Dave Baiocchi Factory Stores coming to the U.S.?
This is the month we’ve all been waiting for! Back in January, all of the economic signs pointed to a stellar year, with record-setting revenue and profitability growth charted and waiting. Then the train jumped the track. I haven’t spoken to a single dealer who has set any records this year. From the pandemic to murder hornets, to social unrest, to a contentious election process, the effect on our businesses has been substantial. Who knew?
If you entered 2020 undercapitalized or over-staffed, you were forced to make some serious decisions. There is no “leading indicator” for a pandemic. It only took a couple of weeks to demonstrate how quickly it could spread, and how deadly it could be. Layoffs and furloughs had to be initiated quickly. We had to develop a “work from home” protocol for essential employees. We had to issue new requirements for PPE and physical distancing. Although our industry didn’t experience any government-mandated shut-downs, the conditions were still brutal, and the viruses’ effects will be felt for some time to come.
In times like these, we normally see a shift in dealer networks. For the last decade, we have operated in a fast-evolving industry. Finding synergies, and “economies of scale” have been the only way to increase profitability, both for the dealer and the OEM. Mergers and acquisitions have happened at a furious pace, on both sides of the equation. A low-interest-rate environment has only hastened the transformation.
Expansion strategies work well in a growing marketplace. Not so much, when a microscopic virus grinds the economy to a halt in a matter of weeks. Dealers that can’t financially endure the headwinds will look for an exit ramp. Mergers and acquisitions (and even shut-downs) are initiated not out of choice, but out of necessity. In a financial landscape such as this, finding a well-funded and motivated buyer for a dealership is difficult indeed. Private equity and dealer to dealer acquisition possibilities dry up quickly, as any investment capital is quickly siphoned off for operational needs. A tenuous short-term future also makes an ESOP less likely.
The results of all this disruption are not lost on the OEM. In an expanding market, the OEM normally focuses on developing dealers and expanding the dealer’s tools and capabilities in representing their equipment. When the winds shift, and the market shrinks, the focus of the OEM changes from development to preservation.
The OEM’s connection to the marketplace is predicated in great part on the population base of their equipment in the field. If a dealership is sold or fails, the OEM is at risk of losing their connection with that installed base. To preserve the base, the OEM may be motivated to either open a factory store, establish a financial partnership with the dealer, or purchase the dealership outright.
We see this happening more and more as our industry evolves into fewer dealers covering larger and larger market areas. Some OEM’s are very active and successful in entering the retail marketplace. Others have struggled to both understand, and operate a dealership in a profitable way. Much of this has to do with how motivated and prepared the OEM was to enter the retail market in the first place. Organizational fundamentals, management oversight, budgeting, service investment, and customer satisfaction are all areas where the OEM expectations may not dovetail with dealership best practices. When OEM’s enter the marketplace by CHOICE, they stand a better chance of success. Many acquisitions however originated out of a salvage operation.
All of the most prolific OEM’s have participated in dealer acquisition either in whole or as a minority partner: The following list of manufacturer/dealer acquisitions comes from an article from Intella Liftparts: July 2015: The History of Factory Stores in the Forklift Industry and manufacturer sites.
Toyota – Seven dealerships were acquired since 2007, mostly in the north, northeast, and southeast regions of the country. Most notably in July of 2020, they expanded their Atlas Companies (Chicago) holdings and acquired the Toyota-lift of Minnesota dealership in Brooklyn Park, MN.
MCFA/Unicarriers/Mitsubishi Logisnext – Six dealerships have been acquired since 2006. Locations include California, Texas, Mississippi, and Louisiana. In 2019, they purchased Equipment Depot, who subsequently then acquired (previously owned Unicarriers) dealers in Boston and Milwaukee in 2020.
Komatsu – When taking over the Kalmar AC forklift unit in 1988, Komatsu inherited existing factory store locations in California, Chicago, and Atlanta. They continue to operate these stores presently but have not recently expanded their retail efforts.
Doosan – Five branch locations are currently owned as of 2018 in Georgia and California.
Hyster /Yale – Although there were factory-owned retail branches as late as 2003, Hyster/Yale has not chosen to engage the retail marketplace in any meaningful way. Hyster/Yale has a complete product offering, exclusive dealer contracts, and a strong base of larger, multi-branch dealerships that make up its dealer base.
Raymond (Toyota) – 16 dealerships have been acquired. Raymond only has 28 dealers nationwide.
Crown – By far the biggest participant in the retail market, with nearly 30 factory owned locations opened since 1990. Only a handful of these however were dealer acquisitions. Long ago, Crown adopted a practice of opening a new factory owned location in places where a dealer changed hands, failed, or didn’t reach sales targets. To be sure, there are still privately owned, multi-line Crown dealers who are very successful with the product line. The future distribution plan however will no doubt, include many more “ground-up” factory store locations.
It’s evident that Both Raymond and Crown have entered, and continue to build their retail market presence by choice. Much of this is due to the nature of their core competency. A large focus on ITA Class 2 and 3 products, naturally draws them toward end-user projects that include integrated solutions. The complexity of these projects and the engineering required to successfully complete them requires far greater OEM involvement. Partnerships between integrated systems OEM’s and the forklift OEM also create profitable opportunities. Having direct control over all of these processes (engineering, integration, sales, and installation) is requisite to formulating comprehensive solutions for these customers, hence the migration toward factory-controlled sales channels.
Like it or not, our industry is changing. Customers are demanding more from us than simply sales and service. They want solutions. They want data. They want their investments to generate a provable return. If you don’t have the right offerings, the customer will vote with their purchase order. Lose too many, and the OEM may very well want to protect their market share with a new factory store, or through an acquisition…. although most likely not at the price you expected.
As an independent dealer, your best strategy is to grow and maintain a high-value customer offering, while also developing a robust succession plan. Position your practices (and your balance sheet) for extended verifiable profitability, and continue to cultivate personal relationships with your OEM in good times and in bad.
It has always been my position that independent dealers are a necessary component of the material handling industry. Their focus, investment, customer service practices, and long-standing customer relationships pair well with the OEM’s efforts to build and support quality machinery. The priorities and motivations of both parties are well suited when they work together.
Listen to Dave and Podcast host Kevin Lawton talk about Factory versus Independent dealers by clicking here.
Dave Baiocchi is the president of Resonant Dealer Services LLC. He has spent 37 years in the equipment business as a sales manager, aftermarket director, and dealer principal. Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance. E-mail [email protected] to contact Dave.
