Retailers fuming over bulk buy deals
- 29 November, 2006 08:47
Independent resellers are calling for an end to below-cost deals between vendors and bulk buy retailers.
A recent example saw Perth-based online trader, Nintek, advertise Asus 22-inch MW221U monitors for $569 including GST and national delivery. The product was sourced from and delivered to users by Queensland distributor, Cellnet. As a condition of the deal, Nintek secured 200 pre-paid orders from customers. The offer closed on November 17.
The MW221U pre-release monitor was being offered by Ingram Micro and Bluechip Infotech for $550 excluding GST and shipping. It has a listed RRP of $799.
The offer is the latest in a raft of similar deals advertised by bulk sellers. In September, online retailer, Bulkbuy, posted a Seagate 500GB Sata II 7200rpm drive for $289 including GST and delivery. According to rival retailers, the wholesale price for the item was $320 excluding GST. Aus PC Market director, Michael Vorsterman, said below-cost bulk deals had gained traction over the past 12 months. The retailer sells PCs, components and accessories online and via its Sydney shop front.
"When someone sells a Dell product, or an overseas product which is not distributed here, that's fine. But when it's sold by everyone via local wholesalers, it's not acceptable," he said.
Vosterman raised the bulk buy issue with several suppliers, including Altech and Digicor, as well as other resellers across the country.
"Most local wholesalers, when made aware of our concerns, agreed it's not in their best interest to do this kind of 'unrepeatable pricing' business as it harms their long-term prospects with the rest of their customers," he said.
Recently appointed Cellnet sales general manager, Martin Bicknell, said the Asus monitors had been sold to Nintek at a discounted rate of $20-$30. However, he insisted the figure had not been below cost despite having to source through a competing distributor due to supply issues. Bicknell suggested it was Nintek's decision to cut its margin that had driven the price down.
"Do you sell 200 units you make margin on or walk away from the deal?" he said. "There are always situations where a vendor agrees to pricing and some retailers get an advantage over others. But if we said a reseller's pricing was unfair, we would have to deal with the ACCC. It's a tough issue.
"If I were one of the other resellers, I would be unhappy. But how Nintek runs its business is up to them."
Altech managing director, Antony Sheen, said it refused to engage in bulk product dumping.
"When vendors do this [discounting], they kill their own product margins," he said. "It puts strain on resellers who purchase and keep stock as they wind up $20-$30 more expensive than those who get the special deals."
One of the primary fears resellers expressed was the deterioration of service levels from lower margins. In the Seagate example, customers were left waiting for several weeks for their stock to arrive. Many commenting on the deal in a Whirlpool user forum said they had complained to Seagate with limited success.
Online reseller, EYO Technologies, was also upset by the Nintek and Bulkbuy deals. It complained to Asus and Seagate but had not received official responses at the time of press.
"The bulk dealers can sell cheaply but when it comes to complaints it puts a bad name on the vendor," EYO staffer, Nikol Su, said. "I understand offering product a bit cheaper for a volume deal, but with the prices these bulk dealers are getting, us normal resellers are paying $40-$50 more than the street price. It's not right."
Altech's Sheen said it preferred to keep prices steady and reward volume resellers with extra free product.
"A couple of years back we cut off some resellers for selling too cheaply and dumping product. What we found was that our sales of those products went up 100 per cent in the next two months. It helped everybody," he said.
Bluechip Infotech senior product manager, Rosanny Zhao, also complained to Asus. The MW221U wholesale price has since been reduced to $510 excluding GST but she said that wasn't good enough, especially given the monitor was a premium product.
Plus Corporation managing director, Nigel Fernandes, said deals like Nintek's made rival resellers look bad for not price matching. But securing larger bulk orders for less popular items was a strong incentive.
"The vendors are bastardising their own market by taking a bulk order so cheaply. But it's a tough market," he said. "We understand why they are trying to stimulate interest. The way the market is today, I can't blame anyone for doing anything. It's one of the worst times, and has been that way for the past 12 months. I think it's just going to get worse."
Aus PC's Vorsterman called for retailers to band together and form a retailers' association.
"We need to make people aware of this issue," he said. "Many of the people I've spoken to don't know what's going on."