Volume 46, Issue 8 - October 2007

Special Report: Selling Direct
Taking the Hit
Distributors are Affected When Deleted from the Chain
by Alan B. Goldberg, a contributing writer for Shelter magazine.

Mike Walsh was one of those (wholesale) distributors who was impacted first-hand by a manufacturer changing its distribution channel. Walsh’s company, The Radford Co. in Oshkosh, Wis., was an Andersen distributor for 100 years, so when Andersen Windows stopped being a supplier of his, his job became a bit more challenging. 

“Yes, of course, we were impacted [by Andersen's decision.] But we still have our customer base and we’re providing other lines of windows,” Walsh says.

He explains that working through a distributor has not changed but the market has.

“You can replace a person but not the function,” Walsh says.

You’re Eliminated!
Large manufacturers that eliminate distributors establish their own network, so the function remains, but the responsibility shifts from outside to inside the company. Walsh says the most significant change in the channels of distribution has to do with the way doors and windows are manufactured and distributed. There was a time when windows sales and subsequent value-added opportunities were mostly about carrying large amounts of inventory. That is no longer the case. The demands that forced window manufacturers to become custom operations left little need to inventory product.

“No one carries an inventory of windows,” Walsh says. “Doors are different. Final assembly gives distributors an opportunity to add value.”

Although Radford’s business was impacted by Andersen’s decision to eliminate the independent distributor function, Walsh understands the reality of doing business.

“From Andersen’s standpoint, it makes sense,” Walsh says. “We simply adjusted to the change.” 

Dorsey Millwork of Albany, N.Y., was a two-step distributor for more than 40 years with Andersen Windows.

“We closed our doors in 2001, seven months after being dropped because there was to be only one distributor in an area, a change that was taking place across the country,” says Mike Dorsey, former owner.

Forced to Change
Dorsey purchased a company that manufactures custom doors for fireplaces after closing his distributorship. 

The problem, he explains, goes beyond a manufacturer’s organizational change. It has more to do with changes in the market and changes in manufacturing to meet market demands.

“I believe the traditional, two-step inventory model at a distribution location is no longer needed by manufacturers who are able to produce windows faster and on a custom basis to specified sizes and styles,” he says.

Dorsey refers to Marvin Windows as an exception to the changes.

“Their two-step distributors still add value. They provide credit, sales, marketing, service and possibly installation,” he says.

Dorsey says for less costly and less complicated vinyl window manufacturers, where a strong marketing effort is not as critical, selling direct to lumberyards could be the best model.

Ironically, Dorsey refers to his new company, Diamond W Products, as the Marvin of the custom fireplace door industry, and he sells to dealers who add value by providing sales, installation and service.

A Logistical Approach
Dave Larson, owner of Webster Hardwoods in LaCrosse, Wis., was a distributor of Andersen products for 24 years. He says manufacturers go direct for one reason: to capture the margins of distributors. Larson says there are many other reasons why they should. One is the problem with inventories. Unsold inventories distort the market and the supply chain. He points out that the longer the supply chain, the less effective the interface is between sales and a customer. A long supply chain also adds more cost than value.

“How many times are windows loaded and unloaded throughout the supply chain?” Larson asks. “They are stored at different locations as they change hands and in the process, they add no value.”

He explains that the manufacturer is isolated from the level of activity in the market until the distributor sells his inventory. Inventory distorts the picture, especially when manufacturers are producing to add to inventory rather than meeting the actual demand of the market. But, he says, it’s easier to produce than to inventory, which is why many manufacturers continue to use distributors. Given the traditional role of distributors in the market, Larson sees an expanded role for them in the future.

“Distributors need to become logistics providers, not inventory managers. As door and window and millwork distributors, we have segregated ourselves by the products we sell,” Larson says, adding that more manufacturers are choosing to partner with large homebuilders.

Distributors: A Good Choice
Other distributors believe that they can add value by being the experts on the products in their markets. 

“A good distributor must add value to the products it markets,” says Jack Huse, a consultant with 40 years of experience in millwork distribution and a distributor for Kolbe windows.

He explains that, by providing key functions such as sales, logistics, marketing and financial strength, distributors strengthen their role.

“When there is no measurable value, distributors leave themselves vulnerable to losing their businesses to the manufacturers they represent or to other distributors,” Huse says.

Don Houghton, president of Reeb Millwork in Bethlehem, Pa., agrees. He says there are many advantages a distributor brings to the market. These include: educating the consumer, after sales service, providing shorter lead times and handling all the administrative work that goes with these services. Most importantly, the distributor “must know the depth and breadth of products that are available and provide them to the market,” he says.

Houghton says the issue of going direct (to the contractor or dealer) is more applicable to window products than to doors because windows are shipped as finished products. Generally, doors are not. 

“We can offer many (door) options to the dealer because we do provide assembly of door units. We stock components, such as slabs, jambs, hinges, sills and sidelites, so we can customize to some extent,” Houghton says. “We provide product in smaller quantities and we assemble with qualified people.” 

Clear Choice Windows and More in Largo, Fla., and Dial Glass & Window Co. in Pacifica, Calif., may be on opposite coasts, but they have a few things in common. Both are Simonton dealers and both compete in a high-end market. 

“Yes, I compete against the large window manufacturers, but those I deal with want pricing on an even keel,” says Pete Yoes, owner of Dial Glass. 

He says large manufacturers may sell to anyone and eliminate dealers and distributors in order to work directly with a contractor. “Simonton doesn’t do that,” Yoes says. “They have a dealer network and will never undercut.” 

For Clear Choice, which supplies replacement windows for multi-million dollar homes, installation is an integral part of its business. 

“Builders want a licensed window company to control the whole process,” says Jim Hardy, president. 

He says manufacturers that go direct are usually small and it’s usually due to competition from larger manufacturers and dealing with high overhead. What makes the transition to retail difficult is that they are strictly manufacturers, not marketers. Ashland Millwork of Wheeling, Ill., focuses on other values. Gregg Kutemeyer, president, says his company establishes a more personal relationship with each customer, understands their needs and identifies the right types of products.

“We are continually challenged to solve problems and explore solutions for our customers,” he says. Kutemeyer points out that manufacturers who go direct often have a simplified product offering, “a one-size-fits-all approach which allows the end user to save money.”

He explains that Internet ordering has given the customer more latitude and simplified the process, but at the expense of the distributor/dealer who no longer brings value. Other manufacturers will offer two product lines, one for simple, low-cost items that lend themselves to on-line orders, and one that requires product knowledge. 

“Thankfully, many manufacturers need well-trained dedicated dealers,” says Kutemeyer, adding that the challenge is to train and keep up with trends in the market. “Builders still want to do business with people they like. All things nearly equal ... the relationship wins the order and the service brings them back. The more responsibility we can remove from the builder, the more time he can devote to managing the project,” Kuetemeyer says. (See “Pets and Peeves” in Shelter September edition).

He believes that knowledge of the product lines, after-the-sale service and on-going problem solving are among the shortcomings of eliminating a dealer.

Like Walsh, the changes in the distribution channel have led Kutemeyer in a different, though still profitable, direction. 

Beyond Doors and Windows 
The issue of selling direct transcends the door and window industry. The Deco Truss Co. in Princeton, Fla., is a good example. According to Mario Espineira Jr., vice president, too many suppliers/distributors, lumber mills and door manufacturers are by-passing the lumberyard and selling to non-traditional lumberyards which, he says, are exporters.

“The problem is that the large companies that want our business are selling direct,” says Espineira. “I am seeing them sell to exporters and contractors abroad.”He points out that this strategy hurts the industry as a whole, because direct selling does not allow the lumberyard to make the profits, “that keep us open and growing, especially when the domestic construction is slowing down.”

There is another form of non-traditional selling and marketing and it has taken on new meaning since the formation of Vancouver, B.C.-based BuildDirect in 1999. Today, the company is described as the world’s leading online wholesaler of building materials.

“We are unique. The online component makes things so much more efficient,” says Jeff Booth, co-founder, president and chief executive officer. “We’re like a Costco. We buy logistics cheaper than they (manufacturers) do. We form partnerships and they outsource to us and we outsource to them.”

Booth explains that his company can get to the marketplace more effectively from traditional sources. He says buyers get high-quality products at lower prices.

“We are their only sales force. In a sense we are the manufacturer,” Booth says. “They come to us and we take the distribution function off of their hands.” He says their logistics technology is what makes this model possible.

The Best of Both Worlds
The question any owner of a distributorship must ask himself is, “What does my company offer?”

Travis Vuong, the founder and owner of MAC Window Factory in Las Vegas, Nev., found a unique way to serve the market as a manufacturer and a distributor.“We’re a little different from a traditional manufacturer or a traditional distributor. I would like to think we offer the best of both worlds,” he says.

Four years ago, Vuong started a small manufacturing business to provide custom windows for a high-end market, serving builders of luxury condos, homeowners involved in major renovations and developers of multi-million dollar homes. Vuong points out that competition can be just as strong in this segment of the market.

“I compete with the large window manufacturers all the time, but because of my size and my experience in the business, I offer some added benefits.” 

“Their (large manufacturer) reps aren’t very knowledgeable. I like to bring customers to our plant so they can see exactly what we do,” Vuong says. “We take the time to educate our customer and explain things like return on investment.”

Vuong acknowledges that smaller shops must go direct in order to be profitable. But he has seen instances where dealers and distributors have been eliminated by large volume operations in order to cut costs. He established a distributorship in order to support his business and his customers.

“I became a distributor so I could offer my customers more variety. As a small manufacturer, I can’t provide a full range of products,” he says. 

By representing larger operations, he has reliable sources for what he needs and because of a loyal customer base, he is not going to lose it to competition.

What’s One-Step and Two-Step Distribution?
One-step distribution occurs when a manufacturer sells its products to a distributor or dealer and the distributor or dealer sells the product to a builder, contractor or the end user. Two-step distribution occurs when a manufacturer sells its products to a distributor and the distributor sells the product to a lumberyard or retailer. The lumberyard or retailer then sells it to a builder, contractor or the end user.

© Copyright 2007 Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.