Mark My Words—January, 2018

By Mark Lipton,

  Filed under: Departments, Mark My Words

 

MARK LIPTON
Contributing Writer

Piling On: It All Comes Out in the Wash

“It’s safer to have 20 customers owing you $100,000 than one who owes you $2,000,000.”

My daughter was home from college for the holidays. I could tell because there were piles of stuff all over our house that were not there two days before! Multiple piles of laundry; piles of shoes (everywhere!); piles of notes, books, and study guides; and of course the pile of stuff that could not be categorized into one of the existing piles. I don’t mind the laundry, but do we need so many piles?

It’s not a bad idea to have a conversation about consolidating with a teen. But it’s somewhat akin to telling your dog to save his treats for when he’s hungrier than he is now: he hears the instructions and seems to be paying attention, but he’s not going to do it! Consolidation is not just for the piles in my house, it also affects our lives as independent paint retailers. Over the last few decades, most industries in the U.S. have grown more efficient through consolidation, and the paint industry is no exception. I am not referring to the consolidation in manufacturers,, though that has certainly happened. The pile I’m sorting through today is the consolidation of independent paint retailers.

As little as a decade ago, if you threw a dead cat at an ALLPRO meeting, it would likely land on a one- or two-store independent paint retailer. Single stores or small-localized chains were the norm and the biggest had ten or so, with just a few in that realm. Dealers with that many stores almost always had them in one small geographic or trading area.

Now we have mega-dealers all over the United States and they continue to grow in store count. Independents with 20 or more stores are commonplace and exist in many of the major markets around the country. Many of these dealers stretch over multiple states or hundreds of miles, a phenomenon which would have been hard to imagine decades ago. There are significant benefits to some of this consolidation, but it should not be embraced without some thought for the troubling downside of this trend.

It’s easy to see how this started. Manufacturers concern themselves with market share and trends and need to take action to defend their brands. By going to regional consolidators (as these uber-dealers are called in the boardrooms), it allows manufacturers to find one person with parallel interests rather than trying to bring together a room-full of independents with disparate interests. Even more challenging for manufacturers are markets where few independents exist and then trying to create a room-full of like-minded independents. It’s easier, and you could argue more efficient, to build and execute one growth plan rather than many. But then are they really independents?

Here’s the problem: markets where there used to be 20 single-store dealers now have one dealer with 20 stores. While that dealer has gained some efficiency over the single store and small chains, there are risks that the manufacturers are ignoring. Credit risk is not necessarily tops on that list, but it’s up there! Large companies look at their outstanding accounts receivable as a portfolio. It’s much safer to have 20 customers each owing you $100,000 than it is to have one who owes you $2,000,000. Additionally is the risk of having all your sales eggs in one basket! This is the area where I think manufacturers are most exposed.

Sales performance will struggle at some point in the absence of competition and some of that competition should come from other independents. As a group, we drive each other to do our best. There are certainly some “skaters” in our ranks, but in markets where independents are strong, there are always a handful of strong businessmen and women succeeding in growing their market share. I would gladly take 20 entrepreneurs working to keep my brand strong over one general manager with 20 stores!

I am not advocating we go back to the days where markets have countless numbers of single store dealers, many of whom are barely making it. For the channel to prosper, we need dealers who are successful. Long-term though, a multitude of small chains with well-developed leadership is by far the better outcome for all than the path we are on. Programs designed to help a dealer bring his single store success formula from one store to five will yield more dividends and significantly more diversity for those that profit from us, than a program to help a 30 store chain grow to 40!

Mark Lipton is the 4th generation owner of Tremont Paint in New York City as well as a consultant to the coatings industry. mdlipton@me.com