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Related Articles:  Business FinancingPhony Wholesaling Competitors and Example Letters to Retailers, the IndustryLocating A Business, Set-up,

/Go Rin No Sho of Business

The Issue of "Illegitimate Wholesaling"

Note: this piece was penned in the 1980's
Bob Fenner  

Some things may have been gained, but much has been and is being lost with the breakdown in the relationships between manufacturers, wholesalers, retailers and end-users.

In this article, I will present my ideas on the state of the pet industry distribution hierarchy, how we got here, why we should and must be concerned, and solid suggestions for what can be done to curtail these maleficent practices.

Oh for the "good old days"; when a manufacturer was a manufacturer, a distributor a distributor, a retailer a retailer and a customer a customer. Allow me to wax nostalgic here for a while longer. For those who have joined our ranks in the "nature business" only in the last few years. You may not remember "fair trade" debates and laws, nor have the time to follow legislation "protecting" full-service retailers. How many of you can recall when Silent Giant air pumps were a fair-traded item?

Let me tell you , twenty years ago, the industry was much more hierarchical, straightforward and might I add more enjoyable and profitable.

I. How Did We Get Here? What Happened?

Several things, some evolutionary, some outright strange and mysterious.

1) The United States economy dis-improved (! shock & surprise). In southern California, we had major shake-ups in the pet industry in and around 1973 and 1978; kind of coincidental with the oil embargos. Many of the marginal and "mom & pop", independent stores folded.

2) More, new, exciting hobbies, past-times and diversions became popular. Videogames, personal computers, dope, psycho-pop culture... to name a few.

3) An increased emphasis on immediate self aggrandizement, personal quantitative gain at any and all costs to any and everyone else. Yes, it's the me-generation pitch.

4) The concurrent general trend of lower quality and service from manufacturers and livestock sources with cheaper (equals more short-term profit margin) products and organisms. Why are these livebearers so small and short lived?

5) Manufacturers and distributor representatives and upper management being more harried and gullible; engaging in fast-buck profit taking by selling to almost anyone at any level "to move product" now!

Since time immemorial, exchange economies have had to deal with the problems of opportunistic attempts of "cutting out the middle man". The ultimate costs to all in our industry have been considerable and indeed are getting worse fast.

II. The Concern:

Is for the welfare of all parties at all levels & the livestock. The growth and well-being of our industry hangs in the balance of the interactions and understandings between and amongst production and distribution "players". Please refer to Illustration 1. My views on who the players are and their natural assigned functions are obvious.

It is my opinion that the practice of skipping a level (especially the distributor) in the process (hierarchy) of function between levels is destructive and unfortunately not self-limiting.

Under the guise of getting the most product out and the most profit in, in the shortest time possible on the local to national scope many pseudo-wholesale operations have sprung up. Have these illegitimate operations benefited us as business people and consumers? That is, have they provided us with the best products and services at the lowest price? I think not.

With some phony wholesaler/retailer operations buying at the distributor level and often time under-cutting legitimate retailers, many changes come about:

The education and support networks between real distributors and manufacturer and retailers are truncated. When these phony "wholesalers" sell only to themselves, who's going to train their people regarding benefits, applications and merchandising. This is part and parcel the role of the real wholesaler.

What really happens: Figure 2 illustrates the situation; in a given population and economic state there is a segment (%) involved in pets. Figure 3 shows as time goes by and the population grows, more numbers of people join the industry and hobby. In figure 3 I've tried to show the result of the retailer in expanding the proportion of the population involved in the pet hobbies. The role of the industry is to constantly be attempting to expand our market. Does cutting out the legitimate distributor affect this progress? Yes!

With unfair competition brought about by some retailers buying as distributors several dissident practices are triggered.

A) Within the geographic and economic community, sale of goods at lower prices with concurrent less service to the customer.

B) Ultimately, short to long term shifts in product lines to accommodate price wars between "competing" outlets.

C) Loss of certain manufacturers altogether.

Why? Simply selling goods cheaper without regard for service and quality results in no real market growth. Indeed, in San Diego, California, these practices have led to a loss of total sales & profitability over the last twenty years even with explosive population growth. Per unit population less real dollars are spent at a smaller margin with much less resultant profit to the retail trade.

Amazingly, no one benefits; except possibly for those few phony "wholesale/retailers" in the short term.

The Scenario:

1) Joe or Joan manufacturer rep. "sells" more "this time" to a "front" wholesale/retail operation and still to the legitimate area wholesalers who continue to service the other legitimate retailers. 2) Due to human nature (?) the phony wholesale/retailers try to move the large volumes of merchandise they've had to buy at discount to capture more existing market share and make a good return on assets (though less profit per sale). 3) Other retailers are compelled to sell at similar prices depending on the make-up of their target customer. A digression: your clientele may be divided into quality and service buyers, compromise buyers and price buyers. If you are fortunate enough to have a high proportion of the former, and you offer quality and service, you will be little affected by wholesale/retailers. Otherwise, you may have to drop the products or line as it is not able to be sold profitably.

4) The subsequent "bleeding" of the industry through these practices results in lower pay and less benefits to employees, more staff turnover and general unhappiness; less innovation and marketing at the all levels.

5) What we end up with is where we're headed. A dirty, cheap, uneducated, dis-interested, solely-greed motivated retail.

Who does this serve?

The manufacturers? They lose retail outlets, market, the help of legitimate distributors. Yeah, you've got it, money.

The distributors? They lose market share and the market, opportunities for making the industry larger and more professional.

The legitimate retailer? They lose sales and hobbyists altogether. In fact fewer hobbyists are recruited and others drop out due to insufficient, ignorant treatment by phony retailers.

Customers? As we all are, get cheaper merchandise and less viable livestock at the high price of less knowledgeable, adequately trained and compensated retail staff.

Why? The ignorance & small-mindedness of a few manufacturers who would rather turn a mote eye for the sake of a quick buck now and not a fair, reasonable and consistent treatment of all parties, ensuring the benefits of true competition.

III. What Can Be Done? Some Suggestions

1) Do not despair, be asleep, be a "whipped dog". Don't perceive you can't make a difference; you can.

2) Do be conversant with your legitimate distributors. You, they, we are all in this together.

3) Find out as much as you can regarding these practices in your area.

4) Collect information. Document who said what regarding whom. Clip out and save advertisements that are obvious proof of manipulation of the market.

5) Unite with other retailers and your distributors who are impacted by these phony wholesaler/retailers. See example letter 1.

6) Write the manufacturers and distributors involved and ask them what they know about the relationship they have with the wholesale/retail operation. (see example letter 2) Send evidence of collusion and carteling. In defense of some manufacturers, they are unaware of their of their lines being schlocked and very interested in curtailing the activity.

7) If necessary, organize a boycott of those lines/manufacturers with as many stores in your area as you possibly can unite, or...

Decide by inaction to lose market share, or... Lower your prices, margin, profitability.

8) Switch to other product lines made by an intelligent manufacturer. Generally only the border-line "garbage" manufacturers allow the promotion and perpetuation of phony wholesaling.

9) Get out of the area, the industry, and into another line of work.

In Closing:

I hope to have stimulated interest, ire and action on the part of people everywhere whose lives are impacted and impinged by these unjust practices.

I do believe in free enterprise and desire the continued growth and well-being of our industry. In other industries, "the government" has seen fit to come in and provide manufacturer et al. restraints. Let us put that off as long as we can.

You may write me through this periodical or at our corporate headquarters, Nature Etc., Inc., XXXX Arjons Dr. Suite X, San Diego, CA 92126.

Anthony Calfo... unethical practices   5/12/09
It has come to my attention that a former friend, pet-fish content producer has elected to steal from me by having printed and selling a work we co-authored... a "fourth printing" of Reef Invertebrates. I did not agree to this pressing nor to the cheesy ads promoting Anthony's 'zine et al. added to this edition. I ask that you not purchase this illegal edition and eschew doing business with Mr. Calfo period.
Bob Fenner

I disagree!! with illegitimate wholesaling            Dear Bob Fenner I must disagree with your view on wholesale retail stores.  Yes I would agree their are some out their hurting some stores in a few locations probably large metropolitan areas.  I believe in the last ten years though the multitude of online stores has put a larger hurting on the small ma n pop stores.  When a customer comes in to my store with a fosters and smith cataloged I cringe.  Especially when they show me they can buy the same products I carry at a cheaper price than I purchased it at. <I "lived" this situation as a retailer years back as well (the "letter" you are referring to I penned in the early eighties...>   I myself have considered ordering from them for drygoods. <Our service division actually used to do this... w/ Dick Boyd's Chemipure, Eheim... a few other lines... was cheaper than buying from ASU, LeeMar...>   I have sold many of tanks to many of people to have them come back a week later and buy fish.  Before selling them I inquire don't you need a filter heater dechlorinator etc..  Only to hear I already got them online.  What really burns me is when they bring in a faulty product they purchased their and want me to return it on the warranty because I also carry the same product.  In my eyes the real injustice to the hobby is the online store!!   <Times have changed... but not human nature. Be chatting my friend. Bob Fenner>                                    Sincerely                                    Nathan Poyner

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