Robert Brink - Writer

Manufacturers And/Or Distributors

November 18, 2005 | Skip To The Comments (0)

Manufacturers And/Or Distributors
By Rob Brink
TransWorld Skateboarding Business June 2002

Hypothetical Scenario

Giant Distribution calls me one day to ask how my shop is doing on inventory, and to let me know that they have the new issue of 411VM and the new Element Tosh Townend Welcome board in stock. But I don't go direct with Giant because I can get all the Giant brands from AWH. I am a loyal customer there, and also get terms and free freight. AWH is also the only place that has Monkey Business, and they have Lib Tech. However, they don't carry enjoi, Blind, Deca, or Darkstar, so I get those products direct from Dwindle, who gives me a free deck for every twelve I buy, and some free wheels depending on how many sets I order. Sometimes the Dwindle orders take over a week to get to the store, but AWH does carry Tensor and Speed Demons, so I leave that out of my Dwindle order to get it here faster.

A friend of mine is pro for Habitat, so I want to support his sponsor, and DNA Distribution offers free freight, treats my shop well, and is located relatively close to our New Jersey store, so I order direct from them. Otherwise, I would probably order my Alien and Habitat goods from Eastern, where I order all my Tum Yeto, Birdhouse, Hook-Ups, and a few Ramptech goods because Tum Yeto and Blitz cannot offer our shop terms, and Ramptech is not a regular "order" that I do often. But I can get Flip, Fury, Baker, and The Firm from AWH, so I leave those Blitz brands out of the Eastern equation. And even though Bootleg is a branch of Baker, it's under the NHS roof. But no one has come into the store asking for it yet, so I just hold off. Back to Eastern, who has a great selection and the stuff shows up at the store quickly, but I can't expect them to always have the selection that World has. And World, like Dwindle, offers a free deck when I buy twelve, and the same wheel deal. And since, as with Dwindle, our shop sells so much World Industries, going direct and getting a ton of stuff seems to make sense.

I used to go directly to Girl for Girl products, but they recently opened up distribution with AWH, so now instead of getting Chocolate from AWH and Girl from Girl, I can get them both in the same place with a lot of my other products. Then the phone rings and it's my rep at Deluxe. He tells me he hasn't heard from me in a while, and that they have a Spitfire sale going on and some new Real stuff in stock. But I tell him I am good for now because AWH pretty much offers the same deals, has all the same stuff, and it gets here faster.

This is just one week's worth of shop orders. And this tangled web will happen all over again in another week or two. For simplicity's sake, I left out the instances of reps, manufacturers, and distributors who call repeatedly that we choose not to buy from or whose products we don't need in the shop.

Back To Reality

Sound complicated? It is. And it took me a few years to just comprehend it all, because the distributor/manufacturer relationship in the skateboarding world is an odd one.

Although it's not rocket science, being the buyer for a skateboard shop can be a bit confusing at times. I mean, just knowing all the product, trying to predict what customers are going to want, then getting them to come and buy it so you can make some money is difficult enough. But now it seems getting that product in the store and the decisions and logic as to where it's coming from is a whole drama in itself. And all of this doesn't really include a significant amount of apparel or any footwear.

Sure, it's convenient to go to distributors, and if it weren't for them I would have to call in twenty orders a week instead of five. But sometimes even those five different calls to distributors and manufacturers are a lot to take care of. And after five years of being a buyer, certain things still baffle me. Other shop buyers surely feel the same. Hell, I even know some people at the independent distributors who feel this way. So I decided to ask, "Why?"

Separation Of Church And Skate

Historically, companies made equipment or had it made, and sold it to independent distributors like Eastern Skateboard Supply, AWH, South Shore, Smoothill, Atlantic, and RAX. These distributors then sold the products to shops. The distributors didn't manufacture, and manufacturers generally didn?t distribute. In the late 1980s, it was common to see larger companies with huge lines selling directly to shops, and they often took on a truck or bearing line that they didn't manufacture themselves just to have a complete inventory. Companies like Vision and Powell Peralta were among the largest manufacturing distributors at that time.

When the small-company revolution hit in the early 1990s, companies like World Industries and Foundation were selling direct to shops from the outset. They had independent distributors on the East Coast but were growing their businesses primarily through direct sales to shops. Soon they launched additional brands and have been growing ever since. This has greatly shifted the roles of companies and independent distributors, and continues to do so.

Most independent distributors I spoke with all described their business/service in the same way: They're a one-stop shop for retailers to call toll-free and order a lot of different brands from one place, with one invoice, and get it all in a timely manner (sometimes the next day). All this rather than having to call each manufacturer separately to get the goods and wait for them to arrive from the West Coast or somewhere else far away.

Independent distributors are service-oriented businesses. Their customers are looking for variety and don't necessarily want to buy a lot of the same brand--they prefer a few of each company. All of the distributors proudly sell nationwide, but have their better regions.

For example, Eastern is located in Wilmington, North Carolina and is very dominant on the East Coast. Smoothill is just north of San Francisco, and their strong areas are in the Northwest--Washington, Oregon, and Northern California. South Shore is based in Houston, but is strong in the South, Midwest, Colorado, and Florida. RAX is in San Diego, and they and Smoothill overlap markets a bit. Atlantic is in Ocean City, Maryland and competes with Eastern, but has its own loyal customers in the East.

Dave Harris of AWH, whose strength is the Midwest and East Coast, says he sells all over the country but focuses on his local region: "Things have really gotten a lot tighter with distributors. There used to be a kind of battle going on between South Shore and Eastern, as far as people getting into other people's territory. But I think everything is pretty well laid out now. Although we do have customers all over the country, most of our business is generated within our region."

Elbow Room

And region is a big deal to the manufacturers--one of the main reasons for them distributing the way they do, actually. "Geographically, we're in Dayton, Ohio, and we distribute our own product," says Chris Carter of manufacturing distributor DNA. "AWH is very close to us. So proximity has a lot to do with it. I think it's quite clear that the reason Eastern is the biggest in the United States is basically because the population center of the country is the Northeast. I don't think a lot of people understand that. We have South Shore in Texas. We ship to West Coast. We don't have a California distributor (anymore)--they weren't doing the numbers and the volume that I needed to really constitute giving them the distributor discount. When a distributor is doing less buying than some of your good shops, then you've got a problem. Shouldn't I just give the shops a discount?"

Frank Messmann at Dwindle has slightly different reasoning: "We basically decided that one distributor is enough. We have such a good distribution network that we really just need one on the East Coast, therefore we stuck with Eastern for pretty much all our product categories. But it's a constant debate: "Why would you not open up distribution even further or vice versa? Why even sell to a distributor? Why not do it yourself?" Clearly in clothing and shoes, there are no distributors--they just distribute themselves throughout the country. The DCs and the Quiksilvers of the world, they don't have East Coast or geographic distributors."

Messmann thinks the bigger question is whether or not skateboarding needs independent distributors spread throughout the country. "I think the answer is 'Yes, as long as skateboarding remains a business where it needs weekly replenishments,' which is what's going on. Then a geographic presence of distributors has merit, whereas for shoes or clothing, it probably isn't going to happen?ever. It's a pre-book business, it's not weekly replenishment. It's seasonal--like four major deliveries a year and then a couple of refills."

Steve Douglas says that Giant was set up with region-based distribution from the beginning: "We have four distributors in the United States that carry all of our products--Eastern, AWH, South Shore, and Smoothill, and that's all geographic--taking care of the areas."

A second reason for distribution preferences seems to be the personal relationships that have developed in the industry over the years, and how well the distributors support skateboarding. "We sell all of our brands to Eastern, and we sell some of our brands to AWH," says Girl's Megan Baltimore. "We all knew Reggie from the past and started dealing with him from day one. He has a good reputation, and we give him that exclusive with the brand because he's done such a good job."

Douglas also considers a distributor's connection to the sport. "We also look at people behind the business, and if they're good for skateboarding--that's a key thing for us," he says. "When we first set up, we didn't sell to AWH. Around 1993 or 1994 we decided to open up AWH, and it was purely for geographic location, and the fact that they're a great bunch of guys. Their family approach to things and how long some of those guys have been working for AWH blew me away."

Many of the largest West Coast manufacturing distributors have worked with Eastern since day one. But it wasn't always so easy for Barnes. "When I started out, I was the new kid on the block with absolutely nothing, and a lot of people wanted to help me because of that," he says. "Other people maybe wanted to help me, but because of their long-term relationships with other distributors, they didn?t feel like they were doing them any justice by opening me up. I might have been frustrated, but I couldn't help but respect that. Powell is a perfect example--they wouldn't sell to us for a long time because of their relationship with AWH. But I still wanted it, and I respected George (Powell) for his reasoning."

Distribute It Yourself

One reason that new companies in the early 90s relied less on the traditional manufacturer-distributor-retailer chain of commerce is the very DIY (do-it-yourself) ethic that inspired them to launch their companies in the first place. Tum Yeto Owner Tod Swank still questions the logic of channeling his products through the various independent distributors. "We consider it, but nothing's happening with it," he says. "(Independent) distributors pretty much don't do anything in skateboarding except distribute. As far as promoting skateboarding or sponsoring events or helping manufacturers sponsor tours, I think some people have done a little, but I haven't heard of anything significant. They're pretty much getting 25 percent of your revenues and just pocketing it, where the manufacturers have to kick down for pretty much all promotion for skateboarding."

Swank doesn't sell to anyone but Eastern: "I follow the model that Rocco used when he started World Industries (in 1988). Before he was doing it, if you wanted to have a skateboard company, you had to sell to all the distributors, otherwise you wouldn't be able to sell your stuff. He went out and just didn't sell to any of them, and the only place you could get World stuff was from him."

The extra margin Tum Yeto keeps by selling direct offsets the company's promotional budget (ads, team salaries, tours, etc.), and it puts Swank in a proactive role where sales are concerned. "I like being in charge of my sales, as far as pushing our products, rather than depending on an (independent) distributors' sales staff of the same size pushing the products of the top fifteen or twenty companies. Some things we don't sell to any distributors, even foreign, just because the margin isn't there for anybody."

It seems that margin and control are common themes when talking to manufacturer distributors. And once a company sets up a sales department, it's in their best interest to keep their salespeople busy. "If you have a strong distribution network yourself, you are basically cannibalizing your own sales if you sell to a distributor--theoretically," says Messmann at Dwindle. "So you need to find a balance. The stronger your own distribution network, the fewer distributors you need. We make a lot more money selling the product to a shop than to a distributor, and since we view our distributorship here to be quite strong, we feel we have the right balance with the mix between Eastern and us."

"By limiting distribution you have some sort of control and know where it's going," says Douglas. "If you sell to every distributor, you really don't know."

The key, says Baltimore, is to find independent distributors that understand the goals of your company: "Our feeling has always been that if you spread it out, it's a little harder to control. It feels like Eastern and AWH have always understood where we did and didn't want the product (to go), so it's working out really well."

One key reason for large companies to push direct sales to shops is to overcome the basic limitation of independent distributors' shelf space. "In the United States, we feel that we have excellent customer service in-house and the best product knowledge for our brand--and we should," says DNA's Carter. "No distributor can carry all of my products. So if a shop wants an assortment of brands, he's going to go to a distributor. If he wants to go deep into any one brand, he is probably going to go direct."

Battle Of The Independents

All of this leads to some heavy competition between the independent distributors. While some of them have exclusive deals with manufacturers, for others "exclusive" really means "regionally exclusive."

Currently, Eastern leads the pack with exclusives from World Industries, enjoi, Blind, Deca, Darkstar, Zero, Toy Machine, Foundation, Hollywood, Pig, Birdhouse, Hook-Ups, Alien Workshop, Habitat, and a few others. Until very recently, Eastern was exclusive with Girl and AWH was exclusive with Monkey Business, but that exclusivity has ceased and the two distributors each carry both brands. However, AWH doesn?t have Alien or Habitat, which South Shore has.

Smoothill has no exclusives, and Manager Carol Colgate doesn't worry too much about it. "I work on acquiring the brands we don't have, but I don't kill myself over it," she says. "I know, for example, Birdhouse isn't looking for distributors right now, so I'm not going to bore them or keep pounding them. But at the trade shows or whenever I get an opportunity, I let them know that I would love to carry their product line."

Harris would love to add a few more key companies to AWH's inventory, and he also occasionally checks in with them to remind them that they'd be welcome there. Sometimes being able to carry just one or two brands helps break the ice. But even getting a foot in the door can be difficult, and Harris has been discouraged more than once. "But we go out and we pound down their doors a little bit more," he says. "We're not real aggressive about it, because that just turns people off. But this year we have a meeting set up with Tum Yeto, because we want to get Ruckus Trucks."

Gray Area Matter

Trucks are a perfect product category for independent distributors, and Harris feels AWH's Chicago-area location makes the company ideal as a source for the relatively heavy, freight- intensive products. "With trucks there is no exclusivity," he says. "Manufacturers want to get their trucks out to as many people as they can for distributing, and because of our location, the weight of trucks, and the cost of shipping, we sell a lot of trucks. We're basically the biggest Krux and Tensor distributor. So that is one foot in the door with at least one of Tum Yeto's lines. They will be able to see just how much volume we do, and once they see that, they might consider opening us up with a board line."

The old manufacturer-distributor-retailer chain worked pretty well, says Harris, and while manufacturing distributors might be making more by selling direct, retailers work a lot harder to stock their shops: "Customers love coming to us, but they have a hard time with it because there are products that they can't get from us. Most of them don't like having to go direct, and having orders spread out between twelve or fifteen vendors is kind of a pain for a lot of people."

West Coast independent distributors are at a disadvantage, because they're literally in the manufacturing distributors' backyards. "Since we're on the West Coast, some brands won't sell to us because we're so close," says Bill Reilly at RAX Distribution. "We have been working very hard to get those brands somehow. What we have done in the past to open up with certain brands is abide by their rules and regulations. They might say we can sell the product, but not in certain areas. And that is what we do. When we abide by those rules, they start to slowly open things up for us a little bit more. But there are brands that we have been trying to get for a while, but I just don't see it happening. We're going to continue to try."

Atlantic Skates Distribution in Maryland also has no exclusives, and Atlantic's Dorsey Truitt doesn't bother himself to chase companies once they've refused to sell to him. "We're satisfied and happy with what we're doing," he says.

Piecemeal

My biggest question as a buyer has always been, "Why do some manufacturing distributors sell certain items, like a video, or a small part of their line, to an independent distributor, but only some or no boards, wheels, or softgoods?" I asked a few manufacturing distributors and got almost as many answers. "As far as Black Label goes, when we took them over, Black Label had all the distributors set up," says Giant's Douglas. "So we kept it that way, we didn't want to say, 'Okay Black Label, you are with Giant now, so you are going through our distribution.' We just kept it as it was, and that's how (Black Label Founder) John Lucero wanted it."

Douglas reasons that different products serve different purposes, and therefore can't all be governed by the same rules. "Videos promote skateboarding, so our approach with videos is that 99 percent of the distributors can carry our videos, because we just want videos to get out there," he says. "The majority of distributors also sell our trucks."

"When Tensor trucks came out, we decided that if Tensor was going to make it into the marketplace with the big brand-name trucks--so to speak--we needed as wide a distribution as possible," says Messmann at Dwindle. "So with Tensor, we opened up to other distributors like South Shore and AWH, as well as a couple of the other competing skate manufacturers that also have distribution houses, like Giant."

Along with its own truck brands--Destructo, Destroyer, and Monster--Giant also distributes Tensor. Other Dwindle product lines to get wide play are Speed Demons and Blacktop Griptape. But what criteria determines if a brand should be opened up to more distributors? "Basically the brands where proximity to the customer is really important," says Messmann. "Whereas the key brands, like Blind, enjoi, Darkstar, and Deca--we sell them, and Eastern sells them."

Because Dwindle has multiple deck brands that are exclusive to Eastern only, I asked Messmann if Dwindle ever considers opening distribution on one if it isn't selling as well as the others. "We have never looked at it like that," he answers. "But what we do address if the brand doesn't take off well is, 'What do we do to change the brand? And if it cannot be changed, then let's not do the brand at all.' Obviously we did that with A-Team, which became enjoi. We did it with 101 and Prime back in the day. It has not been on the table to see if blowing up the distribution would make a difference."

One dilemma manufacturing distributors face when restricting a product's distribution channels is that some retailers, and ultimately some end consumers, will not be able to find it. "We're losing some customers that may not have an account with Eastern or us," says Messmann. "Perhaps they have an account with AWH because they're close by or they have credit, and they will never see our products. So there is clearly that issue, but it hasn't been so big that we have come close to considering expanding distribution further."

Carter feels limiting his distribution works well for DNA, while Douglas says his main concern is that retailers have access to Giant products, and doesn't favor any particular channel: "If they're happy dealing with Reggie or AWH or South Shore, then that's great--we just want to make sure they're getting the product. The distributors are an extension of us. We try to treat everyone fairly, where some other manufacturers hold back product and don't give it to distributors right away. We don't play games with people, and we just try to be up-front, stand behind our product, and support the distributors as much as we can."

Companies that work with exclusive independent distributors appreciate the simplicity of dealing with one entity, and feel they receive better service because of it. "It motivates the distributor," says Baltimore at Girl. "They know that if they have the exclusive on it, they want to take care of the line. We have had a much longer working experience with Eastern and AWH, but our experience with both has been that they supported us so much, that there's been no reason to go elsewhere. At one time we did sell to another distributor, but it seemed to create a little battle with pricing and free shipping, which really doesn't do anyone any good in the end, just more of a headache."

Galapagos Distribution

So with all this "exclusivity" and "competition," what are the independent distributors doing, if anything, to adjust? What keeps them on top of their game? With so many manufacturing distributors spreading their powerful tentacles into every borough in the country, are the independents becoming obsolete?

Barnes at Eastern is confident that's not the case, and that retailers still clearly distinguish between independent distributors and the manufacturing sort. "I still have such a better selection than any of them," he says. "Fortunately, we have been able to continue growing even though the competition has increased greatly. We're fortunate enough to have a great selection and to be geographically in a good spot. So we have been able to continue growing even though all these other people are calling themselves distributors."

Reilly says RAX constantly does things to adjust: "We've looked to source some more pricepoint-type product, to provide our customers that service, as well as the top-of-the-line brands. We just try to provide a diverse product mix. If Giant and Shorty's and those guys are making their own hardware, for example, there are people who are going to want that because it's a brand name. But at the same time, people want to build shop completes, and they're going to want the no-name-brand bulk hardware. And we have kind of gotten into that area and diversified."

The Internet has also helped RAX expand its service to retailers. "We have an online drop-ship program," says Reilly. "For instance, if one of our retail customers has a kid come into the shop who wants a skateboard that isn't in the store, if we have it in stock, he can have it shipped from us directly to the kid's home, and we can brand the invoice so the kid thinks it came from the shop. We're like a blind fulfillment center. We can take orders electronically, we have ship-confirmation files that we can send back, we have order- status files, we can send tracking numbers--we have it dialed. From this standpoint, we're a little more sophisticated than a lot of the distributors out there."

After all the business talk was over, the clichè sentiment I was left with is that skateboard products are as abundant--and available--as ever. Even if some are only distributed through a couple major channels. "I went the way without (independent) distributors, and I like it that way," says Swank at Tum Yeto. "Damian at South Shore is super cool, and so is the staff. Reggie is awesome, and some of the AWH guys that I know are really cool, too."

Barnes is still pleased to be the exclusive East Coast representative of most of the major California brands, and although Eastern grew with and helped grow them, he can appreciate the clear order of the old system he helped uproot. "I always thought, and still think, it's a conflict of interest for a distributor to also try to be a manufacturer," he says. "It used to be looked at the other way around as well--manufacturers wanted to be manufacturers, they wanted to take care of their distributors and not compete against them. But that's not necessarily the case anymore. Manufacturers love the checks that distributors write them because most of the time they are big checks, paid on time, and don't bounce. But at the same time, they're still doing all they can to drive people to buy direct and not go through distributors. So it's a double-edged sword. But I'm thankful for the relationships I have. These guys are competing with me a lot, but they're still helping me in such ways that I know to be thankful. These are my competitors, not my enemies; I just want to beat them on a level playing field by working harder."

Eastern has done such a job that they're even distributing product from California-based companies to West Coast shops. "I know of some shops that we tried to open up here in the West, and they still buy from Reggie," says Reilly at RAX. "That's because sometimes it's about a relationship more than it is about who has the best product."

But it's Giant's Douglas who sums it up best when he suggests there is some good camaraderie going on in skateboarding right now among both manufacturers and distributors: "Skateboarding is in good hands at the moment."