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FE&SEditorial Archives2003January — Point Counterpoint

Stocking Reps —
Threat Or Benefit?

Are 'stocking' reps a threat or benefit to traditional dealers and our industry? In this Point-CounterPoint installment, a dealer and manufacturers' rep offer their perspectives on this question.

Jeff Shields
By Jeff Shields,
CPMR, Principal,
Shields & Associates Inc.,
Winston-Salem, N.C.
Marc Fuchs
By Marc Fuchs,
Executive VP,
M. Tucker Co.,
Harrison, N.J., FEDA President
In my 20-year career as a manufacturers' representative, the topic of stocking reps has probably been one of the most controversial issues that we have faced. It seems that each and every rep survey includes the question, "Do you stock products?" When results are released comes a resounding opposition from some other channel partners for the reps who respond that they do stock merchandise.

Yet, in the course of these surveys through the years, never has there been a definition of just what a stocking rep should be, only that many in the dealer community believe that reps should never stock any products. To begin, I think we need to define, in depth, just what is meant by the term "stocking reps."

All members of our E&S distribution channel have their own definition of what stocking reps do with the product they inventory for manufacturers. Some automatically think stocking reps will sell direct or to anyone with money. There is always talk that they sell to dealers who work out of their garages.

For the most part, however, I have found that the good reps rarely abuse the intent of their manufacturers, and sell only to distributors, following the guidelines outlined by each equipment maker. I know there are always exceptions, and each of us knows a few of the rogue reps who have sold direct in the past but, for the most part, those folks are out of business in short order.

I have found that the good reps rarely abuse the intent of their manufacturers, and sell only to distributors.

Let's revisit those surveys I mentioned earlier. In addition to not providing a clear definition of just what a stocking rep should be, these polls never have set a baseline of information that shows if stocking reps are increasing or on the decline. From what I can surmise, I am of the belief that the percentage of stocking reps has not increased over the past 20 years.

Another question that should be asked is, just how does a rep get into the stocking business? Representatives do not make the call about which lines they stock and which they do not. Our manufacturers make that call, and reps just exercise the option to take the line or decline. I have never heard of any representatives who decided one day to call their manufacturers and say, "Mr. Manufacturer, today we decided to become your stocking representative in this territory. Please send me a stocking order so we can get started." It just doesn't work that way. Reps stock products only to benefit their manufacturers, as well as their dealers. When reps hold stock, the result is that manufacturers are able to have inventory available at a local level, giving them the ability to supply products more quickly and more competitively to a marketplace. Once, I asked one of our major factory principals what his company looked for in a rep firm. He said, "The ability to take a product to market." Thus, if a rep and manufacturer agree that stocking is the best way to take products to market, then that is what is undertaken.

The stocking reps I know do not sell direct to end-users and to few, if any, industry members who work out of their garages. More to the point, stocking reps offer an alternative to the stocking dealer. Dealers can use stocking reps to supplement their inventory, thus avoiding tying up money in certain areas and freeing up funds to stock other SKUs. Stocking reps do not want to take on the dealer function, but do want to sell products. In my experience, rep sales seem to work well for microwave ovens and that activity has not created much of a stir in the distribution channel. That's why it is the marketplace that will ultimately decide if the stocking rep will survive or thrive. If there is no added value, and the price of goods will not support stocking reps, then stocking reps will become a thing of the past.

The dealer community can make the decision to support or not to support any member of the channel. There has been, and maybe always will be, reps who stock and dealers who consult and offer service contracts, as well as buying groups that perform the function of the manufacturer by importing. If these functions add value, then they will thrive, just as, again, if no value is added they will fail. Dealers have the option of not purchasing products from stocking reps, just as consultants can boycott dealers with consulting divisions. Manufacturers and service agents, as well, can always elect not to deal with their competitors. It is your money and, therefore, your choice.

As FEDA President, some of my past articles in our publication News & Views have addressed the importance of our customers, our employees and our industry partners. I feel pretty confident about our relationships with our customers and employees, but sometimes I get the feeling that some of our industry partners just don't really get it! This is because I still hear rumblings at every turn: "Dealers are a necessary evil," "Reps and manufacturers really control the dealer," "A DSR is merely an order taker," "Dealers receive too much sheltered income"... and more that I won't mention. And, now, the issue of stocking reps has arisen. I think I can speak to this issue both as FEDA's current President and as the executive vice president of a foodservice equipment and supplies dealership. I have heard from FEDA board members and the FEDA members they represent and I can tell you that the problem of stocking reps, which is due to the oversupply of manufacturers in the industry, is criticized throughout the dealer community, whose members are, after all, the customers of the manufacturers. Based on the comments I have received on this issue from dealers, let me explain the dealer viewpoint, which is that stocking reps undermine the stocking dealer.

Manufacturers' reps who have inventory and take title to E&S under their businesses' ownership are stocking reps, which puts them clearly into competition with dealers. We can't have a competitor working with us as a consultant and as the manufacturers' representative for the products we sell. Stocking reps undermine the role of the traditional dealer and the distribution channel altogether. Competition and margins are hard enough without this manufacturer-sanctioned competition from those who are supposed to be our industry suppliers/partners.

When stocking reps take title, they leave the rep world and become dealers, selling to anyone they care to. In fact, I believe that anyone who carries the risk of the receivables should carry the mantle of an equipment dealer and should then be asked by manufacturers to work on the same net cost as any other stocking dealer around the country. (And, if the inventory is consigned [i.e., not paid for until sold], why would a manufacturer prefer to put it in a rep's warehouse rather than on a dealer's showroom floor?) Actions of this sort serve to undermine the function of stocking dealers and reduce the trust dealers can have for any manufacturers who encourage or sanction this activity.

Let me explain the dealer viewpoint, which is that stocking reps undermine the stocking dealer.

Does manufacturers' support for stocking reps disturb dealers? You bet it does! So, let me set the record straight by stating what FEDA clearly believes in and how dealers feel about this issue. We believe that dealers play an integral role in the channel of distribution, with a tremendous investment in what they do every day. Dealers work with their customers to supply products, provide expertise and consult about their concerns and priorities. We see and communicate with our customers every day, find out what their problems are and bring these problems to resolution by ourselves or by contacting manufacturers or reps and factories for assistance. Dealers sell all products carried or produced by many representatives and factories, and are best able to match the correct products to a customer's unique situation. Dealers stock the products, ship, provide credit and serve as liaisons and partners with customers for all the product lines they distribute. That's why I believe that members of the dealer community provide the inventory for customers and the means to get orders to them.

The investment the dealer community has made in its business, inventory and people is not something that can be underestimated. There is no question that over the past 10 years dealers have definitely gone through some consolidation, but key people involved still provide a stabilizing force within our industry.

And the balance of the dealer community is still alive and well, the companies, the people and our customers. Compared to other segments of our industry, we have had less turmoil and instability. In most cases, we are still selling the same products to many of the same customers. During the last year or two, I actually thought I would need a scoreboard to keep track of the changes in people, companies and which reps were representing which lines each month. Sometimes, I think that people should take care of their business instead of trying to figure out what others are not doing.

Since I'm telling you what I believe in, I also would like to tell you what I don't believe in. I do not believe in manufacturers' reps stocking products. Although ice machines and microwaves were always stocked locally, it seems that more and more manufacturers' reps today think they can stock products for people who don't want to invest in their business and inventory them themselves. If these reps want to stock products, then I can find other manufacturers and reps to buy E&S from.

In one of my first articles as FEDA's President I stated that this industry is not perfect and there are many things that we believe in and many we don't. Regarding those principles that dealers believe in, I recommend that you stay on course, continue to educate and remain focused. And, when it comes to those principles and behaviors that we do not support, we will carefully evaluate our partners and exercise our continuing right to choose our industry partners as best supports the interests of the dealer community.


Do you have an opinion on this topic?
If so, put it in an e-mail to FE&S and we will post it on in the Reading Room section.

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