In The News: Industry Debates Internet Sales

"The equipment prices are considerably less than what they used to be," according to a press release from the company.

This all begs the question of just how feasible selling via the Internet is for the landscape industry.

John Bender, national sales manager, Prime Line, Litchfield, Ill., said his manufacturing operation has explored the possibility of selling direct via the Internet, but, ultimately the decision was made to continue to maintain a traditional distribution system.

"We believe our wholesale distributors can go on selling into the commercial market better than we can because the distributor is better positioned to react to a regional marketplace," Bender explained. "We’ve observed some of our competitors selling directly to contractors, but I’m not sure that’s the best way for us to go about our business. They may have had some success selling direct, but they’ve probably also increased their costs of doing business."

Andy Somich is a territory sales manager for Modern Power Equipment, Wickliffe, Ohio, and he said he thinks distributors like his are relatively safe from too much Internet competition. "Service and parts are keys to commercial customers," noted Somich. "Contractors have to get help right away once the season starts and get loaner machines."

Somich also said contractors may limit their options for getting equipment serviced by buying directly from a manufacturer’s Web site.

"I can’t see contractors buying machines off the Internet and then going to a dealer to get the machine serviced," he related. "Dealers don’t make money on warranty work, but they do warranty work for their customers to take care of them. Dealers may not service equipment bought over the Internet."

George Kinkead, Turfco’s president, is confident, however, in the future of online sales and e-commerce.

"Our direct program was developed after very deliberate and careful market analysis, and I think this is a pretty logical step," explained Kinkead, who declined to share whether or not he thinks the company can grow sales in the year 2000. "The fast pace of product development and improvements means making new products available to end users rapidly is imperative.

"Our problem isn’t with two-step distribution, but that model just doesn’t work for us. The mainline dealers focus most of their efforts on their primary product lines, so short line and specialty products tend to get lost in the shuffle," Kinkead continued. "The pull side – customer demand – has continued to develop very nicely for us. The push side – dealer and distributor effort – was becoming a limiting factor. Today’s successful landscape contractor has become more and more sophisticated. But let’s face facts – if a dealer has a chance to sell a $6,000 mower or a $1,000 edger, he will spend most of his time learning the features and advantages of the mower."

Somich acknowledged that big-ticket machines like mowers generally get more attention from dealers than lesser-priced equipment. But he defended dealers, pointing out that purchasing machines that are in less demand and tying up valuable cash in inventory isn’t a viable option for a lot of dealers.

Kinkead recognized that many dealers do support such short line products, but they still don’t spend enough time learning about the machines to support contractors’ need for information about setting up these products for maximum productivity or what extra parts to inventory.

"The dealer has a lot of that educational information for big-ticket items like mowers, but a dealer’s people just don’t have the time to learn in-depth about more specialized equipment," he noted.

As a result, an information chain develops from contractors to dealers to the manufacturer and then back to the contractor to get questions answered, which makes communication challenging and time consuming.

Some manufacturers and dealers have privately expressed concern about is that while selling direct to contractors over the Internet does eliminate a dealer and/or distributor’s markup from the retail price, suppliers’ prices are also then accessible to anyone with a computer and a modem. As a result, some suppliers are concerned that selling direct will force manufacturers to lower their prices and create even more price competition – a fear that Kinkead said is a benefit to contractors.

"Now our prices are published and fixed," he observed. "As more manufacturers start selling direct there will be more pressure on the different groups involved in the traditional distribution process to be bringing real value to the process. Otherwise they are only serving to drive prices higher and they are probably hampering the process."

One significant challenge Turfco will face, and one reason more manufacturers haven’t pursued the idea of selling direct to contractors more aggressively, is the contractors’ need for service support. As a result, Turfco has added a limited two-year warranty to its products and will be accessible via the phone for assistance in cases where equipment is shipped directly to a contractor and some assembly is required. In addition, Turfco continues to sign up servicing dealers.

"When the contractor handles the final assembly, he is going to know more about the machine, such as where the adjustments and settings are," explained Bill Lazar, quality and service manager at Turfco.

While Turfco recognizes that contractors may have to assume more responsibility in some areas, the company believes there are substantial benefits to be achieved in others that justify this shift.

"With the many mergers that have been occurring in the industry, especially among equipment manufacturers, the distribution system has undergone some major upheavals," pointed out Bob Brophy, lawn care products sales manager at Turfco. "We have had Turfco dealers who suddenly disappeared because they were bought out or lost their major lines due to a merger of manufacturers. We often ended up serving the customer directly because we had to."

Brophy said other dealers and distributors have made changes in their business approaches that have affected contractors.

"Many distributors and dealers are re-evaluating their own business methods and strategic plans," he explained. "More and more, they tend to focus on their primary lines and high-profit equipment. This is smart management for them, but making this shift has made getting the necessary information to the end users more difficult for specialty suppliers, such as Turfco."

Deere has also observed many of these changes taking place, while simultaneously watching the realm of e-commerce explode in so many other industries. The combination of these developments will result in a significant reduction in the number of dealers serving the industry, according to Rostvold. In addition, he predicted the nature of dealers’ sales will change dramatically in that time.

"There will be half as many dealers and the proportion of their revenue will shift from mostly whole goods sales to mostly parts sales and service work," Rostvold explained, adding that to make this shift dealers will likely have to service more manufacturers’ equipment. "One thing we’re asking our dealers to do is provide universal service. That means they’ll fix any brand of equipment. We want the John Deere dealerships to be the first choice for servicing all makes of equipment."

Somich agreed with Rostvold’s estimate that 70 to 80 percent of dealers’ current revenues come from the sale of equipment with the rest of the dollars derived through providing service and selling parts, but he said there is another factor significantly impacting dealers’ businesses.

"Dealers can’t find good mechanics," he explained. "So the mechanics they do have are getting older and aren’t as familiar with the new technologies, new designs and new products coming on to the market.

"Dealers are starting to find ways to get more profit from service and parts as their margins on the sale of equipment go down, but they can’t find enough mechanics to do as much of this more profitable work as they can do," Somich continued.

Rostvold said the unbelievable rate at which e-commerce is growing – experts report that Internet sales currently total about $300 billion and are doubling every nine months – means manufacturers have to start moving in this direction now.

"The first companies to pioneer e-commerce will gain a competitive edge that will determine their success or failure in the next 10 years and beyond," he asserted. "If you resist the changes taking place, you run the risk of being swept away."

IRRIGATION ALSO. The irrigation industry is also examining similar Internet marketing opportunities, although the distributors are the companies considering direct sales in this industry.

Bob Marsan, president, Marsan Turf & Irrigation, San Dimas, Calif., said that even though his company is selling online, he doesn’t think the Internet can ever fully replace the distributor. "The technical training and dialogue that happens between a distributor’s personnel and the contractors is lost online," he noted.

Bob Hobar, marketing manager, Irrigation Supply, Warrensville Heights, Ohio, said the company is selling commodity-type products online but that distributors have to be sensitive to the fact that they commonly have limited territories they can sell to, which mitigates the benefit of selling to contractors nationwide via the Internet.

"But I think the game is changing and eventually distributors will be able to sell products wherever they want," he noted.