Progressive Distributor - Emerging markets

Emerging markets

Despite the dot-com bust, will the Internet emerge as a major channel for hose and accessories products?

by Richard Vurva

Two years ago, during the dot-com wave, distributors worried that the Internet would become a major source of competitive pressure. Customers who knew what they wanted would visit one of several industry portals and point and click through the ordering process. Although the dot-coms fizzled before the concept caught fire, a few companies in the hose channel have remained, such as e-hose.com and ihozs.com. Plus, some manufacturers have begun accepting orders from their Web sites, cutting out distributors.

Distributors dodged the Internet bullet before, but nagging doubt remains about its future impact. As one manufacturer suggests, databases may be taking away the “black art” that traditionally resided with knowledgeable distributor employees. They were the specialists in every distributor’s back room who knew what to recommend when a customer described a specific pressure rating, dimension and distance the transported material would travel.

“You had this old guy in the back room who knew exactly what you needed. The computer has taken away all that. People are putting that into a searchable database. You plug in the parameters and it tells you what you need,” says Don Warner, director of marketing for NewAge Industries in Southampton, Pa.

Other manufacturers agree that technology is bringing major changes to a staid, old industry.

“We think the Internet is going to play a big part in how hose manufacturers and other companies go to market,” says Ian Donnelly, president of U-Nova Industries, a flexible ducting manufacturer in West Berlin, N.J. “We’re seeing competitors of ours with satellite distributors that handle that market so they aren’t conflicting with their distributor network.”

International Hose Supply is an example of a new type of emerging competition. The two-year-old Aurora, Ohio, company sells exclusively via the Internet from its Web site www.ihozs.com and has no salespeople. Although the bulk of its sales are from Flexaust ducting products and its president is a former Flexaust executive, the company is independent.

“The basic idea was simply to specialize in flexible ducting for specialty markets and the smaller MRO markets and consumers that most distributors don’t call on,” says president Bill Draper. Customers include consumers, do-it-yourselfers and small businesses such as lawn maintenance companies and carpet cleaners.

“It’s a different way of marketing a product to specialty markets and tertiary markets that distributors don’t normally handle,” Draper says.

The company inventories ducting in preset, prepackaged lengths from 10 to 20 feet, as opposed to bulk length, and performs no assembly work.

“We have a very well-defined niche,” Draper says. “We sell at the manufacturer’s list price, so I’m not undercutting anybody. I’m selling on the convenience that I have it in stock and I can ship it the same day.”

Draper says sales have not been as brisk as he had hoped, but the company has managed to survive while other dot-coms failed.

Channels blur
The emergence of companies such as International Hose Supply point toward the dramatic changes taking place in the hose and accessories channel. With offshore competition picking up, and with the poor North American manufacturing environment, manufacturers and distributors are taking a close look at how to survive in a price-sensitive market without disrupting fragile channel relationships.

“Channels are dissolving,” says one manufacturer. “You don’t want to lose the distributor because they have the local relationships. But they’re getting boxed out. So, they start looking for cheaper sources of supply, which makes it more difficult for manufacturers, because distributors are buying product from Canada, Mexico, Korea or Israel.”

Some manufacturers complain that distributor loyalty is a thing of the past. They say distributors routinely bring in bulk hose from offshore companies, making it next to impossible for domestic hose makers to compete.

“We receive innumerable requests from people who claim to be distributors and in their minds they are distributors because they buy from manufacturers and redistribute. But they phone four or five manufacturers for the price,” Donnelly says.

“How long will manufacturers support so-called distributors who don’t want to carry inventory?” he asks. “They want the lowest price, they want good quality. If they can help it, they don’t even want to handle the product. What’s going to engender that bond between today’s distributor and today’s manufacturer?”

Other manufacturers agree that competition has caused more manufacturers to go direct, bypassing distributors.

“We’ve run into some situations where distributors have called us and said, ‘I need a competitive price.’ When we’ve looked into it we’ve found out another manufacturer was in there direct, looping the distributor out,” says Warner.

In some cases, NewAge will pay the distributor a finder’s fee for the business. “It’s not something we typically want to do,” Warner says. “We’d really rather the distributor have the business.”

It’s a trend he’d rather not see continue. Once people start pushing the envelope, others start looking for ways to push the envelope too, Warner says.

Other manufacturers also have detected a greater willingness by manufacturers to go direct and are disturbed by the trend.

“I have seen some competitors going direct to consumers, or perhaps blurring the lines between what a consumer is and what a distributor or an OE is,” says Dan Weitzel, manager of the industrial hose business unit for Gates Rubber Company in Denver. “Obviously, it’s related to business conditions today. There is a large over-capacity in manufacturing and distribution, and business is down at the same time, so you have a situation where everyone is starving.”

As a result, some manufacturers fall to the temptation to break traditional rules. But Weitzel says Gates stands firm in its commitment to distribution.

“We sell through distribution, we will not sell direct to consumers. We’ve stuck with that and plan to stick with that,” he says.

Occupy a niche
What can distributors do to prevent emerging competitors or direct competition from manufacturers from catching on, further eroding their market base?

The best thing is to get even more attuned to the local marketplace, says Warner.

“Offer very specialized services,” he says. “The biggest service is just being there with delivery. If the company goes down at 8 o’clock on a Sunday, get them that hose.”

Adds Weitzel: “Sell value-added as opposed to commodity.”

That’s exactly the approach that Mid-State Sales followed when it recently introduced a new service program. Mid-State specializes in supplying hose, connectors and rubber products, and also manufactures hydraulic hose assemblies, tube assemblies and adapters from its headquarters in Columbus, Ohio.

It recently introduced a new service program geared to support customers after normal business hours. It offers the 24/7 Emergency Service Program (ESP) from branches in Cleveland, Cincinnati, Youngstown and Columbus. The service allows customers to call a local hotline number to order needed repair parts including metric fittings, hydraulic hose, quick couplings and several other hose, connector and rubber products.

“Most of our customers don’t buy directly from manufacturers, they buy through local distributors. Therefore, it is more important than ever to offer value-added services to stay competitive in this tight market,” says Jim Daniels, vice president of operations.

Daniels hopes the new service will demonstrate Mid-State’s commitment to the needs of the local industry it supports. Doing so, he believes, will help stave off competition from new and emerging competitors alike.