Attitude Adjustment Is In Order

I recall a factory salesman friend of mine calling on me once when he was sporting a black eye. Wow, what happened, I asked. Well, the night before, he stopped off for a few drinks at a local bar on his way home. Pretty soon, he was bragging about how he had just made a big sale by double dealing his distributor and selling the customer direct.

Unfortunately, the young guy sitting at the next barstool was a buyer for another firm who had just had the same thing done to him. After a few heated words, the buyer invited my friend outside and gave him a minor lesson in attitude adjustment, specifically when it comes to sound business principles.

This entire industry could use an attitude adjustment. We already have more than one black eye when it comes to the way we conduct our business and some of the product we bring to market. And the attitude of some people in this business could use some correction on what they believe is best for this industry.

Here's a case in point. A large game room operator hires a well-liked salesman away from a redemption company, where this guy had worked many years, to come on board as their game buyer. This chain of locations has always supported its local distributors, buying games and parts in the state where their corporate office and service center is located. In fact, the company's two local distributors sold the chain at prices well below the normal profit margin, but they were still able to make a buck or two on what they sold.

Right off, the new buyer starts making demands on what, if any, profit anyone selling his company could make. In order to sell his company, he demanded you take his often worn out trade-in at a price you couldn't make a profit on reselling. Distributors selling his company had to take trades while factories began to back door their distributors on new products, selling this business direct without being required to take trade-ins.

Now, in the interest of full disclosure, you should know that I sold this company some equipment and was never required to take trade-in, but I know where a few skeletons might be buried too. I'm talking in general here about why this industry in trouble. To test games with this buyer, you had to pay freight in and out if your game didn't meet his standard of earning. The chain kept all the money. I was told more than once that this chain's games paid for themselves rather quickly, sometimes in less than 90 days. How could anyone begrudge the distributor a fair profit that's only a day or two earnings in most cases?

So here's a good opportunity to discuss a well-known truth about what factories call "test games." First, any factory would be foolish to test its new game hundreds of miles from their plant. A factory with any credibility would never be so foolish to do that. They need the games close so they can continue to address any problems they might have before it shipped out.

Games still get out, now and then, that should have been tested longer, but usually anything sent farther than 50 miles away from the factory is pretty much a production ready piece. In reality, factories have games they need to sell and this is just another way to get a game in a location and hope it does well enough to convince the buyer to take more.

This particular buyer has moved on now, while one of the distributors he stopped doing business with went under, owing millions of dollars to its suppliers, but that certainly wasn't his fault. Let's just hope the new buyer replacing him learns a good lesson from all this and undergoes an attitude adjustment of his own while there is still time.

Let's all remember it's a small industry and it's going through major consolidations, so jobs will become harder to get when and if some of these guys who feel the need to cut out the distributors should ever need a job. But there's still time to adjust their way of thinking.

We have a couple of big buyers in my area. One of these buyers I consider a friend - at least until he reads this, so I'm asking RePlay to hold back his copy. Despite our close friendship, the buyer has not found a need to support his local and friendly distributor other than buying a part or two now and then. However, he does support one distributor in another state, out of sympathy I suppose.

This distributor is centrally located so the freight is about the same no matter where he ships, and he has very few customers in his own area. I let this other distributor stay in business, and try to refrain from picking on him, mainly because I like him. But I do call my local buyer seven or eight times a day to let him know we're in business and just up the road from his office. I would call more, but I don't want to bug him and lose the parts business that we're getting from him now, usually two joysticks a month. If he ever orders a power supply, I will give myself a bonus.

But let this be a warning - if he doesn't buy from us soon, I will be forced to sell my five shares of his company's stock below market price and make his options even less attractive to buy.

Over all, business is looking up. Another buyer with corporate offices in our territory called last week asking for prices on a couple of games. I have never sold the company equipment, though I have done some consulting work in the past for the owners. When I gave him the price, he told me he was getting a lower price from an out of state distributor that just went out of business. You can probably figure out for yourself how this one ended, but suffice to say we got the sale. And it was a good deal for everyone.

Another local operator, a company that we have a good rapport with from past dealings, was just bought out by a company from outside the U.S. In the past, we offered this company games to try, with the opportunity of returning them if the game didn't earn enough. We also tried to take their trade-ins when possible and provide them with good parts service, although I feel we failed at times on that last one. We worked with the previous owner on a fixed mark up the owner agreed to when we started doing business. It was fair to both of us.

On their last order, we were requested to bid on equipment being sold in our own trade area. As hard as it is to understand, we, as we are now a Betson office, lost our bid on games we make but also sell to other distributors. We offer our games to others distributors and ask them not to ship into markets where another distributor has our game line. Our agreement is that we sell other distributors our proprietary games, at a cost that allows them to make a profit, and, in return, they refrain from selling in to areas where we have distributors or our own offices selling our games. Guess the distributor selling in here at just over cost never quite understood our agreement?

Lets hope people out there realize while there's still time that the industry needs all of us to make a profit so we can survive. I hope the new owners of our local operator will let us continue the relationship we shared with the company they bought. In order to accomplish this, we all need to make a fair profit and be supported in our markets. There's enough business in distributor marketplaces to keep them in business if they could make a profit on what they sell. Unfortunately, there is a notion in this industry that the large buyers should buy direct, at near cost. That's just not true, in this industry or any other.

Car manufactures don't sell cars to rental agencies or local governments. Sales might be negotiated with the manufacturer, but the sales are then passed on to the local dealer who makes a small profit on the transaction. To my friends in manufacturing, here is a question for you: has that big buyer you sell direct not started to buy overseas, cutting you out of sales? How's that for loyalty? It even happened to me one time with one of my own operators going overseas to buy equipment. It still keeps me awake at night knowing that, having lost that deal, I had to default on the lease for my youngest daughter's Hyundai. So here's the bottom line: big or small, the operators have to buy good earning games. If they couldn't buy direct, they would return to buying it from distribution. Ever try to buy a new car direct?

Interestingly, some factories have learned a hard lesson from selling direct to so-called "big operators." There is one in my state who comes to mind. Every one chased after this company's business as the buyers and route managers used to run around trade shows bragging how much they could buy to any factory that would listen. Now, they don't bring managers to the shows anymore.

This company has smart people in upper management, and I believe they do a good job running a company with a lot of offices. I hope they will see the need to support distribution in areas where they do have offices and give up trying to dictate their terms on trade-in to distributors. Perhaps looking at a now closed distributorship in their own backyard, a company whose manager liked to do business with them and took their junk trade-in, should serve as a lesson about what happens when a business fails to make a profit chasing after big buyers and selling at close to cost.

There's rumor of another distributor in trouble. Let's all hope it's only rumor because no one wants to see the industry continue to suffer. If none of you out there listen to what I'm preaching, we might all be looking for other lines of work in a few years. Unlike some of you though, I have a plan in place if this industry fails. I'm reading a book and plan soon to take an online course on becoming a brain surgeon while working at night as an estate planer. I figure if I make a mistake in my new line of work, no one will know.

Some of you know I sold my business to Betson and remained on board as an outside consultant for a year. My first job in distribution was working for Betson. Many of the ways I ran my own company, I learned while working for Betson, specifically to your product and your customers, treat each one fairly. Provide your customers with the best parts and service available. Sell the customer at a fair price that allows you and the customer to grow. The size of Betson today proves they follow those rules. I'm proud to be a part of the largest and best run company in the U.S. coin-op industry. We could all learn at thing or two about the right attitude by watching them grow.

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