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August 2014

Jack GuarnieriJ
by Jack Guarnieri
ersey Jack

Distributors Provide a Valuable Function

So much has been written and even more said throughout the years about the “Three Tier” system in our industry.

The lines have blurred over the years, most recently due to the Internet and operators buying from many other sources. Bigger operators became “national accounts” and had the opportunity to bypass distribution and deal directly with manufacturers.

Some distributors brought it on themselves by getting into manufacturing and being operators as well. It’s about opportunity; it’s about survival. Make hay when the sun shines.

There were distributors who got out of operating as their distributorships grew so that they did not directly compete with their customers for locations. Then, as their distributorships shrank, they went back into operating. I’m sure many scenarios that played out this way have been covered in RePlay over the last three decades.

Let’s face it: Our industry today is very different than what it was a few years ago. Think about the impossibility of enforcing distribution territories in the Internet era. How would manufacturers enforce rules about who could sell what games where? The days of manufacturers climbing behind games on location to get serial numbers is almost all gone. Imagine a manufacturer “protecting” a territory for a distributor?

Operators are people too, and people buy based on the best price, the best service and the best relationship, not based on what manufacturer is protecting what territory, usually for a weak distributor.

Then, there is the very sticky question of sales tax. Generally speaking, the end user pays sales tax. If the selling distributor has no physical presence in the state, he may not be obligated to collect sales tax in that state so the burden to pay the tax is on the buyer. This issue is getting more sunlight as each state is looking under rocks for lost revenue.

In my manufacturing company I would love to see customers from that state or country buy from that authorized distributor. Most times they do; sometimes they don’t.

If you are in Europe and your Euro is worth $1.36, everything in the U.S. is on sale at a discount. It’s easy for European customers to want to buy from U.S. distributors instead of their local distributors.

I guess thinking about it all, we have the return of the good old Wild West. But the thing to remember for everyone is how much value distributors provide. Typically they stock replacement parts, have a service department, offer advice on what equipment to buy and how to finance it. They take trades of older equipment, they pickup, deliver and support the manufacturer’s equipment they sell. Distributors provide a very valuable function with boots on the ground for manufacturers.

The trend is that many retail stores will close and give way to Amazon.com type of sales. Golfers go to a store to check out golf clubs and be fitted; then they go online and order from some discount source. It’s the same with electronics and almost everything else. It’s called “showrooming,” and it is a growing phenomenon. Brick and mortar stores of all kinds will need to find better ways to deal with this problem.

There is not much that can replace relationships. There are bonds built over time with trust and support from distributor who help operators build and grow their businesses. That is rewarded with loyalty and continued mutual business interest and growth.

Jack Guarnieri started servicing electro-mechanical pinball machines in 1975 and has been involved in every phase of the amusement game business since then. He operated a substantial game route in Brooklyn, N.Y., and developed amusement centers including Fuzzy’s Family Fun Factory. In 1999, he founded Pinball-Sales.com to sell coin-op to the home market. Last year, Jack founded Jersey Jack Pinball (named after his RePlay Magazine pen name), which is designing and developing full-featured, full-sized commercial-arcade pinball machines for manufacture in early 2012. The first game is based on a licensed theme, the timeless The Wizard of Oz. To learn more, visit www.jerseyjackpinball.com. You can email him at jack@jerseyjackpinball.com or by phoning him directly at 800/473-JACK.

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