**Please Note: For purposes of this discussion, the terms Wholesalers, Distributors, and Wholesale Distributors are synonymous.**
This article will highlight why the next 2 to 5 years will see a marked bifurcation in the industry between the visionary distributors: who actively utilize E-Commerce and digitization to chart a new course for their businesses (distributors 2.0) and the traditional distributors: who are still using old business practices (distributors 1.0).
The first refrain we hear from a potential customer is that the web is “a race to the bottom.” Not true!
Using advanced auto-repricing Rocket Wholesalers obtain a higher / retail margin through the combination of higher prices and less overhead. The “less overhead” is where Rocket shines because we drive down many manual, “below-line” costs to obtain this retail margin. We do this using Rocket’s proprietary technology.
We are all aware that distribution is a low-margin business driven by volume. But why is that exactly? What is/are the culprit(s)?
Today, wholesale distribution is an asset-intensive business that depends heavily on the role of sales representatives. “Above-line” costs are not the issue. Suppliers have a more competitive cost structure than everyone outside the manufacturer.
Unfortunately, this high gross margin is almost entirely absorbed by “below-line” expenses. Many of these expenses can and should go away with better tech/tech strategy.
Even in 2019, efficient operations are only able to produce 2%, 3%, or 4% net margins and there has been virtually no top-line growth outside of acquisition (traditional counter business as transacted through the legacy ERP).
A Digital Inflection Point
Indeed, digital transformation is rapidly evolving the way in which business models, processes and support systems operate. Digital is a way of life and it really isn’t going to regress. There is just no putting the “genie back in the bottle”: digital future changes (and will continue to inexorably alter) buying behavior, preferences, and expectations.”3
In his book “Only the Paranoid Survive”, published in 1996, Andrew Grove, the CEO of Intel, stated:
“A strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.”
This digital transformation is the strategic inflection point in wholesale distribution.
Let’s understand its impact with the example of the Iconic American company, Kodak:
In 1996, Kodak was valued at $28B and had 140,000 employees. However, in 2012 the 131-year-old company filed for bankruptcy.
Why did this happen and where did Kodak go wrong?
A Kodak engineer invented the first digital camera in 1975. However, the senior management at Kodak did not embrace it, as the digital camera was filmless and would cannibalize its lucrative film business, which was at a peak in 1976 with Kodak enjoying 90% of the US market share.
However, things were changing rapidly and by the early 2000s digital photography was widely adopted. The revenue from films that was the prime source of revenue had almost died and Kodak had lost its market share to consumer electronics companies like Casio, Samsung, Hewlett-Packard, Canon, Nikon, and Olympus.
The growth of digital prints can be well understood from the graph below.
Image – Google
What we need to learn from Kodak’s failure is to be aware of the marketplace and what customers are saying. This will help in acting proactively when you spot new opportunities and getting in front of new trends.
This inflection point is the best time when you can ask the question: “How can I avoid the new ‘Kodak Moment‘ in my industry or for myself?”
Are you willing to become distributor 2.0?
If you are a wholesale distributor all is not lost; wholesale distribution will continue to be a big industry for those who adapt to the evolving business environment.
Rather than thinking about “Shrinking Margins” let’s focus on what’s important, and that’s tech enablement. The future of wholesaler’s success will not be dictated by the cost of goods, an army of salespeople and especially not the product lines they carry.
Wholesalers need to embrace technology and yes, it’s painful, but the pain is growth and growth towards becoming an Omnichannel Wholesaler (handling both offline and online transactions) is how to effectively secure their future.
Technology will control & increase margin, not quotation departments.
At Rocket Cloud, we enable wholesalers to begin their journey from offline to online and help them realize the online potential of their products. Our current offerings include:
Product discovery, product listing, online customer service, pricing and repricing, replenishment, algorithms, analytics, dashboard, and experimentation.
Are you proactive and would you like to navigate through this digital inflection point?
Please do not delay, as an active QUEUE of Wholesalers are currently forming to work with Rocket. The wholesalers of the future have arrived and you can be one of them! Click below and secure your future once and for all!