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Retailer vs. Wholesaler


10/1/2004
By Gary Goms

What's the difference between the retail and wholesale markets in modern parts distribution? Some say the overlaps between the markets are huge, some say not.
 

This issue of the difference between retail and wholesale often pops up in the oddest of circumstances. For example, a little over a year ago we were competing in our hill-climb associations most arduous event of the season where the hill we were to climb ascended nearly 2,000 feet along 5.6 miles of dirt road during one of the hottest months of the year. Not knowing that the dirt road had recently been saturated with a chloride hardening agent, I hadnt added enough oil cooler capacity to keep our hill-climb trucks automatic transmission cool. During the qualifying on Saturday, the transmission oil temperatures soared past the boiling point of the fluid, causing us to lose high gear near the finish line. Even at though we won for fast qualifier for the day, it was obvious that we needed more transmission cooling to survive the final event on Sunday.

LOOKING FOR PARTS
Okay, where is it best to go looking for an auxiliary transmission oil cooler at 6 p.m. on a Saturday night? The two major jobbers in the neighboring town were closed, so this left a big-name retailer that stays open on Saturday nights to fill the needs of DIY auto mechanics. The retailer was open, the wholesaler was not, and therein I was reminded of the two different worlds of retailing and wholesaling.

The retail clerk seemed to be well qualified and helpful. Gathering the related components was easy, the transmission oil was on aisle B, and the transmission funnels were located on the end-cap. But finding the auxiliary oil cooler turned out to be an entirely different matter.

APPLICATION PLEASE?
With fluid and funnel in hand, I thought that with any luck, wed easily have the cooler installed and be bench racing with our hill-climb buddies by dark. But, after describing the type of oil cooler I needed, the clerk glanced up from his computer terminal and asked, Whats the application, sir?

Dumfounded by the question, I stammered, I dont have an application because the oil cooler is going on a racing vehicle.But I need an application so I can look up the part, the clerk insisted.

Okay, I said, Our truck is built on a 1977 Chevy half-ton, two-wheel-drive chassis, so lets use that as an application. The clerk spent at least five minutes clicking and tapping his way through a number of catalog menus before responding, I cant find that application in our cataloging, sir.

By now, Im seeing our chances of installing the cooler before dark going down the drain. Frustrated, I demanded, Why? Youre saying that you dont have an auxiliary transmission cooler that fits a garden-variety Chevy pickup? Thats ridiculous!

After five more minutes of fumbling and tapping at his computer terminal, the clerk smiled wanly and mumbled, This is my second day on the job. After more fumbling and tapping, he hesitantly announced, I think we have some oil coolers on aisle C. We strolled to aisle C where several high-capacity oil coolers rested on the shelf. Take your pick, and go ahead and open the boxes just to make sure, quipped the clerk.

THE BIG PICTURE
On one hand, had I been able to visit a traditional jobber store, I wouldve been able to complete the transaction in at least half the time because I wouldve been communicating with a counterperson who had an operating knowledge of his cataloging and inventory. Of course, since I didnt have my state sales tax license with me, I would have paid full user price for the privilege. On the other hand, at the retail store, I was able to get the needed parts at a convenient location at non-traditional store hours. The price was right too, I might add. Therein lie the differences between retail and wholesale.

COUNTERPERSON TRAINING
Had I needed spark plugs or filters for a Chevy pickup truck, the task would have been easy, even for a counterman having only basic cataloging and inventory skills. Without those skills, however, my routine request for an aftermarket, bolt-on oil cooler turned into a technical curve ball for my beginner counterman.

In contrast to this particular situation, most entry-level jobber countermen learn the name of the part and what it looks like by checking in the daily freight. Next, the entry-level jobber counterperson develops his inventory skills by stocking the newly received parts on the store shelves. Last, the new counterperson steps into cataloging skills by looking up routine items such as oil, filters and spark plugs.Not that the lack of counterman training is exclusive to retailers, but in the above instance, the store manager evidently assumed that computer skills would substitute for cataloging and inventory skills. Sure, counterman training costs some time and money, but if a retail store wants to penetrate the wholesale market, its a prerequisite for serving the professional installer.

WHEN RETAILERS WHOLESALE
According to the popular notion, many retailers have long felt that the new crop of electronically controlled, low-maintenance vehicles would diminish their traditional DIY sales. Unfortunately, many found that offering short-line, consumer-grade parts at warehouse prices isnt a competitive posture when asking for the business of the professional installer.

Unlike Saturday-night mechanics, professional installers demand low failure rates, warranty labor, free delivery and full coverage from their suppliers. In response, many retailers installed dealer-only counters supplying complete lines of name-brand parts with free delivery. To date, that effort has been met with success.

Several ethical issues, however, stand in the way of professional installers becoming retailer customers. The first issue is that some retailers boost sales by providing free diagnostic services to their retail customers. To the service professional who has spent thousands of hours learning vehicle diagnostics and tens of thousands of dollars acquiring professional-grade diagnostic equipment, a free driveway diagnosis undercuts the value of their own professional-level diagnostic services.

The second issue is the professional installer who feels threatened by retailers providing repair services to their retail customers. Worse still, many of these retail store shops are perceived to be skimming the gravy work off the market, leaving the difficult and unprofitable squeak and rattle jobs to the professional installer.

Clearly, either retailer is setting itself up as a direct competitor to its intended base of professional installer customers. But is this, in fact, always true?

Lets begin by looking at the recent history of parts distribution. Ever since the term user discount came into existence 30 years ago, wholesale jobbers have been in the retailing business. Sure, professional installers took exception to a jobber selling parts to walk-ins at less than the suggested retail price. What was the net effect of this movement? The answer is pretty easy - suggested retail price has become a mythical quantity because most independent shops have established their own profit structures on parts sales.

As for retailers offering free diagnostic services, thats old hat too, because most jobber stores offer free or minimal-rate battery, alternator and starter testing for their walk-in customers. The retailer has done the same by simply moving the show out to the parking lot to provide free trouble code read-outs for their retail customers.

WOULD I BUY RETAIL?
Of course I would, providing that doing so would give me a competitive advantage in an increasingly competitive service marketplace. If I were an undercar shop, for example, I might find a pricing advantage by sourcing high-volume, name-brand chassis and ride control parts from a retail supplier. If I were a shop doing large volumes of preventive maintenance work, I might find pricing advantages in filters, lubricants, spark plugs or other routine-maintenance, high-volume parts. Or, if I were an independent shop seeking a competitive advantage by staying open evening and weekend hours, I would probably be forced to buy from a retail store. In the end, its a question of which store, be it retailer or jobber, can best meet the professional installers needs. Call it market overlap if you will, I call it racing to the finish line and looking for the win.















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