Manufacturers Face a Dilemma as Dealer Consolidation and On-line Sales Continue to Grow

As manufacturers carefully watch new channels unfold, they will soon arrive at the crossroads of what steps they need to take next to secure strong platforms to get their product to consumers. They are already seeing a continued consolidation among themselves confirmed by the upcoming acquisition of Masco. ACPI and Grainger are currently the 2 suitors to either buy Masco outright or possibly a Merillat/KraftMaid split. It is interesting that Grainger wants to get into the cabinet game. They are a 1.2-billion-dollar company that sees one of their biggest opportunities is to add a higher margin product like cabinets into their portfolio. If it does happen, it will be exciting to see how that plays out.

Manufacturers are currently relying on Independent Dealers, Home Centers, Builders and dabbling in on-line sales through companies like Costco, Wayfair, etc. The predicament they are facing is that many dealers are confronted with the fact that their long-term prospects remain uncertain. Manufacturers must figure out soon, what direction they need to go that will allow them to keep and expand their market share.

Personally, I don’t feel that Home Centers are going to grow in this category. They do have deep pockets, so we can’t rule them out, but it has been shown over the years that this is not a core competency of theirs. My bet is on Ikea having the best chance to grow.

So, here’s the possible options that manufacturers have moving forward:

Option 1 – They choose to vertically integrate completely by setting up their own showrooms over time.  This would be extremely risky on their part because as soon as their dealers saw the writing on the walls, they would look at other products to sell. Wren Kitchens, who already uses this model and is based in the UK, will be coming to the states in the spring of 2020. They already have a possible assembly plant (Ideal Cabinetry) in Florida that is run by Malcolm Healey’s son, Richard. Wren does have an advantage because they don’t need to worry about disrupting a dealer base like other cabinet producers.

Option 2 – They decide to vertically integrate – but only in markets that don’t have a strong dealer base. (This could be a much more likely option.) The advantage of this is that the manufacturers would learn firsthand what it takes to be successful as a store and hopefully share these best practices with their dealers.

Option 3 – Partner with their dealers by helping them build their business into a model that can be sustainable in the future – This would include a combination of on-line sales that were managed by the manufacturers and facilitated by their local partners. The array of services that the dealers would offer could include measuring, delivery, installation, countertops and problem resolution. Hopefully this would include a percentage of the cabinet sales from the manufacturer to the consumer. (I like this model the best for several reasons we’ll get into in the next blog)

Option 4 – They could take a “wait and see” approach and hope that another manufacturer takes the lead and with that, all the risk. This approach, in the long run, will only put a manufacturer far behind and facing a difficult catch up game. Innovators and not laggards will be the ones that end up winning.

I think the next smart move for a manufacturer is to bring in their key dealers to discuss how they can work together in the future to secure their combined market share and grow it. This would mean of course, that a manufacturer would have to step out of their comfort zone of making cabinets and start acting like a true visionary and a partner. So far, the activity that I have seen on this front has been fairly limited. With the economy most likely heading into a recession in the next couple of years, the time to act is now and not in the middle of a downturn. In today’s WSJ about economic data, it says “Among the warning signs: A key measure of manufacturing activity fell to its lowest level in a decade last week.”

Here are the 2ndqter Results for the Big Three. (1stqter for American Woodmark- May Start)

Masco Sales -6%

MasterBrand Sales- Flat

American Woodmark Sales + .4%

If you’re a dealer, you should be picking up the phone and asking your key manufacturers what their plans are for the future. If the answer is “just stay the course” then you may want to consider talking to some other manufacturers that have a strategy that will include you and secure the future of your business. It’s so funny talking to manufacturers who are frustrated with their dealers who they think are not being creative, embracing change and moving their companies forward. It’s very much like the pot calling the kettle black. I am going to be so excited to see one manufacturer take the lead and do something impactful outside of new door styles, lead times, or ordering on their system. Please, somebody…take Nike’s advice and “Just Do It!”

In next week’s blog, we’ll explore what these future partnerships could look like between manufacturers and their strategic dealers.

If you want to learn more about Wren Kitchens and the future models of Kitchen and Bath Dealers, please join us for upcoming seminar in October. It truly is an amazing story and important for dealers to understand what they will be facing in the future.

As always, I’d love to hear from you.

– Thad

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Craig McBurneyThad WhittenburgJessica EkenAmy Hart Recent comment authors
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Amy Hart
Amy Hart

I’m glad you’re talking about this and urging the manufacturers to look forward. They have amazing partners in their dealers if they would just take advantage of it. It’s a win-win. We have design & sales skills, market, trend and pricing data to share, and they have the finances to help us grow. There are some very easy things they could do now, and I would love to talk about it.

Thad Whittenburg
Thad Whittenburg

I couldn’t agree with you more Amy! I hope my satire doesn’t offend anyone because that is not the purpose. I really hope that people open up more to new ideas and new ways of doing things. Hanging on to the past is going to be the kiss of death. Let’s hope the manufactures start reaching out to their dealers to start some dialog around becoming better partners on both sides!

Craig McBurney
Craig McBurney

Thanks Amy, I agree. What are the “very easy things they could do now”?

Jessica Eken
Jessica Eken

Thank you for this information. It comes at a very opportune time for me.

Craig McBurney
Craig McBurney

“The predicament they are facing is that many dealers are confronted with the fact that their long-term prospects remain uncertain.”

Why are many dealers’ long-term prospects uncertain? Thanks in advance!