“There are always problems with every distribution system. If you hear about a perfect system, please let me know.”-Klaus Thurner, general manager for Generics and Blax.
From the comfort of the relatively homogeneous North American market it’s easy to point a vaguely critical finger at confused and seemingly ad hoc European distribution strategies. But the realities of the markets, their limited financial muscle, and even historical background makes this criticism seem naive.
The practical realities of everyday business lead to many distribution situations that, despite constant fine tuning, are in fact the best that a series of necessary compromises can produce.
The problems faced by the snowboard industry in Europe, such as oversupply and discounting, are familiar to anyone in the U.S. industry. But distinctly European differences include greater market share by chains and discount chains (although this varies widely), greater power of buying groups, and a buying cycle that by domestic standards seems late and refuses to be dragged forward. Also in the mix are the localized problems created by wide differences in terrain, culture, size of market, individual buying power, and distance from distribution centers.
Whichever way you look at it, Burton is really the only pan-European brand. The company has top-three ranking in virtually every market, producing an overall European market share in line with its U.S. presence. This has allowed it to impose a European Distribution Network for the entire continent.
“We try to remain very much a global brand working in parallel with the U.S. and Japan,” says European Marketing Manager Johannes Eisenhut. “We started with a system of national distributors, but have now moved to a system where they have become our agents rather than importers. They manage the local reps-many of whom are the same people. There may be some loss of prestige for them, but at the same time there is a lot less risk. Everyone is watching to see if we can pull it off.”
Everyone may be watching, but whether the Burton system becomes the model other companies would emulate if they were also the leading pan-European brand, safely ignores the fact that right now few other players could flex enough muscle to pull it off. And then, not every other major brand would want to.
Hot and Hammer Snowboards is one of the top three brands in many markets across Europe, but has no plans to copy Burton. “It wouldn’t work for us,” says Jean Charles Vigraux, promotions manager. “Our image is not equally strong in all markets, so we need a more varied approach. In fact, after France, our biggest market is Switzerland and because they’re not EEC European Economic Community, a centralized approach won’t work because of tax differences.
“We also have had the same distributors in some countries for as long as twelve years,” continues Vigraux. “They’re major figures in their local markets. We’re not going to turn our back on the advantages these relationships give us. Ultimately, we can be closer to our end users by sticking with our system.”
Other companies also find a flexible country-by-country approach works best for their specific circumstances. Generics, which expects no sales growth this season, runs its own subsidiaries in Germany, Austria, Switzerland, and France-but uses a traditional wholesale system for the rest of Europe.
Morrow (which in the past year, since taking over the Westbeach operation in Innsbruck, Austria, has moved to repair its flaky reputation among European dealers) is also unwilling to take a centralized approach.
“If our importers are doing a good job, then there’s no reason to abandon them,” says Morrow’s Operations Manager Rainer Diepolder. “In local markets we have to compete with national brands on a local level. We don’t have the resources to do this from a centralized position.”
However, the company has moved to set up a centralized custor-service system. For the first time dealers won’t have to deal with the U.S. on service issues.
For this project, it at least appears as if Morrow is using the same model as Burton, which has a large stable of multilingual customer-service people manning the phones. “It’s pretty important when, for example, a French retailer calls our offices here in Innsbruck, our customer service can not only speak French, but clearly understand the culture that the caller is coming from,” says Eisenhut.
Rationalized distribution is made more complex by vast differences between retail environments in different markets. For example, Thurner suggests that as much as 80 percent of the Austrian market is controlled by buying groups. This figure drops as low as twenty percent in Italy. In other markets, such as France, it’s the rental market that drives the industry.
Gerd Weisner, general manager of Montimare (a major specialty retailer in Frankfurt, Germany), says the top third of the German market is entirely brand driven, but then there’s a sharp drop off to the heavily discounted, last year’s model, boards. Catalog sales in Germany are also growing faster than other markets. There are an infinite number of such differences between, and even within, markets.
The Buying Cycle
One feature the entire European industry has in common is the late buying season and the low volume of business done at trade shows-including the gigantic ISPO show in Munich, Germany-compared to the United States.
“ISPO is nothing to us,” says Lee Stririsackd, owner of SnowBeach Warehouse in Paris. “We go to SIG in Grenoble, but only to look.”
Mattias Leitner of Sports Special (a large Innsbruck retailer) agrees, “We don’t expect to make orders at ISPO.”
Yet manufacturers have no illusions about trade shows. “We don’t expect to sign orders at ISPO,” says Vigraux.
Instead, orders are made by retailers working directly with reps in the weeks after ISPO, or by buying groups once they’ve had a chance to sit down together and compare notes on what they’ve seen at the shows.
Part of the reason for this is blamed on the lack of on-snow testing opportunities in Europe, which means retailers are less informed about product differences when they arrive at ISPO.
However, sheer weight of tradition seems the likeliest reason for the late cycle. “You will never get French retailers to order before the end of the season when they can see what’s left on their shelves,” says Stririsackd, echoing a view found with retailers across the continent.
While manufacturers such as Generics have announced they will not accept mid-season ordering, and Burton is in a position to force early orders out of its dealers, the situation is likely to remain uneasy on both sides of the equation.
“The industry can’t guess what retailers want and retailers won’t be pushed too early into decision making,” says Diepolder.
Despite the idiosyncrasies, the differences among European markets sometimes offer useful opportunities. “We’re seeing a lot of interest from East European markets,” says Valraux. “It might only add up to 3,000 boards per year, but because Easterners have very little money they’re happy with last year’s product. We can give them a really good deal, and shift overstock, which we could otherwise never sell without eroding our brand in our stronger markets. Because of this, we’re building a sizable presence in markets such as Poland, which might be significant in the future.”
Another European idiosyncrasy exploited by smaller brands is the comparative disunity of local markets.
Global financier and currency speculator George Soros, the man who recently was responsible for sending the Russian economy into the toilet, probably knows nothing of snowboarding, but he’s currently touting something called the Tournament theory.
The theory states that in a barrier-free market, competition is based purely on survival of the fittest. Competitors will devour each other until no more than a few winners remain.
This theory could easily be applied to the U.S. market, but in Europe local market distortions provide a shelter where individual companies can prosper. Those who advocate a move to pan-European structures should remember that diversity is also a precursor to survival.ll devour each other until no more than a few winners remain.
This theory could easily be applied to the U.S. market, but in Europe local market distortions provide a shelter where individual companies can prosper. Those who advocate a move to pan-European structures should remember that diversity is also a precursor to survival.