Welcome to 2021 and our 130th Edition of ACG "Smart Parts!"
First and foremost, ACG "Smart Parts" wishes all of our readers a very safe and prosperous New Year. As we "hopefully" wind down from the Covid-19 Pandemic, we look forward to new horizons along with new opportunities in 2021 and beyond.
Our first issue of the New Year will be focused on a topic that is not new, but as time goes on, E-Commerce Marketing is becoming the "new wave" going forward. Even though E-Commerce has been out there for approximately 30 years, it has grown even stronger in the last 10 years.
In my opinion, even though many of us have heard or have been well aware of this new phenomenon, many also don't really know enough about it or have a clear understanding of what it really is or means. Even though some are already active, or have participated, we still may not have a clear understanding.
In this issue of ACG "Smart Parts", we will go into the details of E-Commerce and how it really works. Also, we will look at the inception and history of E-Commerce, and perhaps most importantly, we will define and interpret it's true meaning.
We have gathered data from various industry analysts and "bloggers" to break down E-Commerce Marketing along with our own perspectives here at ACG "Smart Parts". With this combined research and perspective, we hope to provide our readers a better understanding of how it all works.
First and foremost, we will start out with the history of E-Commerce and then move onto the definition from industry analysts. We will look at the E-Commerce industry in general and how it relates to the parts industry.
Our definition and breakdown comes from semanticsscholar.org with their great article titled; "The History of E-Commerce", written by Yan Tian, from the University of Missouri and Concetta Stewart, from Temple University and reads as follows;
"E-Commerce or Electric Commerce, also known as E-Business, refers to the transaction of goods and services through electric communications. Although the general public has become familiar with E-Commerce only in the last decade or so, E-Commerce has actually been around for over 30 years"...
They go on to say...
"There are two basic types of E-Commerce which we may or may not be familiar with. The first is "business-to-business", often referred to as "B2B" and the second is "business-to-consumer", or referred to as "B2C".
Another definition comes from a recent blog from www.nChannel.com, which defines E-Commerce as follows;
"E-Commerce encompasses any commercial transaction that involves the transfer of information across the internet".
Now that we have a basic definition, it's time to move on to how E-Commerce plays a huge role in the automotive parts industry and more importantly, how does it affect the everyday Parts Manager in our automotive dealership today.
Are you ready "Smart Parts" Readers?...because "Here We Go!"
First and foremost, in order for us to put all this into perspective in our world, we have to know how E-Commerce has entered into our automotive parts market. Our first clue comes from an E-Commerce website that deals in automotive parts in general in the aftermarket.
The website is "websitemanager.com" and here are some of the "features and benefits" while shopping for auto parts at their website;
- Individual Year/Make/Model Lookup
- Mobile Friendly Design
- Guided Searches Which Allows Filtering & Keyword Searches
- Automatic Data Updates
- Affordable Pricing
If you think about it, the one thing that has kept us separate from the rest is "cataloging". Sure, price can be an issue when we talk about competition, but we have always had the "goods" because we would have to look the parts up in order to get the part number in the first place.
Now, cataloging has pretty much gone public and the everyday parts entrepreneur can go online with their computer or smart device to look up their own parts. This leaves the only a few items left, which is cost, availability and how quick can I get it.
With the exception given to those manufacturer specific, dealer only applications that only a true parts expert can handle, (which I know many and truly respect), the majority of parts applications can now be researched by pretty much anyone who has a computer or smart device.
And this, in my opinion is where E-Commerce comes into play in our automotive parts industry from a manufacturer and dealership standpoint. With the partnership of E-Commerce Platforms, along with the manufacturer, and dealership encryption rights, it has all become "full circle".
Automotive dealerships can now sign up with an E-Commerce company that can bring more opportunity to reach a much bigger market than ever before. With affordable E-Commerce pricing, automotive parts departments can expand their sales and gross profit opportunities.
Not only that, automotive dealerships can also utilize these E-Commerce companies to reduce and perhaps rid parts obsolescence entirely. But like anything else there comes that old proverbial phrase which is "risk versus reward".
Dealership Parts Call Centers are also expanding due to E-Commerce websites, or perhaps even with their own E-Commerce websites to increase their marketing platforms. Volume parts sales has definitely found a partner with the concept of E-Commerce.
To me, this is what it all boils down to...when we consider the investment, the cost of maintaining the investment, turning parts inventory, profit margins and overall profit...is E-Commerce the way to go? Let's look at some of these "advantages and disadvantages" of E-Commerce;
Once again, our research comes from www.nChannel.com and we appreciate their contribution to this month's article...
Let's start with some of the Advantages from E-Commerce Marketing...
- Fast "Go To Market Time"
- Low Start Up and Monthly Costs
- Shoppers Shop Online First Up to 87% Of The Time
- Ability To Target Specific Customers
Disadvantages from E-Commerce Marketing...
- Lower Profit Margins
- Operating on "Rented Land", (i.e. operator rules, additional fees)
- Higher Competition
- Added inventory costs, (i.e. acquisition and holding costs)
The bottom line is that most shoppers are doing their shopping, searching, and comparing before they buy most products and services. The result is that in order to be "profitable" utilizing E-Commerce, volume has to be first and foremost, much like front end vehicle sales.
This means that we have to have a different perspective when comparing overall gross dollars versus retained gross percentages. After all, we can't spend a percentage, but we can spend gross dollars and that's the difference in my opinion with E-Commerce Marketing.
Speaking of price, I believe that there will be an "added" pricing level moving forward. In other words, when we look at our pricing policies, including the manufacturer, we always see a Suggested List Price, Trade Price, (Wholesale) and a Cost Price.
With E-Commerce, I think we can also add another price in that equation, which would be much like a "Distributor Price" which would lower gross percentages across the board. Now, we have to consider, perhaps new guidelines between List, Trade and Cost by adding another pricing level.
Current guidelines dictate that Retail Retained Gross Profit Margins at 40%-42%, 23% for Trade, or Wholesale with Cost as the constant. Now, with E-Commerce, higher competition, demand and higher volume, these guidelines that we have used for years may have a much lower retained gross percentage expectation moving forward.
With E-Commerce added into the mix, it wouldn't surprise me if the wholesale parts gross retention percentage guideline of 23% moving even lower if E-Commerce comes into play with the added customer reach and higher competition.
Or maybe, the wholesale parts gross retention percentage guideline stays at the 23% we are all familiar with and another parts gross retention percentage guideline is added at perhaps 15% for "volume parts" dealers that achieve specific sales numbers and levels that qualify and meet criteria in parts wholesale.
If this perspective becomes reality, this is where, in my opinion, those that do "dive into" E-Commerce for increased sales volume and the added "back end" money need to consider the added costs and risks that we haven't even mentioned yet.
The one key element that has to be considered is Inventory Gross and True Turns. If we are actively involved in Parts E-Commerce, the parts inventory must turn at industry guidelines or better. After all, purchase discounts posted into the "Discounts & Allowances" line on the dealer's financial are actually never realized until we sell the parts.
In other words, if I were to purchase a part that normally costs $10.00 for $8.00, resulting in a $2.00 discount, I never really receive that additional $2.00 profit, or discount until I sell that part. If that part doesn't sell, it would just result in a $10.00 increase to my parts inventory asset and a fictitious $2.00 profit of my financial.
If the parts inventory doesn't meet annual parts turn guidelines, acquisition and holding costs have to be considered into the "risk versus reward" category. Acquisition and holding costs are often overlooked as they don't appear on any financial page. Current industry acquisition and holding costs, (for any type of inventory) can exceed 25%-30% of the total inventory value annually.
On the other hand, this actual "back end" money can be realized as money back to the dealer when incorporated into the overall dealer's incentives offered by the manufacturers including front end sales and if all compliance levels have been met in the front and back end.
One last key element to an E-Commerce partnership, or developing your own E-Commerce website is "flow through" which includes Parts Call Centers, Warehousing and Distribution to meet customer demand. Availability, Delivery Efficiency and Customer Service will always lead over pricing, even though price plays a huge factor.
Amazon Prime is a great example of Customer Service and Availability as many of us experienced through the holidays and all the way through the Covid-19 Pandemic. They maintained all the key elements to a successful E-Commerce Business while always expanding their customer reach.
Here are some key questions, in my opinion that should be considered before "diving into", or venturing into E-Commerce Marketing....
- How much sales volume would have to be obtained to make it profitable?
- What would be the "True Cost" of Parts E-Commerce Marketing?
- What factors need to be considered when measuring this "True Cost"?
- How much is it costing to hold and maintain this added inventory?
- Is this E-Commerce profit "tangible", or just discounts that we don't see until these parts sell?
- Who are we competing with and what customers are we trying to reach?
In my opinion, volume will be the key in the successful E-Commerce
Marketer as the old saying or term that relates to "risk versus reward"
may now become "risk versus reach" because E-Commerce will require a
much bigger and wider market base in order to benefit and achieve
desired profit levels.
"Who's got it and when can I get it?" will be the future with price coming in third in this new race into this new decade. Having the right part at the right time has always been the key. Now, the new focus will perhaps be..."Who's got all the parts all of the time?"...
One thing for sure and in my opinion will never change, no matter what technology brings, or how the internet has expanded us globally, and that is "delivering the customer promise". Competition and expanding markets will always grow, and even if demand increases, the customer remains the same.
2021 is here "Smart Parts" Readers!....Let's Get Busy!