Smaller Distributors Uneasy About Manufacturers Moving Into Retail

Kohler’s launch of a new location in Charleston, South Carolina, is an expanded branding effort that gives potential customers—contractors and consumers—a venue to explore all the company’s products in one place. They can order the specific fixtures they want and are not limited by smaller lines carried by distributors, some of which pay fees to create a Kohler display in their showrooms.

A source within the distributor community said businesses are wary of Kohler’s moves because they fear it could lead to distributors’ customers turning directly to Kohler, rather than local supply houses.

“Nobody’s going to be happy with this except Kohler,” he said. “If it’s taking sales away from them, obviously it’s not going to have a positive impact on wholesalers.

“For all of them, it’s a point of a frustration, but there’s still a mystery around it, too. When you talk about a strategy like this, distributors will be wary of ‘We’re going to take this direct and ultimately you’re going to get cut out of it.’”

One distributor with a Kohler display said he feels Kohler is acting unfairly by creating whole-building showrooms that give the manufacturer the freedom to freely alter displays, while distributors are obligated to follow Kohler’s display requirements.

It’s not just Kohler that has distributors watching closely. With the rise of Internet-based sales or big-box retailers, they see direct-to-consumer sales strategies as doing little to help existing clients with business.

No one contacted by Southern PHC would agree to let their names be used because they fear damaging their relationship with Kohler, which is a well-known brand among consumers.

“It’s the bigger issue, which is vendors going direct. That’s a much bigger issue than Kohler.

“Everyone is going to watch what happens,” one distributor said.

Mixed reaction from distributors

However, two other distributors said they were not concerned about Kohler’s approach. They said the company has been operating Kohler-branded stores for decades and any shifts would take time, giving them time to adapt.

Fears of direct selling by manufacturers was a topic of conversation at last year’s Association of Independent Manufacturers Representatives (AIM/R) conference in Birmingham, Alabama. Speakers and conversations in round-table trade discussions focused on how distributors and manufacturing representatives have to offer more to manufacturers to maintain relationships.

Andrew Windsor, senior vice president of sales with Watts Water Technologies, spoke in a forum at the AIM/R conference about how all manufacturers are reviewing their sales strategies because the pace of change is driving innovations.

“A lot of the rules that we grew up with in this industry are going to change along with it. And we need our rep network and the rep network as a whole to be thinking more strategically about how they’re planning their business and how they’re running their business if they want to remain successful in the future,” Windsor said.

Kohler’s move into Charleston market makes sense

John Gillespie, who has worked in marketing for distributor Ferguson and manufacturer American Standard, shared a similar opinion. Distributors who are worried about shifts in sales channels should be looking for opportunities when they see a move into a market by a company like Kohler.

“They know exactly what they’re doing and how they’re doing it. They base a lot of their decisions on market share and market penetration. My guess is they have data showing their brand is not penetrating as much as it should in that market,” he said.

Distributors who have showrooms featuring lines such as Kohler should also understand the inherent value they offer to customers and manufacturers. A knowledgeable sales staff, who understand the products to the point where they can offer guidance on installations, are crucial for a customer who may not know about the complexities of a shower, for example. Customers who go to a big-box retailer can come away frustrated because they can’t get questions answered.

“Distributors shouldn’t be worried. They should focus more on their core value proposition,” Gillespie said.

He works as a consultant for product strategy with manufacturers and wholesalers. His advice to any distributor is to recognize that a move like Kohler’s into the Charleston market shows an opportunity to grab business by promoting their Kohler lines, and back it up with solid social media marketing and the adoption of technology to boost efficiency in sales and marketing.

Some AI systems are already being used to build job estimates for big projects, doing in seconds what used to a big chunk of time for a sales team.

Distributors may not also understand their importance to manufacturers, who don’t have the means of moving and storing boxes for example. Likewise, manufacturers are not set up to build the long-term relations with clients.

He sees Kohler’s strategy as simply operating in as many sales channels as possible, because consumers have the choice to visit a store or go online and make a purchase. Distributors offer value.

“If manufacturers could cut out distribution, they would do it. But today, wholesalers just provide too much value to manufacturers because at the end of the day they own the professional,” Gillespie said.