Hurrah for grey trading
Isn't this how the single market is supposed to work?
Opinion This article first appeared in September 1998 Multinational vendors are uncommonly fond of restrictive distribution practices. By dictating who can sell what to whom, vendors can exploit price differentials in different markets and maximise their profits. Although restrictive distribution is supposed to be banned by the European Commission, a recent daft court ruling has given manufacturers the right to ban grey imports from outside the EU. Never mind that the manufacturers are exploiting laws designed to stamp out counterfeiting, rather than grey imports. Let's hope the Parallel Traders' Association succeeds in its attempt to get this ruling overturned. Hats off in the meantime to Ideal Hardware for cocking a snook at restrictive distribution practices. It has beefed up its overseas business, by setting up its first distribution facility in mainland Europe. Based in Rotterdam, the warehouse opens for business on 1 October. The company says delivery times will speed up, and distribution costs will go down. Ideal sells its volume storage products to resellers anywhere in Europe - a Rotterdam warehouse will enable next-day delivery. Restrictive clauses, of course, do not exist in the EC (how could they, when they are illegal?), but it is a brave wholesaler that breaks out of its allotted territory or country. Ideal does not care a fig for such niceties. It already sells into Europe in a fairly big way. In the past half year, Continental European sales advanced from #1.9 million to #21.8 million. However, gross margins were much worse than in the UK (3.2 per cent against 14.3 per cent). So Ideal is probably losing money on Europe. Instead of acquiring Continental disties, Ideal employs native salespeople, working from home in their own countries. Fulfilment is managed from the UK and now Rotterdam. What Ideal does not do is buy other distributors, as managing director James Wickes told me recently. 'It is very difficult to talk on this subject without sounding arrogant, but why buy distributors in Europe when I already do better than them?' Distribution margins do not justify paying for expensive subsidiaries all over the place, he believes. 'Today's haulage infrastructure means you can sell from anywhere - Dell proves that. And as far as suppliers are concerned, credibility and credit-worthiness are far more important than where you ship from.' Commissioned vendor salespeople based outside the UK may not agree with this sentiment. European data storage distributors on the Continent are also probably not very happy about this brash newcomer on its doorstep. Ideal can get away with trading across Europe, because its balance sheet is stronger than its competitors. But isn't this the way the single market is supposed to work? And grey trading will make the market work even better. ®
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