The Need for WDs

Dec 2, 2009

Today, most performance jobbers and retail speed shops use a warehouse distributor (WD) to get their parts. However, some in the industry have recently proposed that WDs might not be around for much longer, citing a trend of more manufacturers going direct with their customers.

The idea behind this is that the manufacturers will make more money because they won’t have to sell at the same discounts they offer WDs. Some shops may also think that they’ll get a better deal by going direct with the manufacturer.

Admittedly, it sounds like a good idea. But, many “good ideas” simply aren’t practical, and with very few exceptions, that is the case here. In this article, we’ll take a look at the benefits of working with warehouse distributors-for both shops and manufacturers.

Why WDs Exist

With many manufacturers wanting to go direct and many performance jobbers wishing they would, it makes sense to ask how and why WDs came about in the first place.

Tom Ressler of Nickels Performance in Piney Flats, Tenn., notes that most WDs started out the same way. “Mark Nickels, in the 1960s, started with one shop and built himself up to three. But, there wasn’t organized distribution back then. So, Mark bought some lines direct and started servicing other parts stores in the area or people that were into racing. They just came to him because he had the connections. He started doing more and more business-to-business sales, and the next thing you know, we got out of the retail side. Now, we’re strictly wholesale. If you look at most WDs, their history is very similar.”

Scott Wahlstrom of Motor State in Watervliet, Mich., agrees and notes that Motor State also started out as a small speed shop. He notes that, “As business grew, so did the need to buy more products and at larger quantities. Eventually, quantity purchases led to better discounts that allowed them to sell to other retailers in their regions, and that’s how distribution within the aftermarket was born.”

Wahlstrom goes on to point out that WDs also allowed manufacturers to greatly expand their marketing and distribution channels by having readily available inventory in different parts of the country.

“In the early years, it wasn’t uncommon for an enthusiast on the East Coast or the Midwest to expect to wait 4-6 weeks for delivery of a product manufactured on the West Coast. With the establishment of aftermarket warehouse distributors, the supply of product was now readily available to local speed shops and parts suppliers instantly,” says Wahlstrom.

Brian Lounsberry of Motovicity in Madison Heights, Mich., adds that WDs also came about because there are so many part numbers out there that no individual shop can carry everything. All of the manufacturers are not in one area of the U.S.; they’re all over the place.

Dusty Dodge of EPWI in Denver, Colo., agrees with that sentiment. “WDs grew to provide a local source of supply. In today’s market, with the continued proliferation of part numbers, it makes even more sense for jobbers, and machine shops and performance retailers to utilize the benefits of their warehouse distributors. They simply can’t stock, manage and invest in all of the products and product lines that they need. Warehouse distributors grew because they provide an immediate source of supply. Our goal is to provide our customers with everything they need, every day. Buying directly from many manufacturers takes a lot of time, lots of phone calls, and waiting days longer and usually paying the freight to get the parts they need.”

Primary Advantages

Now that we’ve covered the reasoning behind the development of WDs, let’s take a look at the advantages of working with them in today’s marketplace.

“There are many advantages,” says Wahlstrom, “but the most significant is one-call service. In other words, when purchasing products through a WD, you only have to make one call to get several different product lines.”

This allows the retailer to save on shipping and more importantly, save on time. Wahlstrom says there are a lot of small performance shops out there that are one and two person operations. Spending hours on the phone calling several different suppliers is not very efficient. Working with a good WD that carries the product lines they need and has a solid depth of inventory in stock, definitely saves them time.

Noting that there really are a lot of advantages to working with a WD for jobbers, Ressler says, “If you’re dealing with a regional WD, you’ve got freight concessions.”

Generally, if you buy direct from the manufacturer, unless you’re placing large stock orders, you’re going to pay more for freight.

“If you order from a WD, you can combine your order. You can order your Holley and MSD together, and you combine all of those products together so that your freight is prepaid,” says Ressler.

He also reiterates that one call will get everything that you need. “You don’t need to call Texas to get a part from MSD and then Memphis to get a part from Comp Cams,” says Ressler.

Another advantage is that WDs are willing to sell to jobbers at a much lower volume than manufacturers. Ressler notes that, “If you’re a legitimate business, because we’re strictly wholesale, we have no minimum buy-ins. If you call me and supply me with a business license and a tax number, you are a legitimate business, and I’ll sell to you whether it’s a $10-part or a $5,000-part.”

Approaching the topic from a different tact, Lounsberry says the only advantage he can even think of for going direct is that the shop develops a personal connection with the manufacturer. Also, they can claim that they’re an authorized dealer for a manufacturer.

“That being said, when you go with a WD, you can still have all of those things. You can still have the personal conversations with the manufacturers and buy your parts from the WD. They don’t limit that because you’re not direct. You can also become an authorized dealer and still purchase from a WD,” says Lounsberry.

“The disadvantages of going direct with a manufacturer for the jobber is that most of them require a large buy in, and then they require monthly installments to keep the same discount,” says Lounsberry.

This brings up another advantage of working with a WD: cash flow. For most small businesses, particularly those just getting started, cash flow is a concern. Using a WD as your personal warehouse (a practice they encourage), which will usually deliver the part or parts the next day, can help alleviate cash flow concerns.

Lounsberry adds that he’s seen jobbers switch to go direct with manufacturers. Many of them struggle when they weren’t before, and some have even put themselves out of business.

“What often happens is they focus on one or two lines and forget about everything else. Instead of paying attention to the overall business plan of trying to service a certain car or a certain genre of vehicles, they all of a sudden focus on just selling two lines, and it stresses them out greatly,” says Lounsberry.

Because WDs carry product for so many different manufacturers, they’re not committed to promoting one brand over another.

Dodge says, “Someone who wants to buy direct needs to take a hard look at the total cost of the inventory: the labor cost to keep track of inventory and product management to stock the right parts; the cost of money to invest in inventory; the costs per square foot for inventory; plus the costs of heating, cooling and lighting. When you add up the total cost involved, and the distraction factor from your core business, it usually makes sense to use your warehouse distributor’s inventory because of their broad line coverage, immediate availability and competitive pricing.”

WD Advantages forManufacturers

Now that we have covered the advantages of a shop working with WDs, let’s look at the advantages for manufacturers.

According to Ressler, “The advantages for the manufacturer are enormous if you look at all of the products sold nationwide. We have 17 salespeople on the phone. We have a dedicated customer service department. We have all of the credit facilities in place, as far as credit card processing if people want to open an account,” says Ressler.

Those are all infrastructure investments that the manufacturer will have to make if they plan to go direct. Ressler notes that investment increases the cost per sale for the manufacturer.

While many manufacturers are looking at increasing their direct business, Dodge points out that many others are going away from selling direct.

“Many larger manufacturers are not interested in being in the distribution business. It takes a lot of infrastructure to manage thousands of smaller customers compared to a limited number of large WDs that purchase large quantities and manage it all with a limited number of contacts. They want us to be the point of contact with our customers and provide their products to those customers in the most efficient way. We work hard to promote their products, introduce new products and provide information that our customers need. Product catalogs, price sheets and new product information are good examples,” says Dodge.

Looking at it another way, Lounsberry says, “The thing for the manufacturer selling direct is that they can test things easier. They can go to a shop and ask, ‘Will you please test out this product?'”

Lounsberry says they can get feedback quicker that way. “Now, they can still do that with a WD. In fact, we do it all of the time. But, I think the manufacturer usually picks someone locally, sometimes a business that’s not even going direct with them, and that’s the only reason they do it. They can use them as a beta-testing service,” says Lounsberry.

Regional Distribution

While some WDs sell worldwide, such as Motor State, most sell to certain regions of the country. The reason for this likely goes back to one of the core reasons why WDs came about, to provide a local source.

“Most people deal regionally,” says Ressler. “We do have some customers on the West Coast that we deal with, but generally, we’re very strong in the one- and two-day UPS service area. If a guy’s anywhere we cover with one-day service, he’s not waiting two, three or four days for product. Anything you order from us, up until five o’clock, is shipped the same day, and you’ll get it the next day,” says Ressler.

Ressler comments that in today’s market, consumer funds are tightening up, but the purchasing public still wants instant gratification, which is where Nickels comes in. “We tell our jobbers that they don’t need to have a quarter-million dollars worth of product out on the shelves, because we can get it to them the next day. If a customer walks into a store and says, ‘I want this pair of headers for my Camaro,’ and the jobber doesn’t have them, he can call us, and he’ll have them the next day by lunchtime.”

Ressler adds that if that same jobber, which we’ll say is located in North Carolina, tried to order direct from California, he’s going to wait much longer, and he’s going to pay freight.

“If he called Nickels, he could get the same part the next day without having to worry about the cost of freight,” says Ressler. He also notes that UPS has raised their rates quite a bit over the last five years.

Lounsberry says that Motovicity originally started out servicing the Midwest. “We focused on the Midwest for two years, and then we went nationwide.”

Motovicity also caters to a specific niche. “We do about 90-percent of our business with the sport compact market. Specifically, it’s sport compact hardcore performance. Most of our business is engine internals, and if it doesn’t make the car stop, go or turn, we don’t really get into it. It’s not cosmetics. It’s not The Fast and The Furious bling,” says Lounsberry.

For EPWI, Dodge adds, “Our 12 branch warehouses are strategically located throughout the central and western U.S., which provides our customers with local and next day availability. Most of our customer orders are shipped the same day, and arrive at their place of business the next day, prepaid,” says Dodge, who adds that next day delivery dramatically reduces the need for customers to stock the parts they need.

Training

Another advantage of working with WDs for jobbers is their sales forces. Each WD has a plethora of sales people who are well versed on numerous products for numerous product lines.

Wahlstrom notes that, “Much of the training is firsthand knowledge and experience. Along with active participation within all forms of motorsports, we also have manufacturer seminars and training sessions regularly.”

He adds that each Motor State sales team member is trained to handle sales in every market.

“However, we do have specialists with extensive knowledge within every area. From circle track racers, drag racers, street rodders, engine builders, off-roaders and street performance specialists, we have it covered with knowledge and experienced sales professionals,” says Wahlstrom.

The standards for being a WD salesperson are very high, so high in fact, that it’s difficult for WDs to find qualified staff. They’re simply not willing to just hire anyone off of the street.

Lounsberry concurs, “We have a very hard time hiring people. Each one of these guys is a hardcore enthusiast, or we wouldn’t have hired them. They have to be in the industry somehow, either through their own personal experience in racing or working in past jobs as parts counter guys-something. They already have their own knowledge when they walk in the door. They are complete and total gear heads.”

Even so, they’re still trained. “We send them to the manufacturer to be factory trained, and usually once a week, we’ll have a manufacturer come in, and they’ll spend an hour with the team. They’ll go over the product line and teach them everything that they can possibly ask. We also send them to SEMA and other trade shows so that they can learn more,” says Lounsberry.

The case is much the same at Nickels. “We typically try to hire enthusiasts that know about racing, and we have a lot of guys here who used to work at a machine shop. Two-thirds of my sales force are active racers: they drag race or race circle track, so they know what’s going on. But, we also have a lot of manufacturers’ training. Looking at my calendar, I can tell you that I have someone coming in here just about every week. This month, we had manufacturer reps coming in here constantly and give us factory training,” says Ressler.

He continues, “You can’t just take someone off of the street and have them sell what we sell. You have to know the product. Most people that call us own machine shops or they own speed shops or they’re a professional race team. You cannot fool these guys. You have to know what you’re talking about.”

Dodge notes that most of EPWI’s customer service people and their 15 outside sales folks are from the industry. They are now utilizing various training programs, including PWA University, to stay current with new products and new product lines.

He adds, “We are very enthusiastic about our manufacturers taking part in providing training on the PWA University site, and we are encouraging all of our suppliers to get involved. It ultimately benefits our customers, which benefits sales for everyone. I think that it is absolutely necessary for a manufacturer to communicate the correct product information to both our sales people and to our customers, and this is a great way to do it. And, it helps promote their products.”

WDs, Strong Now and in theFuture

And so there it is; WDs are hardly on their way out. Many of the reasons for their original development still exist. In fact, with increasing shipping rates and more product lines and product numbers than ever before, WDs just might be more vital now than ever before.