Distribution Models for a New Century

What is the best way to distribute goods from a manufacturer to an end-user?

But first, some history of the automotive aftermarket: Back in the day, the tools and equipment were made in a small factory or machine shop, and the owner/general manager/sales manager loaded his products into the back of his car or truck, and made a week-long trip around a territory, selling as much as possible to the shops and technicians along his route. Upon his return home, he'd either make more stuff, or his partner would have it made by the time he got there. He'd load up and start all over again.

At some point, a middle-man sprouted. This middle-man was the jobber. I'm not sure, but I think the first mortar-and-bricks jobbers were a small group of NAPA stores, and the first mobile jobber, was Cornwell. The main difference between mobile jobbers and brick and mortar, is that the mobile jobbers generally sprang from their own manufacturing facility. As their business grew, mobile jobbers added products from other manufacturers. Both types of jobbers offered the manufacturer a a benefit in the distribution channel. They could receive larger quantities of goods at a time, and take on the expense of selling them to the end-user themselves because they built in a resale margin.

As time passed, warehouse distributors sprang up across the nation, offering the manufacturer even greater economies of scale. Now the manufacturer could ship a whole truckload of goods across the country and get paid for it immediately. A manufacturer could open up brand new markets, practically without even trying. All you needed was a good warehouse distributor with a decent market of jobbers - primarily brick and mortar. In the meantime, the mobile jobbers set up their own warehouses and increasingly supplemented their manufactured hard goods with supplied tools and equipment.

This model worked great in the 30's and 40's. Interstate roads and highways were being built. Greater distances were being covered more economically than any other period in our country's history. Cars and trucks were being driven and needed to be fixed. This model worked even better in the 50's,60's, and 70's. More miles were being driven, more roads were being created, more people were being created and more cars were being sold. It was a great time to be in the automotive aftermarket. No matter which end of the spectrum - it was all good!

Then came the 70's. OPEC, inflation, return of the VW, launch of Datsun and Toyota, gas shortages, conservations efforts. (And let's not forget - flared pants with white belts that had holes going all the way around your waist.....) (ok, let's forget the belt)...

Reality: In 1979, the average car owner in Ft. Worth, TX paid $.78/gallon for gas. By 1989, that price had gone up to $1.09, and nationwide the average was $1.28. We all know where it is today.

In the 1980's, distribution changed modestly. Retailers saw the automotive aftermarket and decided they wanted a piece of it. Remember Auto Shack? Bad old Radio Shack said they couldn't use that name, so Auto Shack became AutoZone. Sure there were regional retailers - Pep Boys had strongholds on the east and west coasts, but AutoZone came in determined to go nationwide. It was about this same time that we began to see "buying groups" organize. (call them what you will, that's my name for them).

I would argue that the late 70's and into the early 1980's saw changes that dramatically affected our industry, but many people in manufacturing and distribution failed to see the significance. So the manner in which we distributed goods and services to shops and technicians at the birth of this industry, did not change much during it's "turbulent teen years".

Uh - oh - Here comes Al Gore and he invents the world wide web. Now, we add the internet to our distribution model.

We thought the markets were mature then. The question is, now that the markets are REALLY mature, and many levels of distribution have saturated the U.S., will the model from the 30's and the 60's and the 80's continue into the mid-2000's? Should it?

Part two - to come. Stay tuned.

Jack's Yamaha

a reader sent in this picture. See his comments from an earlier blog. Sweet ride, eh?

Now EVERYONE will be Riding a Scooter

How to buy a scooter for your Commute
Want to save a ton of money on gas? Get out of your car and on a scooter

Liberated from an article by Laura T. Coffey on MSNBC.com (edited by and additional commentary by me in italics.)

The economy is tanking. Bleak financial headlines are bombarding us every day. And on top of everything else, gasoline prices continue to be painfully high. (Though not as high as last week!)
If you’re on the prowl for ways to save as much money as possible right now, you may be among the growing numbers of consumers who are showing an interest in scooters. Of course, depending on the weather where you live, a scooter might not be a viable year-round answer for you — but get this: A cute and trendy scooter can cost as little as $4 to fill up. Just $4! (That's because they typically have a 1 to 1-1/2 gallon gas tank. My Vespa scooter gets about 60 mpg.)
Intrigued? The following tips can help you reflect on the pros and cons of owning a scooter.

1. Think about safety. Be aware that you could be putting yourself in serious peril for this simple reason: Many drivers of SUVs and other large vehicles will have a hard time seeing you. And driving a scooter in severely foul weather also can be dangerous. If you live in the Sun Belt and you’re willing to be serious about safety precautions, though, you could conceivably drive a scooter year-round. (I have ridden my scooter in the rain exactly once in three years. The end result was a soaking wet white t-shirt on a middle-aged woman. It was not pretty. I do not recommend driving in the rain.)
2. Do what you need to do. If you’re still interested in a scooter despite the risks, wear a helmet for protection – even if you’re exempt from doing so – and take a motorcycle safety course. For details on courses being offered near you, contact your state’s Department of Motor Vehicles or Department of Highway Safety. (I agree.)
3. Reflect on your commute. Are highways and other busy roads unavoidable, or could you travel on side roads with speed limits of 40 mph or less? This question will prove to be of huge importance as you shop around. (My route to work is exactly 3 miles, with no roads whose speed exceeds 40 mph.)
4. Are you new to two-wheeling it? If so, a scooter can be less intimidating than a motorcycle. Because it doesn’t have a clutch, you can just twist and go, and depending on the size of the scooter, you can get anywhere from 50 to 100 mpg. On the down side, scooters with smaller wheels can feel unstable when pushed to their top speeds, and only larger scooters can handle highway trips. (Piece-o-cake to master. Electric start, no prob.)
5. What will you need to carry? If you think you’d ever want to drive with an extra passenger on board, check specifications carefully to see how much weight the scooter can handle. Also make sure the scooter has enough cargo room to store all your stuff. Be aware that you may end up needing an add-on rack or top box for extra storage. (Forgot about carrying a passenger on any of the smaller scooters. You'll easily lose 5 - 10 mph due to the extra weight.)
6. Check out major brands. As you shop around, test drive scooter models with track records of reliability. These include Honda, Yamaha, Suzuki, Aprilia and Piaggio (LOVE PIAGGIO - maker of the VESPA). Make a note of how comfortable the seat is, how effortlessly your feet reach the ground and how easily you can move the scooter forward and backward while seated.
7. Know the rules. There’s a big difference between a scooter and a bicycle that’s propelled by pedals and an electric “helper motor.” You typically won’t need a license to ride an electric helper-motor bike, which usually can’t go faster than 20 mph. In many states you will need an operator’s driver license, tags and registration for a scooter, which generally displaces less than 50 cc. If the engine of your two-wheel ride is more than 50 cc, you’ll likely need a motorcycle endorsement on your driver license or a motorcycle-only license. Check with your state’s Department of Motor Vehicles about the specific rules where you live.
8. Invest in insurance. It may only set you back by about $100 a year – revealing yet another way scooters help drivers save money. The coverage is worth the price, especially because scooters can be quite easy to steal. (And as my insurance agent told me, you really don't have to worry about collision, because it's doubtful you'd survive.)
9. Buy the right gear. In addition to a helmet, you also may want to opt for a full-face shield for protection from wind, rain, bugs, small rocks and dust. Brightly colored, motorcycle-specific clothing that you wear over your street clothes can help you to be more visible to other drivers and can protect you from road rash in the event of an accident. (I've got a full-face black helmet and a hot-pink power rangers jacket for protection and warmth.)
10. Make parking plans. Check on the rules for parking scooters at your place of employment and near your home. Street parking may be an option for you, but you’ll have to weigh the risks of the scooter being defaced or knocked over. Also, some parking garages won’t allow scooters at all, and if they do, they may charge the same fees that they charge for regular cars.
Sources and resources
Consumer Reports’ Cars Blog
American Motorcyclist Association
Associated Content
© 2008 msnbc.com

Who will be there in 2009?

Nearly 1 in 5 car dealerships could fail: studyWed Oct 1, 12:25 PM ETDETROIT (Reuters) -

As many as 3,800 U.S. car dealerships could fail this fall and into 2009 -- nearly one in five -- because of weak sales, increased operational costs and the credit crunch, according to a forecast released on Wednesday." An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines," said Paul Melville, a partner with Grant Thornton LLP, which issued the forecast. "In addition, the domestic automakers who badly need retail consolidation are not spending much of their scarce capital on the problem because the economy is doing it for them," he said. Bill Heard Enterprises Inc, one of the biggest General Motors Corp Chevrolet dealerships, filed for bankruptcy on Sunday, citing operating losses, decreased demand for vehicles and lack of credit. At its peak, Alabama-based Heard's revenue was about $2.5 billion per year, according to the bankruptcy filing. With U.S. light vehicle sales predicted to drop to the 13.7-million-unit range in 2009, the study said that about 3,800 dealerships, about 18 percent of the total number of U.S. car dealerships at the end of 2007, will need to close. U.S. vehicle sales are expected to be flat next year with any recovery in demand expected only in 2010, as consumers struggle with tight credit, high gasoline prices and a housing market slump. The drop in demand has been particularly hard for Detroit-based automakers GM, Ford Motor Co and Chrysler LLC. GM's sales were down 18.5 percent in the first eight months of 2008 while Ford's sales declined 16 percent and sales at Chrysler, controlled by Cerberus Capital Management, dropped 24 percent. Thornton said apart from new car sales, other sources of revenue for dealers, such as used car sales and financing profits, are also falling.(Reporting by Poornima Gupta; Editing by Brian Moss )

Of course today it was announced that overall new car and light truck sales fell 26.% for the month of September, the first time sales have fallen below the 1-million-vehicle mark since February, 1993.

Good news for the independent repair service shop. But look out - the dealers still left standing will certainly improve their marketing efforts and get more aggressive to acquire and maintain repair business.

Survey Says: It's the Economy, stupid

Have we heard or seen that line enough this election season already?

Many of us are already putting final plans for 2008 in motion, and are looking ahead to 2009. With a Presidential election less than 30 days away, I'm certainly not in any position to predict the future of our economy, our automotive industry, or the election turnout itself. But the truth is, I just can't help myself. Besides, there are indicators and discussions of which we should all take note as we prepare our businesses for 2009.

From the DOT: American Driving Reaches Eighth Month of Steady Decline
Data released by the U.S. Department of Transportation shows that, since last November, Americans have driven 53.2 billion miles less than they did over the same period a year earlier – topping the 1970s’ total decline of 49.3 billion miles. ...Americans drove 4.7 percent less, or 12.2 billion miles fewer, in June 2008 than June 2007. The decline is most evident in rural travel, which has fallen by 4 percent – compared to the 1.2 percent decline in urban miles traveled – since the trend began last November. The decline in miles driven is similar to the two oil crisis of the '70s. (Data Source: August 13, 2008,
Calculated Risk: Finance & Economics.)
When Americans drive fewer miles on their vehicles, consumables (tires, parts, etc.) and preventative maintenance (oil changes, filter changes, etc.) tend to be required less. As certain services are being performed less, mechanics are faced with two certainties:
they will have to find other jobs to pick up the slack within their employment - for instance, a shop will try to perform more oil changes or PM checks, when people begin to reduce their scheduled maintenance because they're not hitting the mileage points
or they reduce time on current job (because the business is not coming to their door) and find other jobs to pick up the slack.
Historically, during a period of recession, the mobile tool jobbers business will pick up, as more technicians perform "shadetree mechanics", working on weekends outside their shop to supplement their income.

However, mobile jobbers business is reported as relatively soft in the U.S. through the second quarter (Snap-on US sales down 4.1%, Danaher down 4% in their tool segment, Stanley's revenues within North American automotive repair tools continue to be adversely impacted by the U.S. economy. Segment profit as a percent of sales declined versus the prior year driven by inflation, unfavorable product mix and strategic investments in emerging markets and Stanley Fulfillment System initiatives, according to annual reports) and into September (anecdotally). The same can be said for many other tool and equipment companies this year. Many faced a soft 1st quarter, saw a slight rally in the 2nd quarter, expected flat to a slight increase in the 3rd quarter, but instead had more dismal sales. Equipment sales are really lagging, primarily due to the credit crunch. Right now, I am not hearing much positive commentary from the field about the 4th quarter or into 2009.

There are talks of cutbacks and layoffs, and some customers have already begun to lay people off or reduce hours. Warehouse distributors are not taking advantage of quarterly rebates, because their warehouses are already full and they can't afford to risk cash-flow for inventory that may or may not move in 30-90 days. Mobile distributors are having a tough time getting new dealers set-up because they can't get financing for their new businesses. That being said, everyone is starting to get more creative in how they approach the market and as they look for new markets.

When technicians aren't working as much, they're not replacing older tools, nor are they interested in investing in new tools when they have to make a choice between groceries, gas, or tools. Especially, now that the first several waves of price increases on tools and equipment have hit the streets. There are some tools and equipment being sold today for 10% to 30% more than they would have cost a technician a year ago, simply because of the rising costs of raw materials that manufacturers have seen over the past 18 months. They've finally been able to pass some of their costs along to the distributor and ultimately the consumer.

So - no quick answers, no clear direction. However, here are my predictions for the final months of 2008 and early 2009:

1 - We will have a Presidential election and a man will win.
2 - The "Wall Street/Main Street Bailout" will pass.
3 - Credit will remain tight as the government sets tighter standards - thus continuing to make it difficult for some businesses to grow. In theory, this will weed out the weaker businesses, and ultimately the stronger, better-run companies will thrive.
4 - Most indicators for the automotive industry will continue to decline (miles driven, tires replaced, new cars manufactured/sold) for the next 6 months at a minimum.
5 - In an effort to keep people fully employed, our government will continue to run a deficit, because the private sector will not invest enough to increase production and reverse the recession. Additionally, we will see an increase in subsidies (this may help the automotive sector if the subsidies are available to the domestic Big 3).
6 - The price of oil, and subsequently gasoline, will continue to play a big part in the public's sense of well-being and trust in the government.
7 - no matter what any politician says between now and the election - taxes will go up.

A Word from One of Our Readers

I received a thoughtful letter from one of our readers today, which I've reprinted in its entirety below. In addition to TechShop, I'm the publisher of Tomorrow's Technician, which is a magazine that goes to students in automotive programs. One of the number one reasons they say they want to get into the business of fixing cars is because they "get a kick out of taking a broken car and making it whole again". I'm glad Steve still enjoys his profession, though I know it must be difficult for him to get up and get going some days. I'm also glad that men like him are still in the business - integrity is as important an asset as the best diagnostic tool.

Next time you're in Gloucester, stop in at 159 Maplewood Avenue, and say hi to Steve.

Sent: Thursday, September 25, 2008 6:32 PMTo: Beth Skove

Subject: august 2008 pov column
Hello, I hope this letter isn't too long. Forgive the typos but I have to get back to work!! I would like to address what i see as going on in my market area here in gloucester, Mass. First, as you mention alot of folks go to jiffy lube or the midas, etc because they can afford to advertise and make it look like a good deal. At the same time alot of local shops are only taking on the good jobs and not the tough ones. I haven't figured out how to tell a good customer i only want his gravy jobs without him getting mad. In our area everybody's home bills, fuel bills and tax bills just keep going up. How high can i raise my prices? The techs who left the industry are working in their driveways, again with the gravy jobs. When you don't have overhead you can charge alot less. The employed techs are doing it too. Most of us can't take alot of time off for training so we go at night when it's offered. So after a 10 hour day and a 1 hour drive, you know where i'm going with this. I have to tell you after almost 40 years i still get a kick out of taking a broken car and making it whole again. I don't know the answers but i know after 60 plus hours a week i'm tired. I know that i'll have to defend my diagnosis and estimates and bills 25 times a week because some in this industry continue to do unsavory things to their customers making it hard on those of us trying to do the right thing.

Ok i feel better. Thank you and keep up the good writing, steve linsky's service sta glou mass

When is your Brand not your Brand?

Brand Tags' Noah Brier: How My Website Took Off
From Late-Night Idea to 3 Million Page Views, Some Tips for Agencies and Clients
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By Noah Brier Published: September 08, 2008

Sorry, but I lifted this from an article I recently read. I thought the idea of a brand being only what other poeple think it is was a pretty interesting concept. I've been told many times that "you are what people think you are", so it makes sense to me that the same type of logic would apply to a brand. Here's what Noah Brier has to say:

Six months ago, in the middle of the night, I had a very simple idea: If brands exist in people's heads, as I believe they do, then shouldn't you be able to ask a whole bunch of people what they think of a brand and then use tag clouds to display the results? After flipping the idea around in my brain for a few minutes, I decided it was a good enough reason to jump out of bed and make it happen. Now, it should be noted that I'm no programming wizard. Only a few weeks before, I had started to teach myself PHP, a not-quite-programming language that allows you to build web applications, and MySQL, an open-source database software. What I did not have is years of building websites and apps, though that didn't matter much, as I quickly discovered through the rapid growth of Brand Tags, as this site would be called. An hour and a half after buying the domain BrandTags.net (the dot-com version was taken), I had a working prototype with nine brands loaded in. It worked just as I had planned: A random logo popped up on the screen and asked you to type in the first word or phrase that popped into your head. After you hit submit, another logo would pop onscreen. Quiet before the stormI showed a few people, but mostly I let it sit collecting digital dust. I talked to a few folks about doing some design work on it or adding features, but mostly it simply sat there in its lonely corner of cyberspace, an idea that might or might not see the light of day. Then May rolled around, and I was feeling guilty for not having written anything on my blog for a while. Rather than spend time finding something to write about, I decided I would release this little experiment as is. I wrote up a post in about five minutes and followed it by sending the brandtags.net link to a few friends as well. And, of course, I announced it on Twitter. This was all on a Friday. Within minutes, the comments started to roll in. Over the weekend, I followed the momentum and continued to make adjustments and add features (including a backward guessing game dreamed up by my girlfriend and user profiles so that I could capture e-mail addresses for follow-up contact). The site was seeing some good traffic, and the tags were piling up. Then, late on Sunday evening, MetaFilter, a super-geeky community/group blog I'm a member of, picked it up. From there it spread quickly, getting picked up by big-time bloggers like Seth Godin and Kottke (the latter of which had always been a kind of secret nerd goal of mine) as well as the ad press. Even the mainstream press got in on the action, with one of the very first mentions showing up on a blog on the Wall Street Journal's website. The momentum only continued from there. Over a single month, the site attracted about 200,000 visitors, totaling around 3 million page views and 1 million tags. For an idea that took me an hour and a half to build, it was an unmitigated success, and I have some fun plans for where to take it moving forward. With that way-more-lengthy-than-I-originally-planned intro behind me, here are a few things I've learned, in no specific order: It's a lot of work: I don't think people realize just how much work it is to actually live the launch-and-iterate mentality. Over the course of a month and a half, I have probably answered 5,000 Brand Tags-related e-mails, made hundreds of small and large changes to the site and commented on about a hundred blogs that wrote about the site. If I didn't have complete autonomy to make any changes or to represent the brand on a moment's notice, I have no idea if the site would have been as successful as it has been. In other words, if you're planning something like this, make sure you and your client have clear communication lines.
ABOUT THE AUTHOR
Noah Brier is head of planning and strategy at Barbarian Group. He blogs at NoahBrier.com.Nothing beats personal contact: I don't have any proof at all to back this up, but I believe in my heart that Brand Tags wouldn't have taken off if I hadn't responded to each and every e-mail I got. Those e-mails have been from people at agencies, brands, media outlets and everywhere else under the sun. They have been requests to add logos, ideas for new features or just friendly congratulations. My attitude is that if someone takes the time to e-mail me, I should take the time to e-mail them back. It's not always timely and it's definitely not scalable, but it just feels right. After all, without these people I wouldn't have gotten more than 1,000 blog links, nor would I have more than 600 brands in the system (most of them were sent in by people from brands or agencies who found the site). Teach yourself some code: I recently read an article that suggested knowledge of code would be the literacy of the 21st century. I agree. Being able to get a computer to do what you want it to is an amazing strength. All of a sudden you're not reliant on others to bring your ideas to life. And it's really not that hard -- I taught myself in a few weeks without the help of books. As a friend of mine said to me a few years ago, if there's one thing the web knows, it's how to make the web. Any question you have has likely been answered and well documented on one of the thousands (millions?) of sites by and for the people who make the web. Plus, you don't have to be an expert, you just have to be able to bring your ideas to life. Be ready for spam: If there's a way to game the system, people will find it. In the case of Brand Tags, spam is not that big a deal because at the moment it's just for fun (and in a way, tag clouds handle spam very well, because the things said most seldom appear the smallest). However, as I have moved forward I've had to work hard to think about ways to keep the results in as good shape as possible. If you're a brand, this should definitely be something you're considering. What are your contingency plans?