Here’s a thought provoking article written by industry veteran John Steven about future distribution models for the UK’s musical instrument industry. Enjoy this interesting read!
There’s a question that’s been doing the rounds for a few years now, but where exactly are we with it?
Compared to 20 years ago there’s no doubt that the landscape has changed considerably. For a start there are far fewer music retailers than there were 20 years ago, and the number is still falling, albeit at a much slower rate now, perhaps because it really can’t go much lower in some territories than it is at present. For the foreseeable future I think there will still be a need for a certain amount of bricks and mortar retailers, and long may that be the case.
If we have far fewer music shops, then I guess by the law of averages you don’t need as many distributors to service those retailers, which is certainly why we have seen some of the bigger distributors now servicing retailers in multiple countries. And we have also seen in some countries, distributors handling far more brands, and competing brands, than would have been the case previously.
Across EMEA we have witnessed the emergence of large distributors, who also happen to be major retailers. In some respects it could be the ideal business model, but those of us that have been around the MI industry in particular for a long time, know that traditionally, retailers don’t like buying from distributors, who also happen to be competitors. But I think the Internet has now turned EVERYONE into potential competitors, so I don’t see that as such a big issue now.
We have the Internet centric MI/Pro Audio retailers, who generally have been getting bigger, although with the exception of Amazon, all are still very much in the shadow of the mighty Thomann.
And last, but by no means least, we have the manufacturers that are doing their own distribution, selling directly to retailers, although still using some traditional distribution in selective smaller regions.
So with this current landscape what does the future hold for traditional distribution companies?
Well, personally, I think the outlook can still be bright, as long as they are very selective in the brands they choose to work with, ensure that they have a clear sales and marketing strategy, and do not get sucked into the all too easy scenario where you just take on as many brands as possible, hoping that something strikes a chord with your customers. A very risky, and perhaps expensive strategy, since the more brands you take on, the more stock you have sitting in your warehouse, tying up cash flow and space. And space costs money of course.
Business is all about numbers, and as I’ve said so many times, our industry simply has far too many brands, selling very similar products, to relatively too few customers. Retailers can only stock as much product as they can fit in their stores, with the exception of those brands that retailers will only sell online.
Some brands have made it known that their ultimate intention is going direct to the end user. It should be noted that of course this is a strategy which still has considerable costs attached. There is also the risk factor, even for the most well known brands. I don’t know any MI or Pro Audio brand that has ever successfully emerged without the help of traditional retailers, perhaps with the exception of a few ‘own brand’ products which some major retailers have successfully sold alongside their more established brands. Generally musicians still like to be able to get their hands on products, touch them, feel them. Of course with 30 days if you buy online, you have the ability to do that, so online retailing still offers the customer the ability to ‘handle’ a product, and at home. The only question would be, how often do you want to be sending stuff back until you find the right one?
Increasingly, some retailers have been looking at developing their own brands as a way of improving margin, but when you weigh up the investment against the risk, that is certainly a route which can come back and bite you if you get it wrong. However, I do believe that sharing this strategy, perhaps with other like-minded retailers in other countries could be a very interesting proposition, especially if those partners were all sufficiently well funded and have their own direct routes to market. Something to think about perhaps?
The one thing that is clear, is that the chain still needs to connect. If brands are going to be successful, and not all brands have a high enough profile to demand the best retail space and/or the support of the best distributors, then some brands are going to have to look at the ‘lower divisions’ of distribution in order to try and get traction in markets. That requires some real hard thinking on the part of both the manufacturer and the distributor.
Over the years I have seen way too many brands picking the wrong distribution partners, in many cases because they just don’t have enough information to make the right choice. If you’re going to appoint a distributor in Nigeria, Kenya, UAE, wherever, I suggest the first thing you need to do, is to get on a plane and go there and see what the situation is for yourself. The problem is that people don’t always have the appetite to go to some countries, and in that situation it’s easy to make the wrong choice. Picking the wrong distribution partner can set your brand back years in a territory.
Localised distribution, when done well, is still a great vehicle for manufacturers. It gives you a specialised knowledge and support team in territories that you don’t know, and in many cases is far more cost effective than developing your own subsidiary. I’ve seen more companies service large markets, like Europe, out of one specific country, it works, but certainly to a varying degree. It’s not always the best or the most successful route to market. When done well local knowledge will always offer the best solution, and there are some truly well switched on local distributors out there who do an amazing job of ‘caring’ for the brands they are entrusted with.
Distribution is not dead by any means, but there are certainly fewer good distributors around today, all of which are still trying to wedge products into an increasingly difficult marketplace.
Want to still be around in a few years? If you are a manufacturer, a distribution company or a retailer, no matter where you are in the chain it’s still all going to come back to the same old stuff; strategy, planning, execution. Who are these products targeted at, how can I get my message to them, how do I look after them once I have their custom? I still think great customer service is the backbone of any successful company.
Although not always the popular choice, if you are a distribution company today, selling perhaps fourth or fifth choice brands, then I think your strategy has to include some direct to end user options. The going is tough at present, and it’s going to get tougher. But I sincerely believe that most things are possible, as long as you have a plan. It should always start with a plan.
As always, please take my thoughts as exactly that. I find as I get older I think more about the changes I have experienced and the changes still happening. Feel free to agree or disagree, just do it with good grace.
When changes are going on within an industry, especially one as small and as specialised as ours, I think it’s good to engage in discussion and share ideas. If my ranting helps to encourage that, then I’m happy.