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ConEquip Parts & Equipment is a rapidly growing B2B marketplace. They offer 500,000 parts, represent 3,000 suppliers and $52 billion in inventory – but you can’t order a thing online.
Why and how do they do it?
Ryan Loos is the Chief Financial Officer at ConEquip Parts & Equipment, a construction equipment distributor that has experienced consistent growth over the past 10 years. Our Wholesale Change hosts Ian Heller and Jonathan Bein spoke with Loos about the distributor’s go-to-market strategy and why they decided not to invest in a transactional ecommerce system.
Ian Heller: You have many suppliers and a huge customer pool, yet you don’t take any online orders. Is that correct?
Ryan Loos: That’s correct. We have the website; we have marketing through Google and social media and everything that you need to have a web presence so people can find you. We do a really good job at it. When we started the business, we realized that in construction equipment, the parts are expensive and there is all this research you have to do in the background, whether that’s the parts book, looking at a diagram or talking to the customer. Because there are so many different factors, we found that an online model didn’t necessarily work for the customer connection that we need to find the right product for them.
Heller: Walk me through a typical transaction, one that requires in-person, hands-on work.
Loos: The customer will call the sales floor and one of our reps will pick up the phone. The rep will go through our process, trying to understand what the customer’s looking for. At this point, the customer may or may not have a part number. If they do, we’ll get the OEM-specific books and verify the part that they want against the part number they gave us. We don’t diagnose, but we have to understand what they’re looking for on the machine. And these parts can weigh anywhere from five pounds to 2,500 pounds. We want to make sure we get it right. The average phone call may be five to 10 minutes on the phone with the customer to get them what they’re looking for and close the sale.
Heller: Would you say the aftermarket parts is the more profitable part of the business?
Loos: Most of the business is aftermarket. That’s one of the interesting things about the construction equipment world, there are all these different conditions that a part can come in. We will give the customer as many options as we can versus if they go to a dealer, they’re only going to get the brand-new dealer option. We can offer them an aftermarket, reconditioned or even used part. The customer may not know we have these options available, but it’s part of our process to make sure we offer the best service and get them what they are looking for.
Construction equipment is becoming more similar to the auto industry where you’d walk into a NAPA and get an aftermarket part. We do the same thing in the construction equipment side.
Heller: How do you manage the payment?
Loos: Eighty percent of our payments are credit card, cash or wire upfront before we ship. And then the other 20% is through Resolve with financing and net terms. We never offered credit terms until two years ago when we found Resolve. Before that, everything was payment upfront before anything ships. They’ve been a really big help in getting us into larger companies that are used to dealing with net terms.
Heller: What are your solutions for preparing and maintaining content management and information about the product?
Loos: We created an in-house database through our IT team and we have programmers on staff. That’s something we do a little bit differently; all of our marketing from our AdWords and social media to IT is done in-house. We don’t have any outside services. We decided we should hire the professionals and bring them in here so that they’re working for us full-time versus an outside service that you might only get so many hours per week.
We’ve developed software for 500,000-plus parts descriptions. Because we aren’t a typical stocking agent, we don’t carry any inventory. So, we had to create a system that would allow it to look like we had all these inventories available for the salespeople. Then, we can order the part and drop ship.
Heller: How many suppliers do you buy from and how many customers do you have?
Loos: We have close to 250,000 customers in the database at this point. The core set of suppliers is about one hundred, but in any given year we’ll buy from 300-400 suppliers total. Parts, it’s hard to say because it could have multiple parts on it. We probably have 150 different freight shipments moving and 200-300 UPS parcels moving every day.
Jonathan Bein: I’m imagining there are cases where a part is needed quickly. How do your suppliers support you in those scenarios?
Loos: Well, because we don’t warehouse or store anything on site, we had to understand how freight and parcel works. So, 90% of our shipments are on our own freight and parcel accounts. We manage the tracking process to make sure that everything is on pace and reaching the customer appropriately. We had to build an in-house system to manage all the freight and all the parcel shipments. The customer has the option of next-day air. If it’s Alaska, we put things on barges or planes to arrive within 24 hours. It all depends on what the customer needs and what are they willing to pay.
Bein: What is the alternative for customers wanting these parts today? How would they get this otherwise?
Loos: In the marketplace, there are smaller value parts that you can buy on Amazon or eBay, but again, you’re looking at the same shipping time. The biggest alternative is going to the dealer. That’s always going to be more expensive, and you have to hope they have it in stock. A lot of dealers, especially through the COVID-19 pandemic, didn’t have anything in stock. That’s where we shine because if this supplier didn’t have it, we knew the four or five other suppliers to call who did. We were able to make sure the customers were getting their parts even though the dealer was out of stock.
Heller: How do you ensure that your suppliers are meeting their shipping commitments to you?
Loos: We created a supplier standard. One of our goals five years ago was to become all of our suppliers’ number-one customer and be as important to them as possible. That put us in a position to work very closely with their shipping department and their sales teams and their product integration. We wanted to make sure that they were treating us in a certain way to make sure our product was out the door as a priority versus anyone else’s product. Our top 25 suppliers, if we’re not their number one customer, we’re in their top two or three.
Heller: Since you’re relying on the supplier’s stock, do you have their warehouse availability on hand? And if so, do you share it on your website or is it just something your people use?
Loos: We do not put supplier stock on the website. But, for our top 25 or 30 suppliers, we do have direct API and access to their inventory, we bring that in-house to our internal software. And that goes back to when we decided to become their number one customer. There were certain things we were going to need access to, and building a relationship with them helped us sell their product better. Having direct access and electronic communication with their inventory was part of that process.
Heller: Talk to me about the kinds of customer-facing roles you have. You have some that are customer service and sales and others that are technical.
Loos: Front line is sales. They know how to sell, and they understand parts, books and machines. Then, we have support for the sales department. We have experts with knowledge in mechanics and machines for deeper questions. They’ll get on the phone with the customer trying to understand the mechanics of it.
After the sale, we have a whole customer service-focused team. Our approach was to become like Amazon. When you order, you get a tracking number texted to you. If there’s an issue, you get a notification. We built our systems and our customer service team around making sure the customer was fully updated on where their product was and when it would be to them if there was an issue. This is something in our industry that hadn’t been done before, especially because most of this is going freight or full flatbed. We’ve been able to communicate with the freight companies and make sure we’re getting the tracking and updating customers on where the product is.
The freight side has come a long way. In the last four or five years, some of the major carriers have done a great job advancing their technology and putting GPS on trucks. We can see where everything is at any point.
We just started with field reps. The entire business model is an inside sales model. We don’t meet face-to-face; everything is done over the phone or via text message.
We’ve never had a catalog; we’ve never done ecommerce. We have a list of products on our website, but no pricing. You cannot buy it online. Everything is listed as “Call for Availability”. We try to direct everything back to a conversation with the customer.
Heller: You’re doing everything that you’re not supposed to and you’re $81 million and growing 30% a year. I mean, it’s phenomenal. Do you plan to introduce ecommerce at any point?
Loos: We are working on it, but it is strategic. There are certain price points that we know a customer wants to talk to someone on the phone. They’re spending thousands of dollars on a part but there are other consumables, for instance, filters or seals that are more of a commodity. We are looking at putting more of the commodity-based items into ecommerce, but the things that require a discussion will still stay in the same model.
Heller: This strikes me as a kind of business that the people who work there fall in love with it.
Loos: I think they enjoy interacting with the customers. It is a very transaction-heavy business, so I know it can be a grind. But as a company, we do a lot of fun things, and our staff is generally a little bit younger. We do our best to keep up with the morale and the in-house culture while moving the company forward. I have to say people really like to be a part of something that’s growing. There are opportunities for promotion and advancement.
Heller: Do you mostly promote from within?
Loos: For the most part, yes. Some strategic positions will go outside. If we can mentor and grow a person over a couple of years, we’d much rather spend the time doing that because of the uniqueness of our business and how we operate. It’s very hard for someone from the outside to understand what we’re doing.
Heller: How do you handle educating reps? It seems like a younger generation would not be coming in with knowledge of construction equipment.
Loos: Our philosophy from the beginning is we do not hire anyone who understands parts or construction equipment. We hire people who are trained in sales and then they go through a six-week in-house course to understand the parts side of the business and how to purchase, search and find what the customer’s looking for.
Heller: How do you find people who are trained in sales?
Loos: We pull a lot from the car industry and collection agencies who are no longer collecting due to all the COVID restrictions. We’ve done a great job bringing in car salespeople and collectors. It’s the quick transaction and getting to know a customer, building a rapport and then moving on to the next transaction. We want our reps to build relationships with customers. Since it’s not face-to-face, we have to use all the tools that are available to us. We work hard at building relationships when we never get to actually meet the person.
Ian Heller is the Founder and Chief Strategist for Distribution Strategy Group. He has more than 30 years of experience executing marketing and e-business strategy in the wholesale distribution industry, starting as a truck unloader at a Grainger branch while in college. He’s since held executive roles at GE Capital, Corporate Express, Newark Electronics and HD Supply. Ian has written and spoken extensively on the impact of digital disruption on distributors, and would love to start that conversation with you, your team or group. Reach out today at firstname.lastname@example.org.