Home Industry News Tough Call: Enforcing a handshake agreement

Tough Call: Enforcing a handshake agreement

Tough Call: Enforcing a handshake agreement

After years of an exclusive with a product line you helped build on a handshake agreement, the vendor is now selling it to your biggest competitor. What would you do?

When you went out on your own and opened a building supply store 15 years ago, you knew it wouldn’t be easy, but you were confident that you’d succeed to the extent that you helped others succeed. One of your company’s core values has been to “dance with them that brung you.” In other words, be loyal to those who help you grow. Thanks to a great team of people, many of whom have been with you for well over a decade, your little shoestring startup is now the leading LBM dealer in your market. You took a calculated risk by offering credit to some startup builders; now that they’re established leaders in your market, they’ve not forgotten who helped them get their start. And when you were talking with vendors, you agreed to take on some of their new, unproven products to demonstrate that you’re a good partner.

It’s one of those new, unproven products that has led to your current situation. Here’s the story. It was 15 years ago, and you were a month from opening your doors. You didn’t want to carry all the same products as your competitors, knowing that price wars would ensue. So you worked to source quality materials that weren’t widely available in your market. You had most of the major product categories covered, except what was then known as alternative decking. The wholesale distributor supplying many of your other products approached you with a new line of decking called Unknown Decking. As it turned out, they were having a tough time getting any dealers to take on the new, unproven product and asked if you’d help them out. You agreed—but on one condition: an exclusive in your market. “Why not? Everyone else has said no,” they reasoned, “and if we don’t sign up a dealer, we lose the brand.” With a handshake, you became the first stocking dealer in your market (and one of the first in the U.S.) of Unknown Decking.

Fast-forward to today. Boasting an attractive price point, easy workability, and very few field failures, Unknown Decking is one of the most popular decking products on the market. And it’s all yours…or so you thought. On the way to work this morning, you heard your competitor’s ad on the radio. “Stop by The Other Lumberyard today and check out the hottest decking product on the market, Unknown Decking! We’ll match or beat any competitor’s price!”

Since The Other Lumberyard is a big box discounter with a healthy advertising budget and a location less than a mile from you, this is not welcome news. Plus, it violates the agreement you made when you started stocking the product 15 years ago. A phone call to the salesperson who made the agreement didn’t go well. “I don’t know what you’re complaining about,” he said. “You had an exclusive on that product for 15 years. The manufacturer was pressuring us to expand distribution, so we did what we had to do.”

From your view, your agreement to take a chance on Unknown Decking is the reason that there’s demand for the product in your market. You believe that what they did was wrong, but a handshake agreement isn’t enforceable in court. What would you do?

ACCEPT IT. There’s nothing you can do. Without an enforceable contract, the vendor can do as they wish. And they’re right, you did enjoy a profitable 15-year exclusive with the product.

PUSH BACK. A deal’s a deal—even if it is 15 years old. Plus, if you hadn’t agreed to carry the product when you did, they likely would have lost the brand. Insist that they honor your agreement.

SHOP AROUND. If they’re not going to honor their agreement with you, then the relationship has run its course. Consider taking meetings with the other wholesalers who’ve been courting you.

SAY GOODBYE. Losing the exclusive on Unknown Decking is going to hurt you but losing all your business will hurt the supplier more. Cancel all existing orders and move your business to another supplier.

What would you do?

Something else? If you’d take a different plan of attack for this month’s Tough Call, email your suggested solution to James@LBMJournal.com. If we publish your reply, we’ll send you an LBM Journal mug.