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Wholesale Onslaught

Retail brokers pressure wholesalers to consolidate. Smaller wholesale brokers hit hard.

By  Kevin Amrhein

Cut in half. Crushed. Decimated. All words no one wants applied to their business.

Words that force operations to make painful changes. Words that Tim Turner, president of CRC Insurance Services, has worked to avoid by spending the last few years on an intense schedule of meetings and requests-for-proposals.

They are also the words he selects to describe what is happening to many regional and smaller wholesale distributors as a result of what he calls a “sophisticated and aggressive” consolidation effort by retailers hoping to increase quality control by pushing more business through fewer wholesalers.

Why the push among retailers to consolidate wholesale vendors? Why now? The default answers blame adverse market conditions and shaky economics. They are certainly part of the story, but they are not the only factors.

Efforts to stay on retailer approval lists started taking shape five years ago when large retailers began divesting their captive wholesale operations.

“During this time other retailers started looking closely at their wholesalers and began to think they had too many wholesale intermediaries,” Turner says. This sparked a concern among retailers that too many intermediaries resulted in diluted relationships; so much so that the retailer was not able to gain any real clout with wholesalers or control over the business. “Retailers wanted to regain some control over their wholesale vendor lists,” he says.

Retailers began requiring wholesale partners to enter into an RFP process; wholesalers had to apply to maintain a vendor code (translation: “make the grade”). This process led many retailers to drastically cut their approval lists. “Some cut 50% to 70% in efforts to maintain quality control. Smaller wholesalers [in particular] were getting crushed,” he says.

Such efforts are not new.

“We’ve seen vendor consolidation before. But this time it’s more sophisticated and aggressive,” he says.

Turner believes a major reason is that, in previous market cycles, large retailers looking to consolidate wholesale vendors did so by pushing more business through their own captive wholesale operations. The decline in captives in recent years opened up the wholesale channel to other vendors, and the marketplace became crowded. Now, Turner says, with many large retailers looking to consolidate, they are being very selective. He describes the approval process in a word: “rigorous.”

“We’ve spent a great deal of time over the last two years getting appointed and re-approved by our clients. It’s a lengthy, tedious process to stay on the approved list.”

After a noticeable sigh of relief, he says he believes most retailers are in the concluding stages of their consolidation efforts. “The main flow and process of RFPs has already taken place. Results we’re seeing from the top four or five wholesalers are reflective of that.”

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