---
title: "Distributors Losing Money: Time to Sell the Business"
description: "Distributors are increasingly finding their agency businesses unprofitable as brands pressure them to stock more inventory. The fundamental issue is that distributors are essentially outsourced teams for brands, earning a 'salary' rather than true profits. To survive, they must transform into independent supply chain platforms focused on serving customers, or consider exiting the business."
author: "任文青Andy"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-05-24"
language: "en"
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# Distributors Losing Money: Time to Sell the Business

> Distributors are increasingly finding their agency businesses unprofitable as brands pressure them to stock more inventory. The fundamental issue is that distributors are essentially outsourced teams for brands, earning a 'salary' rather than true profits. To survive, they must transform into independent supply chain platforms focused on serving customers, or consider exiting the business.

I remember clearly that a few years ago, when communicating with distributor bosses, I often heard statements like: 'I grew up with this brand; whatever the manufacturer says, we do!' These words reflected trust in the brand and a sense of pride as the manufacturer's 'partner.' Some distributor bosses even planned for their children to continue the business and serve the brand well. In the past year or two, especially this year, many distributor bosses have changed their attitudes toward the brands that brought them into the industry and helped their businesses grow. For example, a boss I visited earlier had always regarded the brand she represented as her entire career, and she did an excellent job in the market. But later, the manufacturer adjusted its policy, intending to turn her into a warehousing and distribution provider. Her business changed overnight. She said she used to think she was a brand partner, but now she realized she had been overthinking it. Almost simultaneously, another distributor boss told me that surviving the three years of pandemic was not easy, and his biggest takeaway was that he could no longer rely on a single brand as in the past. The risk was too high; his fate was not in his own hands. He began to change his business approach, spending more energy on expanding categories and brands.

During a recent market visit, I saw a case where a distributor sold about 600,000 yuan of a brand's products monthly but had over 10 million yuan in inventory. The distributor boss mortgaged his house and took various loans to barely keep the business afloat.

This is an extreme case, but it does reflect some current industry realities.

The manufacturer-distributor relationship has always been complex, and it has become more sensitive and acute now.

'I work hard, day and night, and have made significant contributions to the brand's regional market development. Why do I earn so little? Even lose money?'

Many distributors believe they are being squeezed by manufacturers.

But manufacturers think: 'We gave you the agency, invested in expenses, helped you build a team. Without our brand, your business wouldn't have started. In the early years, the brand made you money. Now, why can't you stock more to tide over difficulties together?'

In specific cases, each side has its arguments.

But from an industry development perspective, the sharpening of manufacturer-distributor relations is not due to any party's malice; the fundamental reason is the change in the overall market environment.

Since the beginning of this year, I have been conducting market research and observed: retailers are competing, distributors are competing, manufacturers are competing, and even within manufacturers, different departments are competing.

More than one brand executive told me: As long as there is a channel and a certain sales volume, factories can customize products, including specifications, packaging, and even prices, with great flexibility.

Up to 2024, many manufacturers lament that there are truly no incremental channels left, but the growth targets remain! The biggest headache for manufacturers is how to achieve sales growth; the most painful thing for distributors is increasing inventory and tightening cash flow.

A manufacturer is an organization that moves forward by inertia. Complaining is useless for distributors; the most important thing is to recognize the nature of the industry.

From the source, distributors are essentially the manufacturer's external team.

Many distributor bosses think they earn from product price differences and manufacturer rebates.

Actually, that's not true!

For example, suppose there is a 10-point margin. After deducting warehousing costs, logistics expenses, personnel wages, capital costs, and doing promotions, you'd be lucky to have a 2-3 point profit.

To earn this small amount, you need to invest a lot of capital, stock up to meet targets, cooperate with various policies, and put on a brave face. Many distributor bosses directly say this business is 'frustrating' and 'lacks dignity.'

But the question is, why do you still do it?

It's simple: Isn't it the same as a worker earning a salary, not wanting to work but afraid to quit?

Distributors are the manufacturer's hired external team, responsible for getting goods to terminals. Someone has to do this job, and this money has to be spent. You rent warehouses, hire employees, advance funds, and handle distribution. On the surface, you make money from price differences, but in reality, you are just earning a 'salary' paid by the manufacturer.

Distributors all say that agency business doesn't make money, and that's correct.

Because making money and earning a salary are different: profit is earned, salary is earned. You are the brand's external team; the financial 'profit' is, from a business perspective, actually the 'salary' society pays you.

In the era of growth, it was also an era of high 'salaries,' and many distributor bosses completed their initial capital accumulation and saved some wealth.

But now, earning this salary is getting harder. Especially this year, many manufacturers still pursue high growth targets, causing distributors' money to be tied up in inventory and accumulating external debts. Many distributors, upon careful calculation, find they are not making money at all, and may even lose everything.

So many distributors are seeking ways out and talking about transformation.

But what exactly is transformation?

Going online, cross-category operations, implementing digital systems, etc., are what many distributors understand as transformation.

But in my view, these are not transformation.

Recently, I visited a distributor with annual sales of 300-400 million yuan. The market is bad, but brand targets are not reduced. They follow a broad distribution model and lack the ability to deeply cultivate channels. The boss looked worried, with increasing inventory and no solution!

In contrast, another distributor has been deeply cultivating channels over the past few years, building a team to promote new products, and actively making brand choices and combinations. Although annual sales are only 60-70 million yuan, profits are 2-3 times that of peers.

I mention these two examples to show that many people think that if you have a large scale, you are a big distributor and have a say.

That's not true!

No matter how large the scale, you still earn a salary from the manufacturer. If brand policies change, the business may collapse.

Only when the brand you represent cannot do without you, and other brands entering the local market prefer to cooperate with you first, and you have a relatively equal relationship with brands, and you can say no to unequal treaties, can you achieve true transformation.

The key here is that you possess scarce resources, and that scarce resource is actually your customers.

If you ask distributor bosses whether their company is customer-centric, most will say yes.

But if you ask a different question: Who are you actually serving? Many distributor bosses will first think of the brand they represent.

The mindset of serving the brand is not wrong because, from the source, distributors exist because of brand needs; distributors are the brand's external team.

Then you say serving the brand and serving customers are not in conflict!

Actually, this involves a difference in underlying thinking, or it is a question of business values.

Serving the brand, you earn a salary from the brand. Serving customers, you earn profits from the market. The difference is that the brand decides whether to pay you a salary, while the market decides whether you can earn profits.

The advantage of the market is that if your service is better, your efficiency is higher, and no one can replace you, you can earn money standing up.

For example, a regional B2B distributor uses digital tools to cover thousands of small stores, evolving from a distributor to a local supply chain platform. With good service, high efficiency, customer recognition, and sales volume, brands naturally seek cooperation.

In the past, distributors were not scarce; brands and good products were scarce. Now, good products are not scarce; distributors who control terminal resources and have promotion capabilities are scarce.

'Distributor' is a term from the brand's perspective, referring to the manufacturer's external team. 'Supply chain platform' is a term from the terminal customer's perspective, referring to an independent enterprise.

Becoming an independent enterprise is the true transformation for distributors.

But honestly, not many distributors can successfully transform. In fact, I suggest that some distributors should consider exiting!

Recently, I heard of cases where some distributors, unable to continue, simply transferred their business to peers. I think these people are smart.

Why do I say that?

When business is tough, where is the way out? Distributor bosses often ask.

Expanding categories, expanding channels, doing B2B to serve small stores—friends who follow New Distribution are familiar with these directions.

But very few distributors can actually achieve these.

From market development trends and industry laws, there is no need for so many distributors; the vast majority will perish.

If so, why not recognize the situation and exit proactively?

After working hard for so many years and accumulating some wealth, exiting proactively can preserve the fruits of revolution.

Distributors who rely on a major brand, constantly being pressured to stock up, taking various loans, with everything tied up in inventory—this is something to be extremely wary of!

In the past, in the growth era, even if this situation was uncomfortable, distributors could still survive and earn.

Now the market is too competitive. If you are in this state, it may collapse, and decades of hard work will be in vain, leaving you with debts.

In the future, each region will be dominated by big distributors. If you don't have the strength or the ambition to develop, transferring the business or actively shrinking and gradually exiting is a rational choice.

Of course, actively choosing to give up is very difficult; most still want to maintain. If you maintain, don't pile all your money into inventory. Be sure to pay attention to cash flow and leave yourself room to maneuver.

The above is my personal opinion, for reference only.


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