IRVINE, CA (BRAIN)—Shimano plans to revise its distributor and retail pricing for aftermarket sales of its high-end components effective Jan. 1. The change, which will reduce margins throughout the supply chain, is an effort by Shimano to help combat pricing from on-line discounters.
The margin reduction should give IBDs more competitive pricing against on-line discounters who have steadily eroded part sales at retail. Distributors, however, are unhappy over the reductions and say that Shimano should do a better job of controlling gray market sales.
Jeff Young, Shimano’s senior manager of sales, said the company must streamline its supply chain to be more in line with the global market. “To do that and maintain service levels through our distributors we are forced to reduce margins across the entire supply chain,” he said.
“We could promise retailers 60 percent margins, but if retailers can’t actually reach that level in today’s market, it’s a false promise. This new margin structure, while lower on paper, allows retailers to realize a greater margin than the current market allows and will keep them ‘in the game’ if discounting is needed to compete.
“Is it ideal? No. Is it progress? Yes. And while imperfect, we didn’t want to wait for the perfect solution to take action. IBDs just can’t wait any longer,” said Young.
Several factors are driving Shimano’s efforts to bring component pricing more in line with consumer expectations—expectations too often driven by the Internet. Among them:
* Loss-leading and cutthroat pricing from overseas on-line discounters who also collect no sales tax.
* Retailers confronted by consumers demanding prices more in line with prices they find on the Internet.
* Shimano’s global operations, which serve hundreds of OEMs worldwide, make it all but impossible to control gray marketing.
QBP’s Steve Flagg said he wanted to be careful in commenting on the pricing. But, like others, Flagg said he believes Shimano needs to be more aggressive in controlling potential gray marketing of OEM parts.
Another distributor, requesting anonymity, said, “The way I look at it is that Shimano has a problem with Internet sales in the international market and they are penalizing us in distribution. Why should we pay for it?” he asked.
See the January issue for a complete story on Shimano’s plans for its new pricing program.