Price erosion and protecting the vital role of the jobber

Eugene Zelek will present on price erosion at the 2015 SEMA Show.

by Jeff Sanford

Toronto, Ontario — October 14, 2015 — The SEMA 2015 event is right around the corner. This year’s event takes place in Las Vegas. It runs from November 2 to 6. Collision Repair magazine has been in contact with some of the scheduled presenters to give you a sneak peek of what to expect.

Eugene Zelek Jr., a partner with Chicago-based law firm Freeborn & Peters LLP, is a featured presenter on November 2. Zelek will lead two sessions focused on the subject, “curbing resale price erosion in the automotive aftermarket.”

The past several years have been hard on distributors and resellers of manufactured wares, said Zelek in an interview with Collision Repair magazine. The ongoing consolidation of distributors, growth in big-box retailing and the explosion of online sales have seen a serious erosion in price among traditional resellers. Those with a lower cost of doing business are undercutting sales of established players.

“This is a real concern on the part of many companies in the auto aftermarket,” says Zelek. “Retail price erosion happens any time competing interests have differing costs of doing business. For example, back when catalogues started being distributed, they could offer better prices than a brick and mortar store. The same thing happened when the big-box stores showed up. Now price erosion is being driven by the Internet. People who are selling stuff from their basement can just throw low prices out there.”

Radically lower prices can affect the business of jobbers or shops that offer a wider range services that go beyond simple sales. Zelek calls this the “free rider” problem.

“There’s no real technical support or any other service offered. These resellers are taking a free a ride on the back of the brick and mortar store,” he says.

There are things that can be done to stem price erosion. One way is to set and enforce a Minimum Advertised Price, or MAP. Creating a MAP, which Zelek has done for many clients, allows manufacturers to protect their brand image, or preserve a margin for, say, a jobber who is also offering training.

“It is lawful to set a minimum release price as well as an advertised price. That’s one of the things I’m going to be talking about,” says Zelek. “Many of the people we work with will say you can’t do this in Canada, but you can. The Canadian Competition Act was amended in 2009 so that you can do this. You have a right to do it. It has been decriminalized. In fact, the Canadian legislation was based on the American laws, so they’re quite similar.”

Zelek says these policies are typically put in place at the dealer or warehouse distributor level. But they then apply to a jobber, who are the ones who interface with the end user. Zelek also suggested those selling in the collision repair industry will want to keep an eye on Amazon’s announced move into the business-to-business sector.

“A lot of the collision repair stuff is a business-to-business decision. Amazon is the big bad wolf, and it is making a concerted effort to get into the B2B side. I think a lot of traditional retailers could be surprised by the effect this will have.”

Zelek is offering two sessions at SEMA. Both sessions happen November 2 in the Las Vegas Convention Center, Upper Hall North, at 10:00 am and 11:00 am consecutively.

For more information, please visit semashow.com.


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