Thanks for the insightful article on zero margins (September 8, page 1) - it's all pretty scary really. But you neglected to mention some of the problems with this model and there are some half truths hidden there too. All is not as it seems.
Firstly, let's look at Wholesale Direct. The truth is that they have not been selling at zero margin but at Tech Pacific's "dealer" prices which are several per cent above what Wholesale Direct are buying at. All Wholesale Direct is doing is consolidating end-user sales onto its account to build a better buy break for itself. Frankly, anyone who says they are selling at zero margin is lying and I would love to go to court to prove it. It is nothing but a marketing sham.
Which brings me to my second point. Express Data should be thoroughly flogged for letting an insurance salesman by day sell Express Data gear by night (September 1, page 1) - no offence to Alan Ha, I am sure you are a nice, entrepreneurial type of guy. But whatever happened to "qualified dealers"? We're not selling refrigerators here, Alan. There are lots of ethical and practical questions that must be asked before we all rush into "virtual warehousing", or VW for short.
Express Data (or any VW supplier, VWS for short) is only the fulfilment house. It only has a responsi- bility for the transaction between itself and the dealer it sells to - not the end user. If there are support or warranty issues, for example, the virtual warehouse dealer (VWD) has to both provide the services and wear the cost of these. Where is the VWD when things go wrong? At work selling insurance!
How can such a person support the extremely technical requirements of what they sell when they have to give their real boss 100 per cent commitment between the hours of 9 to 5.
You see, the VWS doesn't give a rat's backside about this because all it's concerned about is the sale (at normal margins, mind you) and it cares even less about the margins the gear is on-sold at. In fact one VWS said to me that he didn't care if his goods were sold at cost - it was healthy competition. No, my friend, it's manipulation of the market and the only one who benefits is the VWS.
The actual sale is made between the VWD and the customer. It is their responsibility to collect money (and incur at least 3 per cent in credit card or cheque handling fees), place the order correctly (let's assume that the customer actually knows what they want), expedite the goods (place an order on the VW supplier) and finally pay the VW supplier (reconcile frequently incorrect orders). Now if the delivery goes wrong (and an alarmingly large proportion of them do), or the goods are DOA or simply not quite right, there are extra costs. I estimate that up to 30 per cent of VW sales have attendant support issues just like these and it's the poor VWD that has to wear these hidden costs.
Then there are the costs of running the Web site, costs of communication and the costs of simply doing business (tax returns, complying with statutory requirements etc). If this doesn't all add up to at least 5 per cent of the sale price (including labour) then I want to know why (unless of course you're domiciled in the Cayman Islands).
With the GST next year, the business administration and compliance costs will be even worse as most of these net jockeys currently buy and sell tax inc, and are not required to remit Wholesale Sales Taxes. Boy, will they wake up with a fright.
We have been testing virtual warehousing for more than a year now, and frankly we are very hesitant to let it out to many of our 1000 or so dealers across Queensland. It opens a very big can of worms that we honestly feel would be best left closed. However, "progress" being what it is will force all major distributors to adopt this "business model" in the not-too-distant future. I just hope that the end user who got the "bargain" realises that the VWD can virtually disappear just as fast as they virtually appeared, leaving them with little or no recourse to the VWS.
Intermedia Group of companies