Here’s an intriguing supply chain question: When should a firm sell directly to customers and when should it go through an independent retailer? Obviously, this isn’t a clean either/or question. Nike, for example, has its own stores as well as selling through a variety of different retailers. Of course, Nike stores are as much about marketing — showing all things that can be bought with a swoosh on it — as dramatically increasing the firm’s sales. Apple Stores, on the other hand, are very much above moving merchandise and, I suspect, have really punished many small dealers that have long specialized in Apple products. It is not fair to describe the Apple Store as being the only place to buy a Mac, but it is likely the first place that most people think of.
What go me thinking about this is a recent story about Tesla Motors, the Elon Musk’s electric car company (Car Dealers Sue Tesla, Citing State Franchise Laws, NPR, Nov 9). Tesla’s cars are unconventional and it turns out their distribution strategy is as well. As opposed to signing up franchisees across the nation to be dealers, Tesla has opted to open its own stores in malls. That is leading to complaints that they are violating state franchise laws.
Robert O’Koniewski, the executive vice president of the Massachusetts State Automobile Dealers Association, is suing Tesla for opening a store in a local mall.
In Massachusetts, franchise law 93B prohibits a manufacturer from owning a dealership, O’Koniewski says. An auto dealer association in New York is also suing Tesla.
Typically, car manufacturers build the cars, then ship them out to local car dealers, which have to meet the various manufacturers’ standards. …
Each brand represents another manufacturer that can require expensive equipment and training. Not having to meet those various needs, O’Koniewski says, gives Tesla an unfair advantage.
“Those dealers are investing millions of dollars in their franchises to make sure they comply with their franchise agreements with the manufacturers,” he says. “Tesla is choosing to ignore the law and then is choosing to play outside that system.”
Tesla insists it isn’t breaking the law, in Massachusetts, New York or anywhere else. But it is clearly trying to play outside the franchise system.
Jeremy Anwyl, vice chairman of Edmunds.com, thinks that’s the real issue.
“Let’s say consumers really liked buying from a factory store. That would put dealers in a tough spot because they’ve been saying for years that the franchise system is actually good for customers,” he says.