The ongoing feuding at is.group is set to reach the courtrooms after the independent dealer network launched a series of legal actions against 62 former members last month.
The dispute centres around an undisclosed seven-figure sum is.group claims it is owed for merchandise the former dealers purchased and past due fees it is argued remain unpaid.
Some fear the dramatic escalation in the stand-off could cause severe damage to the network although group chairman Jordan Kudler told OPI he still hoped an amicable settlement could be agreed and many of the dealers would return.
"I understand that this will more than likely force a strained relationship between dealers and that upsets me," he added. "But we have an obligation to do what is in the best interest of our group.
"The frustrating part is that they’re not hurting is.group, they’re hurting their fellow dealers and I don’t think the independent dealer channel can afford to do that any longer."
The dispute among the US dealer community was sparked after is.group introduced its controversial regional distribution centre (RDC) programme in 2004.
The scheme was created by the is.group board and was designed to offer dealers a more efficient way to buy direct. The RDC programme allows the independent dealer to purchase from multiple manufacturers in a mixed pallet. Through is.group’s programme, which operates through three warehouses, dealers can buy from 23 manufacturers and 2,300 SKUs in one order, rather than having to raise 23 different purchase orders and pay a pre-paid minimum that drains dealers’ cash.
But despite the apparent advantages, 182 dealers walked from is.group, many of which were stockless, because they were not prepared to pay the required fee for a programme that they claimed didn’t work for their business model. The loss accounted for 11.4 per cent of the group’s direct buy.
Speaking to OPI, chairman Jordan Kudler added: "I believe that some dealers who felt they were due rebates held back paying for merchandise and/or fees as a means of offsetting what they felt they were owed. Nevertheless they purchased merchandise and didn’t pay for it and now those costs are being absorbed and incurred by other dealers in the group.
"After exhausting every attempt to resolve the issue, the Board of Directors decided to offer the delinquent dealers a settlement for a lesser amount than what was owed. Many of the dealers turned the offer down. At the last AGM we explained the situation and it was actually the overall membership that truly endorsed this action. There wasn’t a single member that I can recall who didn’t want us to collect the monies – they were extremely upset and disappointed."
Kudler maintained that had the group not faced the debts from the situation, is.group would have been "significantly" closer to breaking even in 2005, and would have been able to begin the process of paying members back for the investment that they made.
He said: "We really must begin working together to find solutions to enable us to increase market share. Taking money out of the pocket of fellow dealers by not paying for product or membership fees isn’t the solution. It’s unfortunate that this has occurred, but their legal obligations must be met.
"It is our hope that those who have received their suits will not want to take this any further so that we can put this all behind us and move forward."
Kudler said some dealers have already settled their cases, and added: "I don’t want to see any dealer have to incur legal expenses that would be necessitated by this. Nobody likes to initiate a law suit. And it certainly doesn’t lend to a positive relationship. This is money owed to is.group members, it’s money that is.group needs to be able to operate.
"As time goes on, some dealers may realise that they made some decisions that were understandably emotional but not necessarily well thought-out at the time. And some of them made decisions that perhaps were thought-out but the model didn’t work well for them. We lost many dealers in the last year but we only have 62 law suits pending at this point, which indicates that many dealers who left understood what their obligations and responsibilities were and they honoured them. For the remaining 62 dealers to take a position that it’s acceptable to walk away from their financial and legal obligations simply because they have a philosophical disagreement isn’t necessarily the right choice.
"And to make your fellow dealers, who you have been co-members with for many years, incur those expenses is even more frustrating and irresponsible.
"Many of the dealers did not fully understand the RDC programme when it was launched – they did not understand the mechanics of how the expenses of the programme were to be covered.
We would very much like to have this resolved. This is not an act of retribution."