In 2016, wholesalers have been under "attack from both sides" pressure. On one hand, raw material and logistics transportation costs have risen; on the other hand, warehouse fees, logistics costs, and product price increases have become difficult problems for wholesalers to solve. The 15% profit margin that once made wholesalers proud has become a "historical shadow."

Dividend Disappears Wholesalers Face Relocation or Transformation

"Wholesalers' own gross profit margin is around 15%," said Xie Xiaodong, General Manager of First Fashion Sales, citing an example: "For instance, taking diamond blades (click to view purchase requests) from Zibo at 28 yuan per piece, the freight to Chongqing is about 6.5 yuan per piece. Adding handling fees, the comprehensive cost is between 34-35 yuan. The normal wholesale price is 42-45 yuan per piece, maintaining a gross profit margin above 15%." However, he also mentioned that some wholesalers price too low, not even reaching 15%.

Xie Xiaodong admitted that this year, wholesalers in the Zibo production area saw a decline in sales. He analyzed that the main reason is insufficient terminal demand. Overall in 2016, if wholesalers' thinking kept up with the market, manufacturers, or OEM brands, their situation would be relatively better, but many faced significant pressure. "Because the market is difficult, price wars may break out."

In fact, the decline in wholesaler sales did not only appear in 2016; in recent years, the Zibo production area has been losing wholesalers. Regarding their destination, Xie Xiaodong analyzed that they generally move to cheaper production areas, such as Henan, Hebei, and Hubei.

Meanwhile, a reporter learned from communication with a Fujian wholesaler in the Linyi production area that currently, smaller wholesalers may have warehouses of only a few hundred square meters, covering only the local area. Larger wholesalers have warehouse areas ranging from 1,000 to 6,000 square meters, or even over 10,000 square meters. Previously, wholesalers competed to expand, taking large warehouses to cover a wider area, but now large warehouses have become an unbearable pain for wholesalers.

Annual warehouse costs of hundreds of thousands of yuan, product depreciation, and other factors constrain wholesalers from extending their reach. The aforementioned wholesaler lamented that the possibility of wholesalers transforming is very small because "one move affects the whole body." Once wholesalers transform, downstream customers may not follow, and the original resources and channels cannot be fully utilized. This is the main reason why wholesalers dare not transform now.

At the same time, the reporter learned from the enterprise perspective that rising costs not only affect enterprises but also put greater pressure on wholesalers. The reporter learned that increases in ex-factory prices, delays in production schedules and shipping dates, and time costs of warehouse stocking ultimately reduce the profit point to around 5%, directly leading wholesalers to relocate to other production areas.

OEM Processing Area Relocation Can It Save the Wholesaler Group in Shandong?

In this context, how Shandong enterprises attract wholesaler customers is a challenge.

Xie Xiaodong introduced that if Zibo's ceramic tile industry wants to retain wholesalers, the most common method is to take wholesalers to relocate to other production areas, that is, OEM processing area relocation, but the marketing headquarters does not move. For example, taking original customers to Hebei to reduce costs and freight, thus keeping customers in hand. The rest is to lead them to open specialty stores or specialty areas, but this process is relatively long and has many uncontrollable factors.

In this regard, he believes that wholesalers decide whether to sell a manufacturer's products based on at least several factors.

First is the pattern, which directly determines whether the product sells well at the terminal. Second is the price. Normally, those engaged in wholesale and retail consider these factors. Other considerations are relatively fewer. Then there are dealers with certain ideas and thoughts, or the appeal of brand naming, the connotation given by the brand, including support and supporting facilities, after-sales service support, software and hardware matching. The simplest is whether the materials' elements and design can set off the brand image and grade of the tile.

Xie Xiaodong further added that at the terminal, besides price, after comparing patterns and products, it is these "soft" services that influence their choices. "Some high-quality factory brands or OEM brands are also attentive in these after-sales services, the practicality of materials, and the display of brand elements in the store, which can support the brand's image framework. Hardware, such as tile-changing software, whether it is provided, and whether services are complete, are all factors that influence their decisions."

Additionally, he mentioned that there are many types of wholesalers. Some operate as companies with market departments, logistics departments, and financial departments, with clear division of labor. But most are family-run, such as husband-and-wife stores or brothers partnering to open stores. The general model is to hang the brand of Guangdong and purchase from various places. Regardless of the business form, ultimately it serves the wholesaler's self-positioning. Larger ones may do all types of products, while smaller wholesalers may do a single category or very few categories.

It is worth noting that compared to wholesalers in the Linyi production area generally choosing interior wall tiles, Xie Xiaodong believes that many wholesalers now come to the Zibo production area with the target products being diamond blades and marble. The group of wholesalers looking for ceramic tiles is getting smaller. Although the quality and grade of ceramic tiles in the Zibo production area are superior to surrounding areas, they are often more price-sensitive.

The reporter visited the production area and learned that in 2017, after Zibo uses natural gas, costs will surge directly, and it has become a consensus that the group of price-sensitive wholesaler customers will further shrink. Currently, the general direction in the production area is specialty stores. However, Xie Xiaodong also pointed out that brands like Dongpeng and Marco Polo have strong competitiveness in terminal specialty stores. Other second-tier brands, despite years of layout, are still in the "neither high nor low" stage, which is what Zibo enterprises need to consider.

Zichuan Building Materials City gathers a large number of wholesalers.

Two-Way Selection OEM Brands and Factory Brands Are Both Preparing to Lead Wholesalers in Transformation

Whether wholesalers should relocate to other production areas or transform together with cooperative enterprises is a question that enterprises are considering, and wholesalers are also hesitating. But from the survey results of the Zibo and Linyi production areas, ceramic enterprises in Shandong have begun to prepare for terminal transformation, and some wholesalers who are relocating have already started to transfer their sources of goods. Those willing to accept transformation have also begun to enter the reserve stage.

Xie Xiaodong introduced that one of his clients has achieved transformation. Previously, the profit from wholesale was too low, so they finally transformed into a brand specialty store, and they did not completely give up the original wholesale business, adopting a "step-by-step" approach.

At the same time, some larger production enterprises are also brewing transformations.

Gao Zheng, General Manager of Zibo Jinka Ceramics Co., Ltd., revealed that in 2017, the customer base of Jinka will undergo a significant adjustment, "mainly focusing on customers with specialty stores and specialty areas." Why do this? He introduced that many enterprises in Zibo have reached a point where they must transform. Internally, various costs will rise in 2017; externally, including Gao'an, Fujian, Henan, and Hebei, all put pressure on the Zibo production area, forcing enterprises to upgrade.

Moreover, for manufacturers, wholesaler customers do not bring much profit; they are more about "moving volume." And for the Zibo production area, some larger wholesalers represent a "buyer's market" for the area, and loyalty is also a consideration.

"For them, there are many alternatives. Moreover, the current homogenization is serious, and prices are pressed very low, so they have more choices," Gao Zheng analyzed.

In addition, Gao Zheng revealed that next year, with specialty stores as the main terminal form, enterprises will face the process of re-screening customers. He believes that some existing customers may be willing to follow Jinka's development route, but there may also be resistance to next year's product prices. "We hope to lead existing wholesaler customers to transform together, but ultimately it is a two-way selection process."

Now for Zibo, the dividend period for wholesalers has passed. "We can no longer rely on many patterns and low prices to attract customers. Moreover, doing specialty stores is not only about selling products well; after-sales service must also keep up," Gao Zheng mentioned. He believes that in the short term, the most urgently needed are professional design talents, and the future core competitiveness of enterprises lies in people's creativity.

Similar to the Zibo production area, ceramic enterprises in the Linyi production area have also begun the pace of terminal transformation. Enterprises such as Shuangfu, Dongsen, Aoda, Jiabao, and Jiabeite have begun to focus on the matching production of wall and floor tiles in product matching, to provide terminal dealers with more product and brand added value. It is understood that during the 2016 Zibo Ceramics Expo, Shuangfu Enterprise held a new product launch for marble tiles and announced its strategy for terminal specialty stores. At the end of 2016, Wang Yunzhi, General Manager of Shuangfu Enterprise, further revealed that because the newly developed marble tile series products received good feedback from terminal dealers, old customers have already asked about the specific support policies for terminal specialty stores. In 2017, after the development of other product series of marble tiles is completed, Shuangfu Enterprise will strategically shift to terminal specialty stores, with the enterprise driving customers to achieve simultaneous transformation of the enterprise and dealers.

Reporters: Cheng Xin, Wang Yicheng, from Shandong

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