Originally Posted by
John Beans
...Instead of working to become a more efficient distributorespecially with regards to online fulfillmentHobbico bought up brands as a beachhead, thinking, "If people want X product, they'll have to have us as a distributor."
Unfortunately, they took on a lot of debt to buy those companies, and meanwhile didn't improve the efficiency of their distribution operations enough to service that debt. By not improving their distribution, they in effect went down with the hobby stores....
becoming exclusive distributors is the way to get retailers to buy from a distributor.
Unfortunately, that makes two huge leaps of faith:
1). That one can pick winner and looser brands in a rapidly growing market.
2). That the buyer will not screw up the newly acquired business and turn it into a looser.
That process is, at best, a crap shoot, even for professional VCs.
For an average mediocre-managed company (small or large), it's a good way to waste a lot of money fast. Even if they get #1 semi-right, they always mess up #2.
Taking on a lot a debt was the management's fault as the company is an employee owned one.
No sympathy for bond holders.
It is 100% owners fault if they tolerate misguided management. No exceptions.
So that we are on the same page:
- i. No sympathy for all the retires and pension funds who rely on fixed income!
- ii. It is always "someone Else's fault" from the eyes of a worker bee... Even in case of # (i) above.
As for competing with amazon, they sold on the site.
The company got hurt by lost RC sales. They admitted sales where down and manufacturers were now selling direct.
The distributor business model is disintegrating in all market segments, for better or worse.
Between decreasing costs of direct customer access (via internet) and just-in-time supply chain, distributors who are not adding some unique value are becoming expandable.
Many still soldier on despite declining sales (music record labels, department stores, full service brokerage firms, etc), many more try to build their own direct-to-consumer sales channels via web portals.
Many try to bundle in customer support and service to stay relevant (home depot installation services, best buy tech repairs, on-the-site rocket motor dealers).
Otherwise, customers eventually find out that they can get what they want directly from the manufacturer at 5-25% less, by cutting out the distributors. The writing is on the wall.
The only immune market segments are those where distributors had cemented their position through past legal and political shenanigans.
Car dealerships, for example.
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