More Manufacturers Selling Direct to Jobbers and Shops

EMERGING TRENDS
More Manufacturers Selling Direct to Jobbers and ShopsHILTON HEAD, SC (AUGUST 2, 2007) - Changes are underfoot in the traditional three-step distribution of automotive parts and accessories. According to the "2007 Auto Aftermarket Distribution Survey," released by Capstone Financial Group, "Automotive aftermarket manufacturers agree that the traditional manufacturer-warehouse distributor-retailer distribution process is being phased out." Some of the findings reported by the Capstone study include:

Manufacturers (above) and WDs (below) were asked: Do you agree that traditional three-step distribution is being gradually phased out by the two-step system?

* Manufacturers believe the traditional three-step distribution is on the way out. Manufacturers were asked, "Do you agree that three-step distribution is gradually being phased out by the two-step system?" A shocking 73 percent of respondents agreed with that statement, with 23 percent being unsure. Put another way, only 3 percent of those surveyed believed that three-step distribution would not be phased out.

* Distributors are unsure about the future of three-step distribution. In response to the same question, "Do you agree that three-step distribution is gradually being phased out by the two-step system?," distributors exhibited greater uncertainty than manufacturers. Forty percent agreed with the statement and only 10 percent disagreed with the statement, while 50 percent were unsure as to the future of three-step distribution.

* Distributors are concerned about manufacturers selling around them. About 60 percent of distributors admitted they were concerned about manufacturers selling around their distribution channel. * Manufacturers are experiencing stagnant sales through WDs. Of those manufacturers strictly selling through three-step distribution, sales are stagnant. About 47 percent report a decrease in sales, 42 percent report an increase in sales, while the remaining 11 percent report same sales.

Manufacturers: Have you altered your distribution methods to sell around large WDs? * A majority of manufacturers have not begun to sell around warehouse distributors (WDs), but for those that have, it's been a success. Most manufacturers (63 percent) have not altered their distribution methods to sell around the larger WDs; however, for those that have done so, it's been a successful transition. Of those altering their distribution methods, only 6 percent of respondents deemed the strategy to be unsuccessful * Manufacturers are very pleased with their sales through other distribution channels (direct to jobbers, installers and consumers). Manufacturers are not limited to a single distribution channel. Selling through WDs represents only one of the ways for these manufacturers to reach their customers. About 55 percent of manufacturers also sell directly to jobbers, with 93 percent deeming these efforts successful. Sales direct to jobbers average 27 percent of the company's revenue, and, on average, manufacturers have been selling through the channel for 11 years.

Manufacturers: Do you sell product directly to automobile dealers and installers?

* Around 45 percent of manufacturers surveyed sell directly to automobile dealers/installers, with 75 percent reporting success. Sales direct to automobile dealers/installers average 20 percent of the company's revenue, and manufacturers have been selling through the channel for 7.5 years, on average. About 43 percent of manufacturers sell direct to consumer, and 75 percent of these believe this direct channel is successful for them. While this channel is still in its infancy, as shown by the limited average time (three years) that these manufacturers have sold through it and the resultant average contribution of only 5 percent of sales, it is by far the fastest-growing distribution channel.

* Companies are still looking for growth through acquisitions. Fifty-four percent of respondents answered that they were looking to grow through acquisition, while 37 percent said they were not and 9 percent were unsure.

In summary, Capstone says, this data all points to a manufacturing base that is disenfranchised with large WDs. Whatever the reason may be, these manufacturers are looking at either selling around the WDs or instigating a power shift by consolidating and growing their business. Either way, manufacturers appear to be eager to change the status quo.

(Source: Capstone Financial Group, SEMA)