Reframing Showrooms: The Amazon Effect
By Doug Van Der Weide | Waterplace | Crown Point, IN
Reframing an Industry” in relation to AMAZON
Often, I am writing an article about “Reframing Showrooms.” I do not mean just in a literal sense, but also in a business sense. My focus has always been about helping showrooms turn the ship around and refocusing the showroom efforts toward profitability. However, todays article is a little different. This article is about a “Reframing an Industry” in relation to AMAZON.
The “Amazon Effect” is a real thing.
You can search it on Google and get a definition from many sources. Wikipedia defines, the Amazon Effect as, a powerful disruption that eCommerce has made on the retail market. The term came about because of Amazon’s dominate role in the eCommerce marketplace and leading the disruptive impact in the industry. Unless you have been living under a rock lately, Amazon has been putting a bit of hurt on the luxury showroom industry. What a lot of people do not realize, is Amazon does not go after individual companies, rather they go after industries and the B2B and distribution industry is next.
In the past, I have written several articles about Amazon and the affects happening to our industry. I have even been accused of being against eCommerce and against Amazon. What many people do not know is that I was featured on the cover of Supply House Times in July 1999 building one of the first online eCommerce plumbing websites. We had thousands of sku’s online without a shopping cart program. In fact, I used to be a keynote public speaker on eCommerce for the various chapters of the American Supply Association (ASA) back in the day. I personally built an online shopping website for a plumbing wholesaler before “shopping charts” (1994), before “Internet Explorer” (1998), before “Google” (1998), before “Facebook” (2004) , and before “Amazon” (1994) was even invented. In a sense you could say I was a part of being one of the early pioneers in the eCommerce market for this industry but that is another story. Needless to say, I am the farthest from being someone against eCommerce. However, I am first-and-foremost, forever-in-favor, of luxury showrooms, ahead of eCommerce websites. I LOVE our industry, I LOVE luxury showrooms, and I do not want to see them go away. I believe you feel the same. Let me also state that I am a shopper of Amazon for personal products, and I believe in the eCommerce channel.
The problem that we face are the boundaries of our industry are changing and changing fast.
The difference between retail, wholesale and online are being blurred. In fact, the difference between luxury products and non-luxury are being distorted. More and more of our manufacturers are moving to selling direct to the end customer through online channels, with Amazon being the biggest channel right now. In the Robb Report of January 21, 2020, Jeff Bezos was given a valuation of Amazon of $1 Trillion+ Dollars. In 2017, 44% of all online sales in the United States went through Amazon. Bloomberg says, that more than 50% of the product searches online start on Amazon. Amazon is not going anywhere, and you cannot blame Amazon for meeting the needs of customers when the customers’ expectations have changed. Remember when there used to be a Blockbuster Video Rental on every corner? Shortly after we all welcomed in Netflix which offers convenience and a better experience. Look at the Taxi-cab industry, and the frustration of its customers brought about UBER and Lyft. According to Harvard Business Review, “Research shows that since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist because of the digital disruption. The collision of the physical and digital worlds has affected every dimension of society, commerce, enterprises and individuals.” The winds of our industry are changing towards a digital age.
Our industry manufacturers are now breaking up their corporate management to include trade, retail, and online divisions in their business structures. Often these divisions are not on the same page. Originally when the manufacturers started selling online, they would only give select models to be put on the site. Now with demand, the online companies, like Amazon, want products and designs that are found in the luxury showrooms.
Just about every wholesaler over the past year is running into HUGE issues with pricing.
One of the biggest complaints is that Amazon is selling the same products that we sell, and the retail price is below our cost. Even the reps are hearing this almost on a daily basis. Often these reps cannot do anything about it as they will be accused by the manufacturers that they are not “onboard” with the way the company’s direction is going in relations to eCommerce. Do not forget your reps have contracts with the manufacturers and they are typically only 30-day contracts. The worst part is when a customer purchases on Amazon your representative loses as well! They get no commission on a sale. All the reps time in training you and bringing in products for you to train your customers is also wasted. It is horrible when a customer just uses you and your showroom to turn around and purchase products on Amazon. The last thing we want is to be a showroom for Amazon!
When the issue of pricing, or even items being sold on Amazon, has been brought up to a rep or even someone higher up within a company, it is almost like a scripted response has been prepared and is delivered. You will hear things like, “we all know that every manufacturer is selling or is available online these days, we have to be online” or “we offer your company rebates, spiffs, free displays, marketing funds, construction funds to help pay for your showroom. Companies like Amazon get those same deals but they take those funds and roll them into the pricing so they can be lower,” or, “the customer are only searching for a few products here and there…the overall sales aren’t that impactful,” or how about, “you are not doing a good job as a showroom of selling yourself, your services, and your company. You should be explaining your value and that should be enough for a customer to pay more.” Well that used to work, but not when the difference in price is sometimes $50 to $100 less. To top that off, they are also an Amazon Prime member and will have the product in 1-2 days. We are on an average still at least 3-4 weeks out getting products to the customers. And once a customer finds a lower price online from your quote, they compare everything you priced. Basically, there is NO ONE at this point that can go up against Amazon and that would be downright stupid.
Probably one of the biggest responses to this issue is how good a company’s MAP policy is. How great they are at protecting us by policing and enforcing these policies. Let me just say that MAP policies do not necessarily work in favor of brick-n-mortar showrooms. Just because a manufacturer is policing a MAP policy does not mean the policy was good to begin with. What I mean by that is what type of margins are they protecting. Often, I think these manufacturers are forgetting that for most showrooms, the break-even point is between 25-28% gross margin and we really do not even start to make a profit until around 30% margin. Do not forget all the overhead, payroll, displays, time, upkeep, and training that all costs you money. These expenses are not incurred in a virtual world. What is also happening is these companies are removing MAP policies on selected products (often these product series are bread n’ butter items for showrooms). The manufacturers often create Trade Only products but in very limited designs. They also create two to three times the amount of designs for retail and online product divisions. Let us not forget the new MAP policies are often lifted for “Black Friday” and other selected holidays as well.
I want to be clear; Amazon and other online sellers are not going away. I am not asking them too either. I am also not asking manufacturers to stop selling to Amazon and other online eCommerce sites. I believe Amazon has met the changing needs of customers, however, if the luxury showroom is going to survive in the future, things will need to change in the present.
The answer will not be found in a better MAP policy, training showrooms value over price, stocking more, shipping faster, creating private label products, or purchasing from Amazon yourselves.
Refocus efforts on Retail, Wholesale, and Online
I believe that the one solution that could solve this problem, other than a manufacturer ONLY using showrooms for its sales channel (which is NOT going to happen), is to refocus its efforts between retail, wholesale, and online. What this means is we need to differentiate between product lines that are retail, wholesale, and online. Products that are in luxury showrooms should not be for sale online, period!!!
If you recall in the beginning of this article, I stated that the boundaries of our industry are being blurred. It is time to make these boundaries clearer. Keep the divisions separate and offer an equal amount of product designs to wholesale, retail, and online. Be upfront and make sure there is enough margin for everyone. Wholesale and luxury product can be online, but NOT for sale online. The only thing you should find with wholesale luxury products are pictures, product descriptions, specs, install sheets, and where to buy in a showroom located near you.
I am, by no means, offering this as the answer, but I do believe our industry needs to start having a conversation. If showrooms are to exist in the future, and if manufacturers want them around in the future, then these conversations need to start now. Groups like IMARK, Luxury Products Group (LPG), FORTE, Affiliated Distributors (AD), American Supply Association (ASA), and others should even be working together for the common good. Round table (or Zoom meetings) need to start where BOTH parties (showrooms and manufacturers) are open to hearing the other opinions without a scripted response, because this is a REAL issue, and it is not going away.