In the past two years, a new industry phenomenon worthy of attention has emerged in the hardware and power tool industry: first-level dealers of tools in many provincial capital cities in China have voluntarily given up on the top brands of power tools that have been in business for many years. The agency rights of first-line brands, which were once regarded by practitioners as “earning a pass”, have now become a “hot potato” that many provincial wholesalers avoid.
Once upon a time, the leading brand in the domestic power tool industry was a scarce resource that all dealers flocked to. Obtaining agency rights was almost equivalent to holding the golden key to stable profitability.
In the years when the real estate industry was developing rapidly, lithium battery power tool products were in short supply for a long time. The production capacity allocation of leading brands directly determined the income scale of provincial dealers. Some practitioners joked that the statements of senior executives of leading brand factories at that time would even affect the annual revenue of many small and medium-sized provincial wholesalers.
When the market is at its best, some leading first-level dealers can sell millions of yuan of big-name electric wrench products in a single day. Often, the big-name lithium battery wrenches for semi-trailers have just arrived at the logistics point and have been sold out by downstream retailers before they are brought into the dealer’s warehouse.
In order to operate the big-name agency rights in their hands, these provincial dealers also invested massive resources
: From the customer screening in regional markets, the establishment of exclusive sales corners in terminal stores, to regular customer maintenance and the marketing of new product SKUs, the channel resources and brand recognition accumulated over many years of operations have long been deeply bound to the big names of agents. Giving up agency rights is almost equivalent to handing over the resources that one has worked hard for many years. This group of dealers collectively chose to “cut off the flesh”, which is the result of the superposition of multiple industry pressures.
The first is the change in market logic
: The hardware tool industry, which has lost the blessing of rapid real estate development, has fully entered the stage of stock competition, but the operating logic of leading brands is still stuck in the incremental market stage. Every year, first-level dealers are given sales tasks that increase year by year, which completely does not match the current market consumption growth rate. Provincial dealers are overwhelmed by performance tasks.
Secondly, inventory pressure continues to be high: leading brands launch a large number of new SKUs every year, and force first-tier dealers to purchase and distribute the goods. When the market is good, the turnover of goods is fast, and these new products can be sold quickly. However, the current market is sluggish, and the sales rate of new products is extremely low, which can easily become unsaleable inventory. The pressure of a large number of SKUs puts dealers’ capital chains in a tight state for a long time.
The third is the vicious involution that dilutes profits: leading brands often have multiple first-level dealers in the same province. In the existing market, everyone sells products at low prices in order to grab customers. Under the vicious price war, the profits of big-name products are infinitely compressed, and eventually they become traffic-draining products that “make money but not make money”.
In an environment where the industry is in an overall downturn, e-commerce prices are inverted, and offline retail store closing rates are increasing, leading brands cannot provide stable profit margins for dealers, but also occupy a large amount of cash flow and inventory resources. Naturally, they are no longer the first choice for provincial wholesalers. Many dealers have turned to operating cost-effective regional brands or private brands, and flexibly adjusted product structures and pricing strategies, which has resulted in better living space.
