Jobber News Canadian Jobber Business Survey: Dollars & Sense

Analysis By Andrew Ross

Data Gathered By G.V. Bramm & Associates

When beginning a journey, it is always advisable to start at the beginning. When thinking of conducting research, it is always best to do the same.

That is, in essence, what the first Jobber News Magazine business survey sets out to do. In the parlance of the researcher, we are setting a benchmark. While research into the overall aftermarket does exist, it is mostly U.S.-based, and as such may or may not reflect the Canadian reality.

If anything, the last few years have taught us that the Canadian and U.S. markets and economies are converging in some ways and diverging in others, so getting some basic numbers down is critical to achieving a good picture of the marketplace.

As I mentioned in my editorial on the back page of this issue, it is like getting a medium altitude view: enough detail to quantify some important aspects of the Canadian jobber business, but a broad enough perspective to see some patterns in those numbers.

There is always the chance that some anomalies may crop up, but with 175 respondents–about 5% of the total jobber outlets in Canada–it represents a statistically significant piece of research. If you’re not sure about how big a sample that is, consider that federal elections can be predicted accurately with only a few thousand interviews in a country with tens of millions of voters.

One of the most intriguing aspects of the results is the reported revenue. Some 60% reported first half-year revenues in 2002 of greater than $500,000, and this doesn’t even include the 20% of respondents who didn’t answer the questions on revenue (which I hope is not because they don’t know). Combined with second-half revenue, the average reported is more than a million and a half dollars in 2002, and from the looks of 2003 first-half reporting, even stronger this past year. Also, the first half-second half revenue split averages out to 48%/52% respectively.

Interestingly, though perhaps not surprising, is the fact that while corporate operations averaged just shy of $1.5 million in 2002, associate-type operations were just shy of the $2 million dollar mark at $1.86 million.

There is a whole raft of slicing and dicing we have done with these figures by region and business size, which is all available in the full report, but we also asked just where the money was spent, and earned.

Brake and Chassis Dominate Key Categories

Not surprisingly, the key categories included brakes, chassis, and exhaust, as well as emissions and tune-up parts.

Perhaps most striking about the numbers though are the average, or mean, percentages of sales made up by the categories.

Take the brake and chassis categories together. Combined, they make up 35% of sales on average. This is a huge share for any business to have tied up in just two categories, and two related ones at that. Is it any wonder that it has seen such an insurgence of suppliers?

Looking a bit deeper than the average sales makeup does yield some other notable points, though. For example, these two categories drop in their overall impact on a business as the business size increases. With the exception of paint and refinish products, which are highly concentrated in specialized and near-specialized outlets of $1 million to $2 million in size (where the category makes up nearly 18% of sales), most other categories surveyed remain stable in terms of share sales by jobbers.

Where the real difference is noted is in the “other” category. This catchall category rises from 15.8% at businesses reporting under $1 million in revenue, to 21.9% at businesses from $1 million to $2 million, and up to 27.7% from businesses reporting more than $2 million. This points to the fact that, while these larger businesses are still basing a significant percentage of their business on brake and chassis parts, much of the growth is coming from being able to add more categories of sales. Next survey we’ll have to look a bit more closely at what the makeup of these offerings is.

Sales Per Square Foot

Of course efficiency is a key determinant of success and profit. A $2 million business may sound great, but not if it possesses a 30,000-square-foot building and $10 million in inventory. Retailers have become used to rating their success in terms of sales per square foot, rather than inventory turns. Perhaps this is a function of having more onerous facility expenses–mall space comes at a premium not generally experienced by jobbers–but in the interest of looking at things differently, we have tabulated performance in terms of sales per square foot.

By way of comparison, retailers look at upwards of $250-per-square-foot as a benchmark.

First the overall size business in small, medium, and large firms needs to be taken into account.

For small businesses, the average was 5,000 square feet. Now, the average annual sales for the small business was $580,000. Simple math tells us that these operations generate $116 per square foot of space.

Moving up the scale to the medium-sized businesses of $1 to $2 million, average square footage among responding outlets comes in at 6,000. This may not seem like much of a difference, but it can be explained by considering that some 60% of medium-sized outlets have more than 5,000 square feet, versus fewer than 30% of smaller businesses. Averages are like that. In any case, these outlets ring in at $228 per square foot.

At the top end of the spectrum, with the $2 million-plus outlets averaging 12,400 square feet, sales bang the gong at $330 per square foot.

The message here is that not only are these larger businesses selling more, they’re doing it more efficiently in terms of the size of their facilities.

Of course, sales don’t necessarily spell profit, and even in large, well-run facilities you can get caught with an empty shelf from time to time. Which is only to say that to get something to sell at a profit, you have to buy it first.

Buying Habits

More than many, perhaps, I have heard the argument that once a line is in a warehouse, the job of supporting it through sales and marketing efforts can be scaled back or eliminated in some cases. Anybody who has any exposure to the real world, however, knows this is far from the truth.

The truth is that jobbers buy “outside the system” in varying degrees of frequency depending on the lines. We looked at 41 lines in all, from brakes and steering components to lighting and emissions system-related components.

Jobber News asked jobbers to say how often they bought specific lines from other than their primary distributor, and the results showed that there is no such thing as a lock on a jobber outlet, not even when it is a corporate store.

We certainly can’t get into the answers for each line here, but here are a few notable ones.

Spark plugs, for example, exhibited a fairly interesting purchasing profile, with fully 10% of jobbers saying that they buy outside their primary distributor frequently. Also, fully 42% buy outside their primary chain at least infrequently. That is an astounding statistic when one considers the staple nature of the product category.

Ignition parts fall into an even higher category, with 52% of jobbers saying they buy outside the system at least sometimes. Emissions System Parts and Fuel System Parts are even more frequently purchased outside, with 56% and 61% of jobbers saying they buy these categories outside the system.

There are also some tremendous variations by region, with 50% of B.C. respondents saying they stay exclusively within their distribution chain for engine management components, while this percentage drops to 36% in Alberta, 15% in the Prairies, and then back up to 44%, 50% and 53% for Ontario, Quebec and the Atlantic Provinces respectively.

The reasons for the buying habit variations are not covered in the survey, but perhaps it points to availability issues or pricing; perhaps it is about the confidence some jobbers’ customers might have in certain categories of product available in the aftermarket, particularly
in the emissions and electronics categories.

Whatever the reasoning, it certainly points to a different picture of the distribution chain than straight-line discipline.

Accounting Issues and Returns

Sometimes, of course, products come back, which might be less of a hassle if jobbers were getting paid more promptly for the parts that didn’t come back.

On average, jobbers said that they carried receivables this past July for 44 days. Some 27% of respondents didn’t answer or didn’t know, but it is still a concern that only 9% said they carried receivables on average less than 30 days. Fully one-third of respondents (33%) had an average of 45 to 59 days.

Returns also set off some alarm bells, with return credits running an average of 12%. That means one in eight dollars you think you earned, you didn’t. Some reported higher numbers, others lower, but the makeup of these returns provides a profile on an industry that is used to getting its products back too often, which may point to a training issue.

Training

How much training did you get in 2003 or 2002? How much did you offer your trade customers? Some 61% of counterpeople have taken training, mostly at a training centre, not surprisingly offered mostly by manufacturers or WDs, at 40% each. We did not ask when this training might have been taken, but we did ask that of customer training.

More than half (51%) of jobbers said they had not offered their customers business training in the past year, and just under a third (31%) offered no technical training courses.

Unless these jobbers raise their game, they abdicate their right to complain either about the state of their customers or of their receivables.

On the other hand, 49% of respondents offered at least one course of a technical nature, and a third offered some type of business course. Very few offered more than five of either in the 12 months going back to mid-2002.

Interestingly, respondents were split on whether they would consider on-line training.

There is a lot more depth to the actual survey, too much to go into here, but I hope that what is presented here helps you get a picture of the average jobber, and the extraordinary one, and where you fit into the mix. It certainly provides a jumping-off point for the next survey.