they can buy the products for at trade.
As our legal experts spell out, there is only so much manufacturers can do under the law to counter online discounting – but look out for a change in the law that may offer some hope as of May 2022. For now, though, suppliers can suggest a ‘recommended’ price, but at the end of the day, all retailers, whether bricks-and-mortar or online-only, are free to sell at whatever price they choose.
Some product categories appear to suffer more than others from online price competition. A quick consensus view from our nationwide kbbreview100 retailer think tank identified them as, in order of what they considered most affected to least – appliances, sinks and taps, bathroom brassware, bathroom units and sanitaryware, shower enclosures, fitted bathroom furniture and fitted kitchen furniture.
The problem is that pure-play online retailing tends to attract entrepreneurs. As Plumbworld chief executive James Hickman said in a recent kbbreview podcast, these are people “who are good at buying in bulk and shifting product en masse and it is very difficult for smaller businesses to compete in that ‘box-shifting’ environment”. The very nature of their businesses means they have to buy in bulk to make sure that they always have items in stock for customers who want instant gratification and will go somewhere else online in the blink of an eye if they can’t get it.
The other issue is that bricks-and-mortar dealers have overheads that online retailers don’t. They have showrooms, which they use to showcase manufacturers’ products so that customers can touch, feel and experience the quality of what they are buying. That is also, of course, their trump card. And it’s one Hickman says they need to fully exploit. He says: “Showroom retailers must compete more on design and installation and offering high-value added services, rather than competing on mid-market, volume products.”
We asked our kbbreview 100 retailers if they thought manufacturers could do more to help them compete. All those who responded said yes.
Phil Beechinor, the MD of Alexander, retailer which sells kitchens, bedrooms and bathrooms through showrooms in Horsham and Worthing, believes that manufacturers should “offer displaying retailers much
better terms”.
Frazer Goodwillie, a director at Billingham Kitchens in Stockton, agrees, adding that perhaps they could offer free replacements when a product is discontinued. COD MD Andrew Warnes in Altrincham says “manufacturers should protect the margins of showroom-based retailers by offering better discounts”. This is a point taken up by Trevor Scott, CEO of RFK in Rugby, who adds: “Trade discounts should be different for bricks-and-mortar dealers who meet display outlet criteria, which includes a mix of products, training, installation, etc. Otherwise, what’s to stop consumers picking our brains, attend our demonstrations but then go away and buy online?”
Other kbbreview100 retailers were worried about that too, but his podcast that the majority of his customers had never visited a showroom. He also pointed out that showrooms enjoy better conversion rates and that “even the very best” online retailers have a conversion rate of around only 5%.
Many retailers also mentioned that help from manufacturers with discounts on display items is crucial. Another issue highlighted by a number of our kbbreview100, including Keith Wilson, owner of the Perth Kitchen Centre, was that many online retailers seem to get appliances before independent studios do.
One possible solution is selective distribution, with some products only available through retailers with physical showrooms. Virtually all of our kbbreview100 retailers said they take advantage of showroom-exclusive product lines.
Warnes from COD agrees this allows the showroom to make a reasonable margin and protects the brand from being cheapened, while John Pelosi, owner of Caldicot Kitchens and Bathrooms in Wales, adds: “Brands need to better manage their channels and how they price through them. If there is no way to make margin on a brand, then it has absolutely no place in our portfolio.”
Margin is certainly a key consideration for bricks-and-mortar retailers and was a key factor behind the decision by Richard Hassell, owner of More than Baths in Doncaster, to set up The Independent Network – an alliance of almost 200 like-minded retailers who want to deal with brands that don’t have their products all over the internet.
Hassell explains: “The manufacturers we have on board give us extra terms, display commitments, exclusivity for a certain area and they are basically saying that they aren’t selling to online dealers. And with those manufacturers that are online, they will sometimes offer you different products that are not online. And that does work.”
So what is his advice for other showrooms struggling against internet pricing?
“Showrooms need to get their heads round the fact that if you are showing the same stuff as everybody else, regardless of whether you are serving caviar and champagne, the bottom line is you’re in a price battle with people down the road. If you are not transitioning to these brands that my network has – who are protecting you – then you’re stuffed!”
Manufacturers that The Independent Network deals with include Graf, Waters Baths, Aqualla, Novellini, Adamsez and Fiora.
Hassell explains what the Fiora brand has to offer: “If Fiora have got one of their shower trays online, and someone is giving a price ‘less 40%’, we can then go back to them and they will give us display terms (less 75-80%) to cover the order, so we can match the online price.”
A similar deal is offered by The 1810 Company with its Online Margin Guarantee (OMG) scheme to combat products being sold online at discounted prices.
Group sales director Daryl Southwell explains: “The retailer notifies us if they see any 1810 product advertised online at a reduced price. We ask for the website details, product code and online price. Upon receipt of this information, we then guarantee the retailer a 25% margin, which is achieved by a reduction in their buying price.”
At Aqualla, one of the brands favoured by The Independent Network, managing director Steve Allaway says: “Our policy is to support bricks-and-mortar showrooms, with a dealer reseller agreement that restricts our brand from being sold online. All decisions and policies are derived from conversations with our bricks-and-mortar showrooms. We understand the investment required for showrooms and would empathise with anyone struggling to sell a product.”
He adds: “We offer a display discount, invest in display boards, point-of-sale material, technical and marketing support. Each year we spend between £150k and £200k on brochures, display boards and point-of-sale items to help bricks-and-mortar showrooms promote our product. We also provide a website, digital channels, technical support and sales training for showroom staff.”
Bathroom brand Armera is also committed exclusively to bricks-and-mortar showrooms. Joint managing director Sarah Williams elaborates: “The establishment of Armera was solely to create a brand and portfolio of products that are to be sold by independent bricks-and-mortar retailers. We firmly believe that the sales distribution via a physical showroom leads to a properly informed buying process for the end customer, which is especially important when dealing with bathroom-related products.
“First and foremost, we will only allow our products to be sold by partners who have a physical showroom. We have also invested significant sums of money on top-flight legal advice to establish a Selective Distribution Agreement. This clearly lays out our intentions that Armera products need to be sold in showrooms by professionals who know the bathroom environment and are able to offer consumers a knowledgeable, design-led service.”
Williams explains that the Armer brand also provides retailers with geographical exclusivity: “Too many brands are completely overdistributed, with the same level of discount being given to every retailer, regardless of their commitment to the brand. This again just leads to a race to the bottom. Our aim is to only appoint 150 to 200 outlets in the entire country.”
Matt Phillips, head of UK operations for Rotpunkt also appreciates the benefits of displaying showrooms: “Premium kitchen living is a rich, sensory experience, which is why we have developed inspiration points for retailers to display our range of doors, colours and hybrid solutions in their showrooms so their customers can explore all of the different options with the guidance of an expert – the retailer.
“You can’t expect a website to narrow down our extensive range of cabinet colours, door fronts and drawers for the end user – that’s where an expert is required and bricks-and-mortar retail excels. Big-ticket items like a new kitchen tend typically to require time, careful consideration and the help of a design professional.”
Simon Bodsworth, managing director of Daval Furniture, is also firmly behind his physical retailer base, saying: “Our retailers present a unique offering to the marketplace that will not only compete, but inspire. Nothing is mass-produced and instead, we concentrate on manufacturing indi-vidual, handmade British products, allowing retailers a point of difference.”
With appliances, a buying group can give showrooms a competitive edge. As Bill Miller, managing director of the Kitchen Bathroom Buying Group (KBBG), says: “The bricks-and-mortar retailer has the business overheads of running a showroom, which the online retailer does not have. Unless urgent action is taken by suppliers, then I fear that we will see some areas of the country where there are no independent retailers at all. By utilising our huge European buying power, the KBBG has been able to help its members by offering them improved margins on the many appliance brands we work with. As the KBBG only works with bricks-and-mortar retailers, we are in regular discussions with our suppliers to look at more ways to further support the independent channel.”
Steve Jones, MD of the Sirius Buying Group, which can also help give dealers an edge when buying appliances, offers this advice: “Remember that price is not the be-all and end-all for customers, who prefer to buy from a trusted person and are prepared to pay for a personalised service from an experienced team with the reassurance of face-to-face contact and a solid aftersales offer. Outline the features and benefits of the goods and services you offer and point to your years in business to reaffirm your longevity and place in your local community.”
WHAT THE LAW SAYS…
Lucy Coffey and Stephen Sidkin of Fox Williams LLP explain what manufacturers can and cannot do to counter online discounting and how there may be a light at the end of the tunnel
The Competition and Markets Authority (CMA) takes a strong stance against brands and retailers that seek to limit or prohibit online sales and control prices.
The law says that the price at which a retailer resells products is for the retailer to determine – the manufacturer is not permitted to fix or set resale pricing. A manufacturer can provide a ‘recommended retail price’, but this can only be a recommendation.
For bricks-and-mortar outlets, investment and pro–motion in-store can help drive sales for pure online players – this is known as the ‘free-rider’ problem. Arguments that products need to be demonstrated or tried in-store, so as to prevent or restrict their sale online, will be looked at sceptically by the CMA and EU Commission.
One golf club manufacturer was fined by the CMA for imposing a restriction on retailers that prevented its clubs being sold online due to the need for customers to try and be fitted with them in-store.
One option, if the products are sufficiently luxurious or technical, is selective distribution. If appropriate for the product, this currently permits an obligation to be placed on retailers to operate a bricks-and-mortar outlet.
Careful legal consideration is required to ensure that selective distribution is appropriate.
Also, it is not currently permitted for a manufacturer to charge a retailer a higher price for products they intend to sell online than for products intended to be sold in-store. This strategy is known as ‘dual-pricing’. However, the good news is that the CMA is currently consulting on revising the competition rules.
Early indications suggest there may be a change in the approach to dual-pricing. This would mean that, subject to certain conditions, manufacturers may be in a position to charge different prices for products depending on whether the buyer intends to resell them online or in-store. The current law expires at the end of May next year.