EB: Margin for error

 

Change in Spicers’ off retail pricing raises dealer concerns

 

On the eve of its inaugural Everything For The Office Show (EFTOS), Spicers UK has found itself on the receiving end of criticism from its dealers after the wholesaler announced some pricing changes to its new catalogue.

 

As opi.net understands it, new products in Spicers’ 2011 catalogue will be priced to dealers at 31 percent off retail price instead of the traditional 33.3 percent off retail.

 

The issue was first brought to the attention of opi.net by Steve Harrop, Managing Director of dealer group Office Friendly (OFDA) – which has close ties with Spicers’ main UK rival, VOW – who blogged on the pricing change at the end of November.

 

Despite the VOW connection, Harrop told opi.net he felt that the issue should not go unnoticed or uncommented on, not as a dig against Spicers (many OFDA dealers still do some business with Spicers anyway), but out of a fear that reduced off retail discounts could become the norm.

 

"This kind of change is something that is easy to introduce," he said. "I’m not suggesting that 31 percent will become the norm across all product categories, but the concern is there."

 

Questions were raised by dealers contacted by opi.net about what would happen to the off retail discount in future years as more new products were introduced into the catalogue.

 

The change has certainly taken dealers by surprise. According to a number of sources the news of the off retail pricing change came out of the blue in the form of an email. Dealers, even major ones, had not been consulted.

 

The timing of the announcement has also angered some Spicers’ customers. Coming as it does towards the end of the year, catalogues have already been printed and dealers find themselves unable to pass on the higher relative prices for the new products to their end-user customers.

 

While the importance of off retail pricing and blanket discounts to end-users has diminished in recent years as more dealers favour a net pricing model, a significant number of dealers still use off retail, either as their main pricing model or as a fallback for products not included in their own net pricing structure.

 

Having said that, the proportion of products that actually qualify for the traditional 33.3 percent off retail pricing has also been diminishing over the years as wholesalers move into new product areas such as EOS, FM and business machines, which have not been subject to historical pricing models.

 

Spicers’ UK Managing Director Alan Ball was irritated by the reaction to the pricing changes.

 

"We have not made any margin changes for new products in the catalogue. We have a number of product categories that attract different discount rates," he said in an email to opi.net.

 

He continued: "Unfortunately there seems to be an overreaction without collecting all the facts. It is ironic that we are being chased for this perception in margin erosion yet the industry seems happy to accept wholesalers owning direct contracts supplies and direct to end-user websites – isn’t that 100 percent erosion of margin-

 

One argument that Spicers is reportedly using is that the price changes only relate to new products that dealers have not actually sold before, so therefore there is no margin erosion. Again, what happens over time as more ‘new’ products come into the catalogue?

 

There have also been suggestions that new products this year have been performing more strongly when compared to traditional products – if this trend continues, then that would automatically mean a drop in margin for dealers next year.

 

Another argument against the move by Spicers is that the wholesaler has already priced in its own margin enhancements when new products are added to the catalogue. This could be in the form of rebates, marketing programmes or incentives from manufacturers to help kickstart sales of these products.

 

OFDA’s Steve Harrop was keen to point out that wholesalers have to manage their own margins too.

 

"Companies have an obligation to their own profitability and their shareholders," he said.

 

"How they price to their customers is a decision for them to take and I can’t criticise any company for doing that."

 

Spicers has been under pressure to improve its own margins for some time, but some are seeing this sudden pricing change as something of a ‘quick fix’.

 

"We don’t have a problem with Spicers operating profitably," one dealer told opi.net. "However, it’s also important that they understand that dealers’ margins have been falling in recent years. We should be working together to improve margins right along the chain, not in this way."

 

Spicers’ Alan Ball said that himself and his team were due to meet with dealers at the EFTOS event in Coventry this week to discuss the issue. We hope to be able to bring you details of the outcome of that meeting shortly on opi.net.