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04/15/03
An open letter to the Hobby Industry
After reading the letters in the trade magazines the last few months, it has occurred to me that we spend way to much time complaining about everything in this industry, and little or no time doing anything about it. I would guess 90% of those dealers who complain about the Wholesale/Mail Order distributors also buy a good amount of product from them. As for the Web based retailers, those previously known as basement operators have just gone high tech. The majority of new account phone calls that I receive are from such illegitimate retailers. With the industry in the condition that it is in I can not say that I can really blame the distributors who have caved into the pressure of these people, after all it is for there own survival. The point that I am trying to make here is that actions speak louder than words. If you continue to support the same people that you are complaining about you are treading water, if you just stopped buying from someone without telling him or her the reason that would not do much good either. I learn more from complaints that complements. The only reason that the large wholesalers can leverage manufactures into exclusive agreements or buy them outright is because they are there biggest customers, over 90% of there sales in some cases. While mid to small size distributors carry the same products they are not strongly supported by the retailers so they lack any leverage, now why are the retailers not supporting the same product lines from the smaller wholesalers? Price, isn’t this the same thing that the retailers are complaining about coming from there customers?
What everyone needs to realize is that this industry is trying to work on the same profit margins as a corner convenient store and turning half the product. We are not selling $400 loaves of bread here; every other industry has the same levels of competition that we deal with. Cleveland Hobby is very lucky to have a loyal customer base to draw from. The strange thing is that since we decided to compete with the big guys prices we hardly ever get complaints about our prices. In fact, I have heard from our customers that some of the other distributors are complaining about us. Think about that on the retail level. A customer walks into your store and asks you about something you do not carry; you tell them you do not stock it because XYZ mail order can sell it so much cheaper. You just gave that mail order outfit the best recommendation it could possibly have, and you just lost a potential customer.
What manufactures need to realize is that the best way to support the brick and mortar stores is if the margins are cut on the high ticket items they should raise them on the nickel and dime items. I am going to use the R/C car industry for this example, a consumer goes into a hobby shop looking for an R/C car and the dealer has a limited selection, when asked why he only carries 3 or 4 different brands he replies with something about being competitive. The dealer sells the customer a car and makes $20, a couple of days later the same customer comes back because he broke a suspension arm (let’s say it is a $6 sale, a 50% margin would mean $3 profit) while this is piddaly in dollars and cents in the long run it is quite feasible that the store will make more of a profit off of the parts then selling the car itself. Now if the customer went and purchased the same car mail order the store it is not very likely that he would buy the same $6 part mail order, when the store up the street has it in stock. So the brick and mortar would still benefit from the larger margins.
After my trip to the East Coast Hobby Show I believe that the industry is heading in the right direction. A lot of the products that were shown will start to bring in new people looking and give new life to this industry, if promoted properly. The person who has never set foot in a Hobby Shop is the customer we need for this industry to grow. While watching the R/C show on TV I noticed a commercial that mentioned brand names of various hobby manufactures, we need to realize that 99% of the population has no clue what those brand names mean. Good affordable ideas are needed to promote this industry; we need to start sharing these ideas at the retailer level. I suggest that the magazines start a regular feature dedicated to this. By the time I send this I will dedicate a page on our web site to such promotions asking for my customers input of course.
Mike Pachasa
Cleveland Hobby