June 4, 2007 – Dealer beware: Free flooring can be a true oxymoron
June 4, 2007
Filed under Columns
Oxymoron (n) — a contradiction in terms, from the Greek oxymoros, literally, pointedly foolish.
Free flooring is how a manufacturer or distributor shifts the burden of inventory to the retail level. It is not pointedly foolish for the manufacturer — they have it anyway, might as well park it in someone’s retail inventory.
From a retailer’s standpoint, it is anything but free. You have given up the only thing you have to make a living with, your retail presence.
I have just completed an extensive trip that put me in the showroom of dealerships in Massachusetts, Ohio, New Mexico, California, Texas, Florida and South Carolina. I was following up with client dealerships that have recently implemented dramatic changes we have developed in their sales process. The good news is the new process is working and that the definition of “customer” is truly being expanded. Yes, you can influence a customer’s buying decision by making it easier to buy, but you do need to be offering what the customer wants.
Many of the dealerships I visited were metric. You do not have to be an expert or an enthusiast to note how out-of-date Honda product is. Honda executives need to wake up and smell the gefilte fish. Go on the showroom and watch as customers walk by those stale CBRs and go straight to the GSX-R Suzuki models. Yamaha, Suzuki and Kawasaki are all offering cruisers that are much more in tune to the marketplace. Having product in single line Powerhouse dealerships does eliminate the immediate comparison but does not hide how out-of-date Honda motorcycles have become. It is disappointing that a company with such a long history of innovation has found itself so far behind the curve in the way of product offering.
For a dealer, if you have too much inventory and you are looking for someone to blame, look in the mirror. Hot product that people want to buy does not need free flooring for dealers to stock. You placed the order. Did you think that cold product would somehow get hot again? For many years I’ve talked and written of the “FIG” factor. When you buy out of Fear, Ignorance or Greed, you are setting yourself up to having a whole lot of the wrong inventory to move. Buy at wholesale what you are confident you can sell profitably at retail. Anyone who wants you to do anything else is not your friend. No one has ever gone broke for what they didn’t buy.
I have encountered several dealers who told me that some OEMs have frequently made “mistakes” in the shipment of product. A truckload of hot sellers somehow shows up with product that was not ordered. A strong need for the hot models compels the dealer to accept the entire shipment, as the only apparent option is to refuse the entire load.
There is another option.
Note clearly on the bill of lading the merchandise that was not ordered. Follow that with an immediate phone and written notice to the OEM, and flooring company, stating that you did not order and will not pay for the product shipped in error. Be kind and cooperative and offer 15 days free storage for the bikes that clearly do not belong to you, and insist that they come and pick it up.
As a dealer you need to control the only thing you can control, and that is your dealership. You are much better off paying the prevailing interest rate for inventory your customers want to buy. Free flooring on bad inventory has put more dealers out of business than anything I am aware of. Just say no to what is clearly a pointedly foolish thing to do. Cheers, Ed. psb
Ed Lemco has been involved with the powersports industry for more than 30 years. Lemco, the former owner of Lemco Management Group, is the founder and executive director of the National Council of Motorcycle Dealer Associations. Lemco currently operates a call center for dealers in St Croix.