---
title: "Beware: The Dealer Inventory Transfer Trap"
description: "Recently, topics about dealers have become hot in the marketing and sales circles. Experts are diagnosing and offering advice for local Chinese dealers. Are Chinese dealers really being marginalized as many experts claim? We believe the answer is no. In fact, local Chinese dealers can escape their current predicament by correcting one aspect of their work."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-09-02"
language: "en"
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# Beware: The Dealer Inventory Transfer Trap

> Recently, topics about dealers have become hot in the marketing and sales circles. Experts are diagnosing and offering advice for local Chinese dealers. Are Chinese dealers really being marginalized as many experts claim? We believe the answer is no. In fact, local Chinese dealers can escape their current predicament by correcting one aspect of their work.

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Recently, topics about dealers have become hot in the marketing and sales circles. Experts are diagnosing and offering advice for local Chinese dealers. So what is really happening with local Chinese dealers? Are their fates really being marginalized as many experts claim? We believe the answer is no.

In fact, local Chinese dealers can escape their current predicament by correcting one aspect of their work. Through long-term practice and research, we have found that dealers who focus on actual sales have at most encountered development bottlenecks, which is a problem any enterprise would face and is not surprising. However, there is a type of dealer that is indeed facing the dilemma of being marginalized: those whose daily work is simply buying and selling wholesale. They use social connections and information asymmetry between supply and demand in certain regions to profit from price differences. Their value in the distribution chain is merely "inventory transfer," and nothing more. These dealers are indeed finding life increasingly difficult.

We know that any link in the product distribution process exists because it provides value to other parties. As the distribution environment changes, product information is transmitted more rapidly and abundantly, and transportation becomes more convenient. The value of intermediaries who merely transfer products is diminishing in more and more product categories. The distribution value of "inventory transfer" has dropped to a level where advanced technological means can replace it, so dealers who make a living through "inventory transfer" face elimination. What has led so many local Chinese dealers to adopt "inventory transfer" as their standard business practice? There are two main reasons:

First, imitation of manufacturers. The primary function of sales departments in local Chinese enterprises is "inventory transfer." By transferring inventory to dealers, they quickly realize product revenue. Thus, dealers have long imitated the manufacturers' niche model. This low-cost business approach brought substantial profits to dealers during China's economic recovery, because in that era, people's expectation was to own more goods—the so-called "mass production, mass sales" period. Consumers demanded only one thing from manufacturers and merchants: "Give me more products." This phase lasted at least 10 years.

Second, the imprint of the planned economy's commercial mindset. China's 40-year planned economy left a mark on two generations of business operators: the state stipulated profits for all parties involved in circulation, and these profits were protected by the state. Each link in the product circulation chain could earn profit by simply "moving" the same quantity of goods to the next link.

The business practice of profiting through "inventory transfer" has been in place in mainland China for a full 50 years, until foreign modern commercial distribution enterprises entered the mainland. Modern retail enterprises represented by "Walmart" and "Carrefour" proposed "Everyday Low Prices," which matched the expectations of the second development stage after economic recovery: "Give me cheaper products." Consequently, price wars became an inevitable product of the second stage of economic recovery and swept through mainland China. Squeezed by retail prices, dealers had to give up part of their "inventory transfer" profits to compensate for retailers' profit losses, and dealers' operating income began to deteriorate. Of course, modern wholesale businesses represented by "Metro" also attacked local Chinese dealers who profited from "inventory transfer." They repackaged products for greater purchasing and consumption convenience and repriced them accordingly, squeezing dealers' "inventory transfer" profits once again. Market rules have proven once more: profits belong only to enterprises that provide value to the market.

The leapfrog development of mainland China's economy has brought the third stage of economic recovery earlier than expected: "Give me better products." In this stage, the functions of product intermediaries typically undergo major adjustments, yet the demand for intermediaries will increase significantly. This is a golden opportunity for all Chinese "inventory transfer" dealers to rise again.

Walmart was born in the 1960s and rose in the 1980s. Its success secret is sixteen characters: "Everyday low prices, excellent quality, employee satisfaction, customer satisfaction." "Give me better" is precisely the winning weapon hidden behind "Everyday Low Prices." A large part of its success is service success.

So how can local Chinese dealers escape the "inventory transfer" trap and successfully transform? Our "prescription" is as follows:

1. **Step out of the "distribution" vicious circle**
"Distribution" itself is a historical product of the "inventory transfer" economy, which predestines dealers to be appendages of manufacturers. Currently, two main factors constrain dealers' status: lack of market pricing power and manufacturers' pressure to increase sales volume. As a result, dealers bear heavy capital pressure on one hand, and on the other hand, their capital returns are subject to manufacturers' control due to lack of pricing power. Dealers can only accelerate inventory capital turnover to compensate for the shortfall in capital returns, making the chronic problem of "cross-regional dumping and channel conflict" inevitable. Therefore, stepping out of the narrow positioning of "distribution" is the only self-rescue method for Chinese dealers. Below we introduce how to step out of "distribution."

2. **Add value to your products**
The so-called value-added method for merchants is actually simple: provide services. Services do not necessarily increase costs but improve cost performance. For example, improve product display, recombine products, customize for old customers, improve shopping environment, provide convenience, etc. The essence is to make consumers feel they get more. Of course, one important thing you must do is: never provoke price negotiations with consumers or customers, making them price-sensitive, because any party that initiates negotiation, unless it holds significant negotiation resources, will be the loser.

3. **Focus on building a commercial brand**
There is a strange phenomenon in the dealer circle: many capable merchants are reluctant to build their own commercial brands. The reason is also strange—not because they fear spending money, but mainly because they fear the industry and commerce bureau will impose more taxes, and they fear manufacturers will notice their wings have grown strong and "cut" them off early. In fact, reasonable tax avoidance is legal and legitimate; of course, tax evasion is not something we can condone. Moreover, if you are always afraid of being "cut" by manufacturers, you cannot win a fair and reasonable position with them, and being forced to lower capital returns is your own fault. Being "cut" by other merchants for cross-regional dumping is also self-inflicted.

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