RP Europe: Distribution’s number two?

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Richard Crawley’s exit from Data Select in 2006 precluded RP Europe from trading in competition with it in the UK for six months. And so its putative business was done on the continent, where it extended and multiplied trading relationships Crawley had struck in his previous employment.

Its profile as importer/exporter has since shifted with particular contractual and general economic conditions – going all-out for UK business as Crawley’s restrictive covenants lifted, and recently taking up to 65 per cent of its trade outside the UK as market forces have dictated. But RP Europe is starting to press for UK custom again, and profit made locally.

All through, RP Europe has made money. Crawley reckons it has not recorded a single month’s unprofitable trading since business started in 2006, down the road from Data Select in Bourne End.

Initially, Crawley ran RP Europe as an off-shoot of its Buckinghamshire counterpart – even working out of Data Select’s Marlow offices on complementary projects for some months, with a view to Data Select boss Peter Jones eventually taking a stake in the venture. (The ‘P’ in the company name, he maintains, is not for ‘Peter’ Jones, but another Peter with whom the business was once involved, and of whom Crawley will say little.)

The pair, Crawley and Jones, had split by the end of the Summer, so RP Europe could make its own way in distribution – and so Crawley could be free to trade in competition with his old employer down the line.
Ever since, RP Europe has consistently posted the kind of growth margin that incumbent handset distributors have been unable to match.

20:20 Mobile leads the UK market still, with turnover of £389 million. But number two? Brightstar is starting to fire, but relies heavily on its Samsung contract and its Tesco supply deal, and has so far said nothing at all of its UK performance. Brightpoint is clearly too niche to compete for the lead in UK revenue terms; the same essentially with Elite Mobile and fast-growing Orange-favourite Shebang.

The sense is Data Select has in recent years benefited most from 20:20 Mobile’s difficult period of new ownership, refinancing and restructure. Its 2008/9 books claim revenue of £161 million, a decent leap in this climate on its 2007/8 figure of £117 million.

But Crawley’s quiet little operation in leafy Bourne End, without a single manufacturer contract to its name and a stated disinterest in any kind of monopolistic supply deal, turned over £163 million in 2008/9, more than double its previous number, and a slight advance on Data Select’s best offer.

Crawley, for his part, is happy, here, to put right its characteristic quiet in the trade press. “We are one of the fastest growing distributors – and go right back, through the early years of 20:20 and Data Select.

“And I’m hearing what Shebang is doing now; we did £163 million in 2008/9 and £76 million the year before. Those businesses claiming they are going to grow two-fold to £100 million, great, go do it. Well done. We’ve done it, made money at it, and this year we are going for £200 million,” he explains.

Method and cost base
It reads like big talk on the page. In conversation, Crawley is only bristling at the misconception of his business, which rivals have described as “parasitic” in the past, and of the broader distribution market.

He is, actually, hugely complementary about the competition – about the job James Browning and his team have done at 20:20 Mobile, about Data Select’s performance lately, about Iain Humphrey’s ambition for Shebang.

Crawley is considered one of the sharpest purchasing directors Data Select ever had, and remains about the shrewdest operative in the sector. At RP Europe, he has a core team of seven deal-makers, and a further 14 in warehousing and administrative roles.

Its public face includes purchasing director Lucky Anand and commercial director Mark Willoughby, a veteran of Dial-a-Phone and European Telecom and the only member of its team whose entire career has not been spent in this market.

Crawley is not inclined to speak of the rest of the team here because he does not want poachers snooping, and he cannot rightly remember their job titles anyway. Its management structure is not hierarchical; its key protagonists assemble each morning for two hours around a boardroom table and hammer out opportunities. And that is it. 

“We work together. We know who is talking to whom. Phones ring; I want action – sell this, buy that. Everyone knows afterwards to go and perform. And then it’s done. That’s what we do.”

RP Europe is challenging the traditional distributor set in revenue terms with a fraction of their sales and a fraction of their cost bases.

“Turnover is the biggest gauge and we are less than half the size of 20:20 in that sense, but our overheads in personnel terms are maybe one twentieth.”

Similarly, its UK warehouse facility is dwarfed by competitors’ resources – 8,000 square feet in High Wycombe, compared with Brightstar sharing almost 500,000 square foot with Computer 2000 at Magna Park near Northampton, 20:20 Mobile making use of 100,000 square foot in Stoke, and Shebang just moved to new rented premises in Daventry of 35,000 square footage.

“There’s perceived kudos in having a warehouse of that scale,” says Willoughby. “But I’ve seen companies invest in warehouses of 200,000 square foot, and they have gone pop. You don’t need that. An effective business requires a smaller warehouse, not a larger one. We want our warehouse empty every night. We want to be like City Link – where parcels come in during the day and go out over night, so there’s nothing ever there.”

All its choices are deliberate, informed by the kind of paranoia that underpins middle-man distribution and the obsession with detail that drives Crawley.

So RP Europe owns its UK warehouse, where it has invested £100 million in new fulfilment systems. “I’m not interested in investing money in a building I don’t own.

To me, that’s just ludicrous.” Rented facilities overseas are for stock holding and pallette distribution only. It owns all the boxes inside its various centres too, which distinguishes it as a distributor from traditional trader companies, reckons Crawley.

The lease is up on its Bourne End headquarters, and Crawley is shortly to move the operation to dedicated premises it owns outright. It has its own vehicles on the road; a fleet of 7.5 tonne trucks and Mercedes Sprinter vans.

There are basic principles in play too. Explains Crawley: “We are the best payers in the industry – other than maybe the networks, and actually even them. Nobody chases us for money. No one will ring up here and ask for money. That is just bad manners, and shows an incredible lack of respect for your suppliers. And without them, you have no business.

“I want to treat my suppliers as I want to be treated by my customers. It is very simple. We agree terms, we very rarely take credit and the money is sent, bang. It’s either in their account on the due date, or before it. And guess what? When they have something they want to sell, they’ll probably come to us first because their money’s safe.”

Independence and flexibility
But more than that, the business is set up in a way that adheres only to profit opportunities in distribution, and to the kind of flexibility that allows it to move easily between them. Which means swapping in and out of UK trade as sterling see-saws with the euro, and being vigilant to import devices as exclusives.

“I’m interested in the net profit only. I won’t do deals that are likely to see us lose money. What’s the point? And because we have no ties to any of the manufacturers, we have no allegiance to them. We chop and change as we want. Other than our forecasting, and our agreements to take stock, we are entirely flexible.”

In this way, it shut down its UK dealertrade 18 months ago at the first sign tof trouble. “We took some losses from dealers – bad debt, high returns, businesses going under. We employed staff, opened accounts, sold to them, gave credit, chased business. We were busy fools. We probably waved goodbye to £50,000, which is not going to kill anyone, but it does not make sense to work so hard for that kind of business,” says Crawley.

“I closed that area about six months before the recession kicked in, just as the first signs of it were there. And last year we did not have a single bad debt.”

For a trading operation that is growing at pace, and which has no particular legacy ties in the UK, it does not make sense for it to pursue local manufacturer agreements or to commit to stiff terms from major customers. “We don’t want to be a manufacturer distributor. For us, there is absolutely no value in having a direct relationship,” says Crawley.

The grey market is too rich an opportunity for profitable business, he suggests.

“To me, it is commodity trading. Yeah, it is to a certain extent. I watch the foreign exchange market and the handset market. And I look for new products coming available, and where they arrive first. The key is to get product at launch, in as much volume as possible. Handsets will be made available in certain regions sooner than in others, and we target that. If you have product that is in demand, the selling bit is easy.”

RP Europe claimed early delivery of the E72 and the N900 late last year, sourcing kit on the continent, changing the plug and manual in each box, and shipping to UK retailers sometimes a fortnight ahead of general release by Nokia UK. Demand is guaranteed for such early supply, and RP Europe held for good prices.

“Both ourselves and our customers did very well on those products,” says Crawley.

Exclusivity in handset trading is virtually the only guarantee of success on stock purchases. Beyond that, it is a test of supply relationships and forecasting to insure against failure. RP Europe claims to be strong for both. Ten thousand phones per week, 120,000 per quarter, go through its warehouses (considerably less than ‘bigger’ rivals handle), of which 70 per cent are forecast and agreed with suppliers three months in advance. It bets on 5,000-10,000 units of any serious Nokia release.

“Nine times out of ten you get it dead right.” It swoops for the rest as demand dictates, and as opportunities arise.

But even then, with such planning, the whole market can be caught out; supply outruns demand, prices crash and the trade is left holding stock. Export is the normal recourse. Handling of supply and demand of the Nokia 6700 ‘classic’ in late Summer 2009 was a case in point.

“We got caught on that. Everyone did – every distributor, and probably every retailer. It was in such short supply at first you could make money on anything you got your hands on. But orders stacked up and Nokia delivered the whole lot. We went from making £20 per box to losing £30 per box,” says Crawley.

“Everyone misread it. It’s greed. That’s the problem. You’re making £20 per box, and you put orders in for more, more, more. Nokia ramps up production and everybody gets caught because the market is saturated. I have stopped wishing like that, for too much of a good thing. Greed in any walk of life is the killer. Phones are no different.”

Grey-market trade
There was a time when RP Europe’s presence in the UK channel aggravated both manufacturers and their accredited sales partners, because it was importing stock from Europe for a fee that allowed it to swap out particulars and still undercut them.

Is it the same now? Would, for instance, Samsung mobile UK and Ireland vice president Mark Mitchinson, the hottest on the subject of grey market trade, like RP Europe to shut down and disappear?

“I don’t think so. I don’t think we are in Samsung’s face at all,” says Crawley.

But, if there is a mark-up on UK kit by certain manufacturers, compared with stock available in other continental markets, and RP Europe is close to this information, then why does it not just feed the pent-up demand for cheaper stock? If Mitchinson sees the value in brand, and likes to hold up UK kit prices to see funds are cleared for heavy marketing activity, then surely that presents an opportunity for a business of its profile, right?

“Yes, but it would be a short-term thing. Because Mark would respond. Samsung has deeper pockets than me. And Samsung did respond about 18 months ago, and flexed its muscles and dumped its UK price. Mark would catch us out. We would lose.

“You know, Mark spends a lot of money on his Chelsea sponsorship, and all of the rest of the stuff Samsung does. But that is his genius, in my opinion. He is right to do it, and right to protect that part of his business. Because he has created a brand, and he has sold it. And customers come to buy from him.”

Even so, RP Europe is not playing by local manufacturer rules in the market. It is not in Samsung’s face because it is not trading much Samsung stock. The same goes for LG and for Sony Ericsson, with which it has effectively run down a distribution contract through total inactivity. Crawley is good on handsets, and their makers.

“My knowledge of Samsung product these days is next to nothing. I mean, how many handsets has Samsung got? They all look the same to me – loads of phones, and none of them excite me. The same with LG. ”

Instead, RP Europe is handling a majority of its stock by Nokia, Research in Motion (RIM) and Apple. It buys from 10 suppliers across Europe. “That’s the way we want it. We were at one stage buying from just two. And any time I see us getting into any kind of supply monopoly now, I break it immediately. Because you just put your own business in jeapordy.”

It knows the rules for each – that Nokia kit from central (western continental) Europe is covered by full warranty in the UK; that import of Apple iPhones from within the EU is technically permissable; and that RIM will blacklist traders found to be carrying BlackBerry stock across any borders.

RP Europe imports Nokia kit from Europe under full warranty. It traces iPhones to source, buying from trusted European suppliers, as it has for two years now. It buys and sells BlackBerry stock in the UK only, and does not appear on RIM’s UK black list of banned traders.

Willoughby says of the Apple trading process: “The law says that if a product is trademark infringing, then in the eyes of the law it is counterfeit. So if you import Apple stock from outside the EU, even if it is an Apple original, Apple has the right to seize the product, the right to have it destroyed, the right to give you no kind of compensation, and the right to sue you for infringing its copyright.”

Crawley adds: “All our stock is European and we know it. I have sat with barristers. We have invested a lot to understand this. I would suggest others in the UK have not.”

Who wants a Nokia deal?

Also, on this question of formal distribution deals, who wants a Nokia UK contract anyway? Crawley suggests 20:20 Mobile and Data Select, present title holders, might be hobbled by their commitments to Nokia.

They are undermined by the instability of Nokia pricing. Demand for Nokia, particularly for profitable high-end phones, has been eroded by newer brands on the market and UK Nokia distributors are committed to legacy volumes they struggle to shift profitably.

He segues off his talk of Samsung’s brand drive. “I don’t see any Nokia advertising. It has become very complacent as a brand, like it expects people to keep coming back. Its phones are boring. They’re not very exciting.

“Look at its competition now. BlackBerry has come to market and spent money on its brand, and got it into the right channels. Apple… you see, Nokia could copy that product, put its badge on the back, and sell it for £100 less; people would just shrug. They’d still rather spend £100 more on an iPhone.”

He is on a roll, and in quicktime sums of the contemporary malaise of incumbent handset brands.

“Apple and BlackBerry get a cut of data revenue from every single phone. Apple has 30 million of the things in the market. Let’s say it makes a tenner a month on each; it’s got got £300 million coming in every month. Three hundred million. A month. And the customer keeps it for two years, and spends more money using it each month than on any Nokia handset.

“Nokia’s share is crashing. It has to be. These BlackBerry, Apple and HTC handsets are taking share. BlackBerry makes half a dozen phones, like Nokia was doing 10 years ago. Apple has a couple of iPhone models.

“They are much easier products to manage and customers want them. And the manufacturers get a revenue share. Nokia doesn’t have one product that does that. What Nokia phone compares with any in their portfolios. I can’t see one. Its killer products are the N97 and N97 mini. Have you actually used one? Nokia is playing catch-up in technology terms.”

The basic maths that says a manufacturer contract is unlikely to stack up easily for a distributor, also suggests giant customer accounts are merely vanity projects for traders.

“I don’t want that business. It’s a game that is not worth playing. Those guys are too mean on pricing, and the contractual terms are so onerous. We can afford to be very picky in the business we choose. I’m not going to say we don’t need to chase business because we do. But we only want to win profitable business.”

Crawley goes on: “There are others that have come into this market and needed to make a position for themselves. They have won business and lost money. If I had a supplier that wanted to provide me stock, and to lose money just to get in with me, I wouldn’t want to do business with it. Because I would worry about its longterm plans in the market, and would feel my customers are vulnerable.

“Distributors have to make profit so they can reinvest and keep up with the changing demands of the market. So why would you want to win business for a loss? Why would you do that? I couldn’t set up a business and do that. We make money on virtually everything we do. Yes, we have lost money on occasion, but never in a month of trading.”

Customer relationships
RP Europe is selling to all the UK market, to major retailer and network brands online and on the high street. It refuses to give names, to avoid rivals disrupting its regular trade. But it is clearly selling to its competitors too. Do they like the fact RP Europe is in the market? “I doubt it,” says Crawley.

Willoughby says: “Well, they love us when they can get stock from us that they can’t get elsewhere. But, in general, they don’t like the fact we do things better than them.”

RP Europe is trading with freedom, and taking opportunities bigger firms are not inclined to identify, because of either different expertise or contractual burdens. It is not defined by its manufacturer relationships, and is not required to fight a losing battle for sales share with better-respected channels. Its portfolio is in demand most of the time.

Willoughby explains: “Manufacturers don’t recognise distributors as customers in the way they do retailers and networks. They recognise they need the retailer. They will never acknowledge a distributor in the same way. And that sets challenges. A retailer or network invests in the brand and product awareness – they represent the manufacturer to the customer, and they ultimately dictate what the market takes.

“Manufacturers see distributors as secondary sources of supply into the market. They will never trust a distributor. Name me one manufacturer head who will tell you he has never had an issue with any distributor partner. They’ll say, the distributor does good business but has to be watched.

“Distributors are used to bolster their numbers. Manufacturers don’t particularly want to use them, but they recognise there are a number of customers out there they don’t have a relationship with. And so this distribution market is necessary to them, even if its protagonists are second-class citizens.”

Because of its independence of local manufacturer demands, and its smart sourcing of kit from niche or foreign channels, RP Europe can serve the reseller market with original, exclusive and warrantied stock itself – in a way manufacturers themselves fail to.

“We almost act like the manufacturer in some ways, rather than a distributor. We acknowledge our customers as important, and go out of our way to make them feel so,” says Willoughby.

“You know, I’ve been through it with European Telecom, where we wanted to be a manufacturer-distributor, and had to practically beg for business. Where else does a customer have to beg to have product sold to them? That’s what it comes down to. Our customers have faith in us.

“We are open, we do not force product on them, and everything we sell is supported by the manufacturer so there are no after-sales issues.”

That UK market assault
For all its sales growth, and its claims of profitable business, RP Europe has not to date been set up to fulfil bespoke customer supply contracts in the way 20:20 Mobile, Data Select, Brightstar, Shebang and Brightpoint have.

It has operated by and large as a smart and transparent trader, an expert at sourcing product and placing it in needful markets.

Its refocus on the UK market now comes with an expansive distribution programme. The company has invested heavily in its UK warehouse and IT systems, running the latest Sage Line 500 accounting system and better packing, tracking and shipping processes for its logistics operation.

It is not about to sell on price. Its product selection, its efficient payments and its consistent supply buy it support as a trading business among sellers and buyers, in the middle of the supply chain by and large. Its advancement as a logistics operation will enable it to ramp up sales to retail businesses in the UK further.

“We are actively targeting very specific customers now in the UK. We have invested heavily in our warehouse and  our systems, so we can scan, pair, repackage and ship devices directly to customers,” says Willoughby.

Crawley says: “The fact is the pie is getting smaller. But I also want a bigger slice of it. We are in a market that has historically made 10 per cent, and the margins are going down to two or three. The only way you can survive is to manage your costs and interaction with your customer in the most cost-effective and efficient way. So if you can produce electronic links to do all the work instead of bloody people, then good.

“Because people are your biggest cost. So if you can run a business on least amount of people, and deliver the best service then you will survive. That to me is the survival game. The market will always exist. But the size of it at the moment and the number of players means something has to give.

“We are going to utilise the skills we have learned in grey trading, and all the opportunities that activity has opened up for us. We don’t want a manufacturer contract; we have absolute consistency of supply already. We have the right products at the right time and at the right price. We have have invested in systems and people.

“For me, it is almost like, watch out UK, because we are ready to go further. I see huge opportunities in the UK going forward. I see the big boys potentially stumbling with their incumbent cost bases, which are way too high. It takes them quite a lot of time to change direction. We can change direction over night.”

This article originally appeared in Mobile News issue 459 (March 15, 2010).

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