Distributors Playing Larger Role In Retail Operations

By Alan Wolf On Mar 24 2003 - 8:00am




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Once upon a time, distributors, and their dealer and vendor partners, were content with their traditional role as two-step suppliers, valued more for their warehousing than their merchandising acumen.

But as consumer electronics technology grew more sophisticated, and retail channels became more specialized, distributors found themselves providing a widening array of value-added services to enable their customers — and themselves — to compete more effectively.

Indeed, today's distributor is almost unrecognizable from the wholesaler of yesteryear, as one-stop shopping, category management, just-in-time delivery, dealer training, product customization and other specialized services have become almost mandatory.

As Alex Paskoff, VP/business development at wireless resource Brightpoint noted, "The movement of commoditized product without value-added services is a dying model," as dealers have come to rely on — and expect — "true supply-chain management and logistic services."

For Brightpoint, which services most of the big box CE chains and provides all of Virgin Mobil's fulfillment, customization is paramount. "We package OEM bulk accessories into a retailer-specific package," Paskoff said, as well as program generic handsets for wireless carriers. But the Indianapolis, Ind.-based business's core competency, he noted, is "the capability to fulfill orders in compliance with individual retailers' inbound requirements."

Customization also plays an important role for Navarre Distribution Services, which provides PC and entertainment software for channels ranging from wholesale clubs and national CE and office supply chains to the U.S. Navy and Marines, wherever they are deployed. "We pride ourselves on the value-added component," said senior VP/general manager Brian Burke of the Minneapolis-based business.

Among the functions it regularly performs for customers is applying price and rebate stickers to products, creating software assortment packs with single SKU numbers, and even creating flyers and signage through its agency marketing capabilities. Navarre also maintains its own vendor-managed inventory system in order to provide category management for retailers, and offers customers "virtual warehousing" by contracting with third-party providers on both coasts to pick up shipments for temporary storage in leased facilities.

The value-added philosophy also drives Hauppauge, N.Y.-based Electrograph Systems, which specializes in display technologies and lays claim to the title of largest plasma distributor in the country. "We were one of the first value-added distributors," noted marketing VP Carl Mandelbaum, who cited the company's eight sales offices nationwide and warehouses on both coasts. That allows Electrograph to "work directly with resellers and custom installers in the field," he said, as well as service and repair most of the products it sells.

Another "extremely popular" service is Electrograph's own extended warranty product, Mandelbaum added, while other value-added plusses include product customization, quality control inspections, same-day shipping, extensive financing options, and the sharing of sales leads. "We don't just follow the traditional fulfillment model," he said.

Also underscoring the dramatic changes in the distribution business was Jeff Stevenson, director of consumer electronics for D&H Distributing in Harrisburg, Pa. "This is not the old school of distribution," he mused. "We're not wearing white belts and patent leather shoes."

Instead, vendors and dealers can find in D&H a nationwide resource with six distribution centers representing 1 million square feet of inventory space that allows the company to brand and drop ship products to dealers or end users from coast to coast. Customers can also place orders, track shipments and check inventory and pricing in real time via D&H's Web site, while its separate CE, computer and gaming divisions provide true one-stop shopping and technology product support in a quickly converging marketplace.

"We're positioned to bring to the dealer base everything the home will need," Stevenson noted.

Geographic reach is also one of the strengths of Almo Distributing, the Philadelphia-based white and brown goods powerhouse. "We use multiple warehouses to get product to our customers more quickly and less expensively," explained senior VP Warren Chaiken, who noted that 85 percent of orders are delivered within one day of receipt. "Just-in-time inventory is important for independent retailers, most of whom don't have large warehouses," he said. "It helps them compete with the big boys."

Also leveling the playing field is Almo's extensive in-house and in-the-field sales force, which keeps dealers abreast of the latest products and technologies and provides market intelligence and strategic merchandising advice. The 47-year-old, family-run business also offers flexible financing, has begun producing customized ad circulars, and maintains a dynamic Web site through which customers can place and track orders and assess inventory availability in real time.

"Some manufacturers regard distributors as a burden, but they don't understand freight costs," Chaiken said. "If you take into account all of the services we provide, and the fact that we can accept truckload quantities, we've got to be more cost-effective than shipping directly."

One area where the value of two-step distribution is unquestioned is the custom installer channel. According to Ted Green, executive director of The Advantage Group (TAG), a national consortium comprised of 11 regional distributors specializing in system integration, the market's tens of thousands of custom installers makes it "highly fragmented and hard for manufacturers to service."

Enter TAG, which serves as a "one-stop shop for any manufacturer looking to efficiently and effectively address the custom install channel," Green said, thanks to its national coverage and capacity for large volume purchases.

In that regard, TAG acts as both a distributor and a buying group, although it also performs the educational functions of a trade association. "The biggest challenge for custom installers is timely information flow," Green observed.

Providing similar services for the custom install market, albeit within Southern California and Nevada, is Volutone Distributing, a 100-plus-year-old family business with four warehouse/showroom facilities. But beyond providing a panoply of products ranging from high-definition satellite boxes and stacking systems to DVI cables and plates, Volutone is also offers information.

"Our will call locations provide a forum for installers where we can exchange ideas, and offer suggestions and advice," said VP Neville Hanson. "We read the trades, learn from our installers and pass on the information." Volutone also offers a more formal training format, in the form of monthly educational meetings, and also posts pertinent information regularly on its Web site. The training, together with a product assortment that fills the company's 580-page catalog, makes it a "one-stop shop" for the custom install market, Hanson said.

Also helping suppliers bridge a fractured channel is Dallas-based CellStar, which provides handsets, wireless accessories and DISH Network DBS systems to thousands of independent agents across the country. "We make it less costly for carriers and manufacturers to do business with them," explained senior VP/general manager Chris Smith.

At the same time, CellStar supports the independent agent by providing additional lines of credit and by maintaining an easy-to-use business-to-business Web site that simplifies the ordering process.

One of the best exemplars of the value-added concept is Knoxville, Tenn.-based Metron North America, which actually assumes many of the core retail functions of its clients. The 20-year-old business, which carries satellite systems and A/V products from DirecTV, TiVo, Terk, Philips and Samsung, among others, is a "complete facilitator of others' sales," explained president and co-owner Jeff Crabtree. Indeed, Metron's full menu of services range from simple warehousing and distribution to complete inventory management, returns and reverse logistics, installation and even credit card processing.

Among customers that find appeal in that approach are Office Depot, for which Metron manages fulfillment and installation; Good Guys, which utilizes Metron's no-inventory model for DirecTV sales; and TiVo, whose direct online and 800 sales — as well as all of its U.S. distribution — are honchoed by Metron.

Crabtree credits the company's core IT-focus for its ability to act as a full-service resource. "Our whole world is about technology," he explained. "A lot of companies can get a box out and ship it on time, but not too many can communicate with you the way you want to."

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