The Time Is Right For Buying Groups
The bath remodeling industry has changed in many ways over the past 10 years. First, increased exposure to the general public by home centers has put the price of more than just generic chrome and white fixtures within easy grasp of more of your potential customers.
Thanks to these retailers' generous commitment to huge displays showing top-of-the-line faucets, toilets and fixtures, people are coming to you with prices for the fixtures already itemized, or, sometimes, even purchased. The opportunity to generate gross profit on the plumbing fixture package is rapidly disappearing.
Second, plumbing distributors are being forced by some manufacturers to open up showrooms and "specify" fixtures and prices to the general public. Often, the pressure is so intense that their ability to continue to carry a line of fixtures is contingent on their planning and constructing showroom space to show retail clients product they can purchase and have delivered to their homes.
Third, consumer desire is more upscale. Enticed by a constant barrage of specialized shelter publications and cable television shows, consumers now consider large shower stalls, whirlpool tubs and separate his and her lavs as basic wants.
Added up, today's consumer spends much more time investigating, researching and pricing plumbing fixtures before they ever come in our front door. That leaves remodeling contractors to prepare involved estimates and present beautiful projects only to be left with a couple in their showroom shocked by the "sticker price" for their dream bathroom.
They'll ask why the job costs so much when the fixtures only cost this amount. Of course their idea of "cost" is 25 percent off list, which, after all, is what the home center or distributor quoted.
If asked to break out materials, the contractor is forced to fudge the number so that it looks closer to the price that the
client has in hand. What we are left with then is the problem of explaining why everything else costs so much. The
pressure on our business to attract and close those customers at below-profit pricing increases with every lost
ParallelsSo what can we do to combat the pricing pressure? Join a buying group. It's one way independent appliance dealers fought some of the same market changes during the last decade that our industry faces today.
In 1990, approximately 6,100 independent appliance dealerships had businesses across the United States. Around 30 percent of those independents belonged to a buying group. During the 1990s, large retailers took market share away from these independents. Many went out of business, and that forced survivors to reduce margins by competing on price, build added value by offering installation and service - and find a better way to purchase goods to cover their reduced profit.
By joining a buying group, independents could purchase product at quantity discount pricing without making huge inventory commitments themselves. That meant larger gross profit margins without raising prices.
Today, the number of independent appliance dealers has dropped to less than 4,000, and, of those remaining, more than 80 percent are members of a buying group or co-op.
In the early 1990s, two kitchen and bath buying groups were formed - Signature Executive Network (SEN) and Bath & Kitchen Buying Group (BKBG). Both offered members lines of cabinets, plumbing fixtures, appliances and other smaller related products. They started out small, and the manufacturers were just as skeptical as the dealers were about joining.
Some manufacturers wondered why they should reduce their margins when their market share was expanding with home centers. Some dealers said the lines offered were not broad enough to satisfy their customers' needs.
But both groups grew. Dealers joined primarily for the product discounts and rebate dollars. Manufacturers figured the dealers who joined were, in general, better customers and would survive the shakeout occurring in the remodeling industry. More dealers meant more manufacturers. More manufacturers meant more dealers. In the last three years, these two buying groups' purchasing powers has increased 400 percent. Manufacturers are starting to see increased business not only from new members, but their existing dealers have increased their purchases above and beyond what was expected. Truly a win-win situation is developing.
Membership also provides other valuable benefits, such as access to marketing and training programs. Because these two groups are national, members can discuss business strategy with noncompeting dealers. Members can also discuss products with more than one manufacturer without relying on numerous meetings and time away from work.
We belong to both groups. As the number of product lines increased, our ability to purchase complete projects increased our profit, made us more competitive, and enabled us to have exclusive lines that would not otherwise be available on a direct basis in our market.
Being involved in the kitchen business made joining an easier decision because a large portion of our costs are in cabinets and appliances. With our cabinet manufacturers in the group, and our ability to purchase Kitchen-Aid and Whirlpool appliances direct, the rebates and added discounts immediately enhanced our bottom line. As more plumbing fixture manufacturers are added, we are now seeing our rebates in the bath-related field catch up to the kitchen department.
In my opinion, if you are serious about surviving in the remodeling business, and possibly even in the service business, being a member of one of the industry buying groups should be a key part of your long-range business plan. I would be happy to pass along information on both groups if you are interested. You can e-mail me at firstname.lastname@example.org, or drop me a line at BB&K 1320 S. 108th St., Milwaukee, WI 53214.
There is strength in numbers, and you can survive in this business just like the independent appliance dealers have.