About five years ago I began doing some consulting work for a medium size wholesaler who had one showroom at the time. They were doing about $3.5 million in sales and had five showroom salespeople. The gross profit margin on sales was in the 27% range. The company treated the showroom as a profit center and at the time was barely making a profit.
About five years ago I began doing some consulting work for a medium size wholesaler who had one showroom at the time. They were doing about $3.5 million in sales and had five showroom salespeople. The gross profit margin on sales was in the 27% range. The company treated the showroom as a profit center and at the time was barely making a profit.
In the short five years we've worked together, the sales have grown to $8 million in 2005. Margins are knocking on the door at 37% - and all of this is being done with seven salespeople and still out of one location.
I have had more fun working with these folks than any other client I've worked with - and this is why:
First, the owner and general manager of the business is one of the most dynamic leaders I've ever had the pleasure of working with. My first visit of three days resulted in about 20 pages of suggestions, ideas and direction. The owner took almost 100% of the suggestions to heart. He established a “Showroom Playbook” in the form of a spreadsheet that included what, when, who and how much.
Shortly after my first visit, a new showroom manager was hired. He had excellent retail sales experience and had worked in the showroom for this company for three years prior to becoming the manager. He was/is a consummate salesperson and has developed into an excellent manager.
Before I start passing along some of the information the showroom manager shared with me about his showroom operation, allow me to fill you in on some of the facts about this very successful wholesaler.
The business is about 50 years young and is family owned. The current general manager is second generation. The company has seven branches and enjoyed sales revenues of approximately $170 million in 2005. They have multiple product divisions and market their products to both residential and commercial customers. The company employs about 350 people.
Their main showroom is 3,200 sq. ft.; they opened a second showroom in November 2005, and will open a third in June of 2006. They recognize the value of showrooms and are committed to making them an important part of their overall business strategy.
I asked the showroom manager to what he attributed the incredible growth in sales and margin. He said that my first visit five years ago and the 20-page “Playbook” I gave them got them started, plus the fact that top management jumped on board and got behind the showroom concept. He indicated that the real key to success is the people that work there.
I asked where they find their people and was told that they basically promote from within. They advertise within the company. They look for people that they believe will be able to work with the public, will be able to learn all the products shown in the showroom and will be willing to work hard and smart.
There are seven salespeople generating $8 million in sales. This is more than double the industry average. I asked how they accomplish this and was told that they have a formal, written training program that starts day one and never ends. New showroom salespeople spend two to four hours with the major vendor partner reps. They “shadow” the more experienced salespeople. They study two technical training manuals (one from DPHA and the other from Annamary Kennell). In addition to this, they are required to identify every product on display and put a list price next to it. These folks also brought me in to teach my “Showroom Selling Skills” seminar.
The showroom sales are still 75% to the trades (50% to the plumber and 25% to the builder). The remaining 25% is direct to the homeowner and interior designer.
When I started working with these folks five years ago, they showed and sold mainly the traditional wholesaler products. Today they have a much greater diversification of decorative plumbing and hardware products. They are planning to build an all-new showroom of approximately 7,000 sq. ft. within the next two to three years. When they do this they plan to take a hard look at lighting fixtures, tile, kitchen cabinets and appliances. They feel that offering “one-stop shopping” to their customers would be a great marketing strategy.
Their showroom business was almost 100% to the plumbing trade. Their margin on sales was about 27%. The showroom P & L indicated the showroom was barely profitable. We decided to be very pro-active and did one of the more gutsy things I've participated in to help move margins up. We identified the plumbers that accounted for a majority of the showroom business. There were about 20 of them. We then made appointments to sit with each of them one at a time. We shared the showroom P & L and told them the showroom was in business to make money, not break even. We told them that their discounts would need to be reduced on all products purchased through the showroom or that the showroom would need to be closed. The plumbers were smart enough to recognize that the showroom rendered a great service and made their jobs a whole lot easier. All but one of the plumbers said okay - change the discount.
When we met with the plumbers we did a short exercise that really cemented the deal. We put the following example in front of them: Let's assume the order for a full house of finish plumbing products is $20,000 list. If the plumber were to get a 40% discount his net cost would be $12,000. Then, if he adds a 15% markup on the product, his profit on product would be $1,800. But, if his discount off list is 35% his cost of the product would be $13,000 and if he adds the same 15% mark up - his profit is $1,950. He actually makes $150 more by receiving less discount off list. We showed them that they would make more and so would the showroom. Plus, we pointed out that the showroom folks were doing all the work. Certainly you have to keep the plumber competitive in the marketplace, but the total effort has to be good for all concerned.
By starting with changing discounts off list by small increments (3 to 5% at a time) and by working to diversify products and customers this showroom has been able to improve margins by 10 full points (from 27% five years ago to 37% today). Sales have grown by double digits each and every year. Win-win for all!
I asked the owners of the business if I could use their name and give them full credit for their incredible showroom success. For various reasons they opted not to. I respect this - so have told you this successful story anonymously.
In summary, it's been my pleasure to work with these folks and share this wonderful success story with you. Industry averages on plumbing wholesalers' showroom sales and margins are still much lower than I believe they should be. If the bulk of your showroom sales are still to the trades, you might want to take a page from this playbook and be proactive in making your showroom business more profitable.
