20:20 and Samsung UK remained at loggerheads last week over the issue of grey stock and the deterioration of their long-standing relationship.
Samsung UK maintained the decision to terminate 20:20 was down to inordinate volumes of grey stock finding its way into the UK market place via 20:20, and suggested 20:20 would regret its decision to trade non-UK Samsung kit.
20:20, meanwhile, said Samsung UK had acted excessively, going so far as to suggest there was an ulterior motive; that Samsung had agreed a significant order with a rival distributor on the grounds 20:20 was sacked from the Samsung UK distributor stable. 20:20 said it would go on trading grey market stock regardless, and that it expected Samsung UK to come round in due course.
20:20 chief executive Meinie Oldersma said: “The amount of grey stock we were sourcing was not unacceptable, and we had advised Samsung already that we were doing so – in accordance with the same agreement Samsung has in place with Data Select and Brightstar. Clearly, this decision by Samsung is being used as an excuse.”
Oldersma also expressed frustration at the suddenness of the move, Samsung UK’s refusal to discuss its decision with 20:20, at all and Mitchinson’s refusal to consult or inform either Oldersma or managing director Trevor Price first.
He added: “This is not a long-term issue. I have been in wholesale distribution for 21 years and this kind of thing happens. In time, we will be able to have a normal conversation again.
“Customers will need access to products. Samsung may find its remaining two distributors can meet demand, but it might not.”
But Samsung Mobile UK and Ireland vice president Mark Mitchinson stated, in no uncertain terms, 20:20’s grey market trading was counter productive, and will prove extremely costly to it. He said: “We have evidence to support our belief that 20:20 has imported excessive amounts of grey stock. The amount of direct business it has been doing with us of late is miniscule, and that is not the kind of relationship we are looking for.
“I have said numerous times that I do not want grey market stock purchased at all, let alone in the copious amounts 20:20 was selling to MVNOS and dealers. There is no hidden agenda. There is no personal clash. I don’t need to waste my time with a company that has been working behind my back to import the kind of volume of grey stock 20:20 has been importing.”
He added: “We are going to launch some very important products in the next few months and it will be some considerable time before they will be available in Europe. 20:20 will be missing a good opportunity and won’t be able to buy these products cheaper elsewhere.”
Mitchinson said 20:20’s lack of cooperation with Samsung UK’s policy on grey stock will jeopardise its future partnerships on a global scale. “If we address the issue of grey market stock, where is 20:20 going to go? If 20:20 wants to become a global company, it has lost the support of Samsung UK,” he said.
“If it is looking for a global distribution deal with Samsung, [head office in] Korea will ask for my opinion of it. I will not support a company that does not support my business in the UK.”
Mitchinson said he would do “everything in his power” to eradicate grey market trading because it exploits local marketing and demand, and costs Mitchinson’s team market share in the UK. “My team creates huge demand for Samsung products in the UK. The grey market leaches off our marketing activity, off the back of our hard work,” he said.
“There are customers who say they can buy Samsung products cheaper from other markets. True businesses that understand the point of collaboration would not run the risk of jeopardising their relationship with us.”
Savings make grey stock too tempting to ignore
Samsung Mobile UK vice president Mark Mitchinson will not look to replace 20:20 as a distribution partner. In fact, he suggested existing partners Data Select and Brightstar could in time find their roles redundant too, if his own direct sales team up their game significantly.
But where does it leave 20:20, which has been slashing handset margins for months? 20:20 claimed last week it was up to manufacturers, not distributors, to resolve the issue of grey market trading.
“There is no pricing logic,” said chief executive Meinie Oldersma, referring to the price differential of Samsung products in the UK and on the continent. “It’s an issue created by the manufacturer which only they can sort out. It ships too much stock at low prices to certain regional businesses, so addressing that would be a start.”
Samsung’s pricing is more out of whack between markets than other tier one manufacturers’, and the extremely good reliability of Samsung devices means distributors can take a hit on the odd faulty device going uncovered by warranty in the UK.
According to April’s pricebook, just in, a Samsung G600 is available for £162 from Samsung UK and £129 from Samsung Germany. On the grey market, the U600 is £99, compared with £124 from the UK, and the Armani phone is £230 on the grey market and £277 from Samsung UK.
The cost of a three-pin UK charger is £3 at most, Samsung user guides already contain English-language instructions and handsets can be flashed with UK settings by simply tapping a code into the keypad.
April’s UK price book has seen costs come down, but many distributors argue £40 per customer is too steep a price for UK warranty coverage and UK marketing to drive footfall.
20:20 was Samsung’s exclusive handset distribution partner for five years, before Mitchinson looked to run multiple relationships, and found itself undercut at times by rivals trading grey market stock.
Data Select, which had its own agreement terminated by Samsung for grey trading in 2006, and Brightstar will likely find their own UK-sourced Samsung handsets undercut now by 20:20, and others.
One distributor source said: “It is very difficult to make money on UK Samsung stock; Data Select and Brightstar find that too. Almost everyone, except for Tesco, will buy grey market stock readily, and the savings are huge. This is, in terms of profitability, not bad news for 20:20.
“It could buy 100 per cent grey stock now and make life tough for Data Select and Brightstar.”
Blocking warranty requests on non-UK stock could be undermined by the build quality of the devices. “If you’re making a margin of 10 per cent on grey stock, you can replace a few faulty devices and still make a profit compared with UK trade. Samsung make the most reliable phones on the market,” said another distributor.
At the same time, Samsung holds all the cards and grey market traders stand to lose out on UK exclusive and first-to-market handsets.
If Samsung addresses the price differential on the continent, they stand to lose even more.