WCF recently asked a SAM'S Club spokesperson five questions regarding the club's decision to ban brokers from manufacturer meetings. The following lists WCF's questions and SAM'S answers:

1. What are SAM'S goals in deciding not to work with brokers?

"At SAM'S Club, we value the relationships we have with our suppliers and need to establish a direct relationship with them. The decision for a supplier to work with a broker is their decision, and one we do not want to influence. However, for our business, direct dealings with our suppliers brings our expert to the table with their expert. We believe by directly dealing with them we can create more efficient relationships and negotiate opportunities that better benefit both the supplier and SAM'S Club, ultimately benefiting our member."

2. How will SAM'S decision affects its club business?

"Dealing directly with our suppliers will let us be more creative with our merchandise, develop items and open doors to all suppliers who are interested in doing business with us."

3. What should manufacturers know when deciding to present their products to SAM'S?

"We encourage suppliers who are interested in doing business with us to pick up the phone and give us a call. All they need to do is ask for the appropriate person at SAM'S Club and make an appointment. If this doesn't happen, our "Open Door" policy is available to anyone."

4. What is SAM'S saying to the broker community?

"We expect to have direct contact with our suppliers."

5. What should manufacturers do if they have a broker representing their products to SAM'S?

"The supplier should contact us directly and make an appointment to meet with us."

In this section, Glenn Llopis, president of Power Insights ® (www.powerinsights.com), discusses the broker's role and the contributions to product development and maintenance that brokers make in the club industry.

As the warehouse club industry continues to revolutionize product purchasing and merchandising and vendor relations, the ground rules for manufacturers to compete are constantly changing. SAM'S decision not to allow sales agencies (club brokers) to participate in buyer appointments with manufacturers has sparked controversy, confusion and uncertainty among warehouse club manufacturers and club brokers. In fact, many in the industry view this decision as catastrophic and inexplicable at a time when club buyers are demanding more sales, marketing, logistics and distribution services to support the clubs' accelerated growth and expansion.

Power Insights recently interviewed several large and small manufacturers and club brokers to identify the possible ramifications of this decision and how it can change the landscape and ground rules for competing profitably in the warehouse club industry.

The following four areas represent the most frequently discussed topics among manufacturers and club brokers in assessing the current service demands of the warehouse club industry and its buyers.

1. Manufacturer Support - Many small and medium-sized manufacturers offer a limited operational infrastructure to service the warehouse clubs, as the clubs are viewed as an "alternative" channel of trade. Several manufacturers simply offer slightly modified retail or foodservice products that are then managed by the club broker. Warehouse club brokers offer the resources to work extensively with the manufacturer to provide an in-depth understanding of the club business and to successfully introduce and manage products.

2. Product Innovation - In may cases, small and medium-sized manufacturers "ignite" product innovation in the club industry, as these companies are able to offer unique, specialty and seasonal products. The small and medium-sized manufacturer is generally product-oriented and tactical in its go-to-market approach. In this situation, the club broker provides the experience to assist the manufacturer with packaging design, distribution and inventory management strategies.

3. Category Management - Club buyers are in a continuous search for new products to provide a unique shopping experience for their members. Club buyers are also searching to enhance product profitability through increased sales and inventory turns. Many of the small and medium-sized manufacturers do not currently have the necessary operational infrastructure to offer direct warehouse club account management services. The club broker assumes the role of assisting manufacturers to support effective category management and in the end, the club is serviced at a higher level.

4. Vendor Support to Assist Growth - Manufacturers will need to invest capital to develop the internal and external operational infrastructure necessary to support SAM'S growth. It will be difficult for manufacturers to create effective warehouse club strategies without the support of their club brokers. Manufacturers will be forced to increase their cost of goods should they be forced to support a 100% (no club broker) customer management effort.

As a result of SAM'S decision, there are four questions that manufacturers and SAM'S Club will have to deal with over the coming months. First, what happens to brokerage commissions with regard to current orders and products programs that were developed by the club brokers? Second, will club brokers take legal action to prevent this decision from damaging their business? Third, what effect will the increased overhead (i.e. personnel and travel) incurred by the manufacturer to support SAM'S have on the cost of goods? Fourth, time starved SAM'S buyers will most likely have to meet with and spend more time with small and medium-sized manufacturers who may or may not be as familiar with the club industry. What effect will this have on SAM'S Club buyers and product development? Currently, there are no clear answers to these questions, but as the situation develops and time passes, manufacturers and SAM'S Club will have to address these issues.

The following are comments and quotes from manufacturers and club brokers interviewed by WCF and Power Insights:

Club Buyer - A SAM'S Club buyer gave one manufacturer two reasons for SAM'S decision. The buyer said, "The brokers don't have a sense of urgency when it comes to new product introductions. With the consolidation of brokerages, the individual account managers have too many lines to manage and details become an afterthought."

Direct Manufacturer - One manufacturer said that it terminated its relationships with brokers for the club industry four years ago. It said, "We seemed to be paying commission for things we were totally capable of doing ourselves. At the time, all club buyers welcomed the move."

Broker Relationship Continued - One manufacturer intended to retain its broker for SAM'S business. It said, "It is our intent to retain broker services at SAM'S to provide the best service after the sale that we can. I suppose SAM'S would be within their rights to deal only direct with vendors during sales calls and follow up, but I do not believe they can demand that we drop broker representation altogether."

Effect on Industry - One manufacturer said that its Costco buyers were confused by SAM'S decision. The manufacturer said, "I discussed it with my Costco buyers and they are just shaking their heads. This thing is a waste of time." This manufacturer went on to say that it doesn't "foresee BJ's and Costco making any changes, they will sit on the sidelines and see how it all falls out." Another manufacturer said, "Manufacturers will apply more attention to the introduction of new products with Costco and BJ's, as they will view SAM'S Club as an unstable operation."

SAM'S Focus - One manufacturer commented that this decision is more of a distraction from the true needs of SAM'S business. It said, "SAM'S Club needs to start focusing on the needs of their membership versus who is coming in to sell the products."

Legal Issue - One broker said that "SAM'S Club will now force manufacturers to offer different pricing programs to different warehouse club accounts. That can create a massive legal issue (i.e. Robinson-Patman) that will give manufacturers reason not to participate in the warehouse club industry."