In today’s AMN Executive Interview, we sit down with longtime aftermarket executives Joe Zucchero (a former CARQUEST exec) and Frank Pagano (former CEO of Coni-Seal), founders of inTelligentparts Inc., a new technology-driven trading company based in New York City, that is bringing innovation to the global automotive parts marketplace. In March, Zucchero, who serves as CEO, and Pagano, who is executive vice president of the business, went live with the new online direct import portal, the first of its kind in the Industry.
How’s it going so far?
Zucchero: We went live in March and we’re in the process right now of building up our vendor base. We’re going to start making the push for buyers this week. We’re starting to get people registered, but there is still curiosity from some people because we’ve automated a very complex process.
We’ve signed up some pretty high-end vendors. A lot of times, people are not doing direct import, so it’s really explaining how the whole direct import piece works. We’ve taken away a lot of the fear for the new people doing this for the first time. We take that risk from them. We’ve turned the model sideways for some people. It’s a meritocracy and it’s all about price and service.
Tell us how you two came to launch this product together.
Pagano: About two years ago, I had been winding down at Coni-Seal over a myriad of issues and wanted to get out of the distribution business. I wanted to kind of go into this trading business. I was already doing direct import to clients; and, as we were moving to the large retailers, it was becoming a less of a profitable venture as time went on. So, for a myriad of reasons, we were in the process of basically shutting the [Coni-Seal] business down over the past couple of years.
I had created a company; and then, Joe and I became partners in this company and made a major step forward in terms of what we’d done with the technology and how we were going to go to market. I created a very simple website because I’m a simple person when it comes to technology.
I had created a basic model where people could communicate and we could look for products; and then, of course, Joe came in and said, “This is Mickey Mouse. We need to do something different.” So, over the past six months, we’ve put a lot of development work into producing a website that will basically serve as an area for the aftermarket to be able to illustrate products worldwide, where basically people would be able to post up products through a methodology that a lot of people in the United States already use. But, before we go on to that, I think you need to understand why we did this.
Yes. Please give us a little background as to what inspired this project and why you felt there was a need in the marketplace.
Pagano: Frank, having his background and my background with a large retailer, we realized, that there’s this whole group of unserved people out there that needs help. The small- to medium-sized warehouse distributors are losing market share to the big six retailers basically because of buying power. They just can’t go to the street with the same cost that the big six are. So, we feel that as an opportunity. Frank, of course, has been importing overseas for years. His name is among the pioneers in China. We started looking at how to do that. So, we started putting this concept together and our goal then is how do we make these smaller and medium-size warehouse distributors competitive with the big six retailers. That’s kind of our guiding light.
Some didn’t know how to do it. Some didn’t want to take it on. You have this fear of the unknown. So, we said, “Okay, we think we’ve got something here where we could align all that and make them competitive.” The other thing is that when you get to the smaller scale, of course, where you do direct import, most of these people couldn’t afford bigger containers worth of goods. They couldn’t afford the cost of the containers worth of goods and they certainly couldn’t afford to absorb it into their supply chain. So, what we’ve done is we’ve come with a program where we could do parts of containers.
We really feel that we’ve been able to alleviate this whole ‘I don’t have a lot of cash,’ or ‘I really don’t know how to do this; but, darn it. I’m getting my butt handed to me by these guys and they know all the stores and my clients in my town.’ So, we felt there was an opportunity there.
Zucchero: Right. We knew the price points. I knew the price points that I was buying at and I knew what kind of money the retailers were making on me. I knew they were making these huge margins; and, yet, the distributor couldn’t compete and they thought that we were getting great deals. It wasn’t that those deals weren’t available to them. They just couldn’t partake in those deals. They weren’t sophisticated enough or didn’t have the confidence to think that they could actually buy at those prices, but they really can.
What was the biggest issue preventing them from being able to get those same deals?
The problem was that most of the large retailers are buying these products outside of the West and this has built a real price gap that enters into play. They keep beating up domestic manufacturing. You’re giving them too good of a deal. The reality is the procurement is coming from overseas. A lot of the procurement is coming from overseas. So, we’re giving the distributor the lower cost, lesser container load; and, really, what we’re creating is a one-stop activity center.
They can shop worldwide. They don’t have to look in China. They can look in India. They can look in Brazil. And, those factories will be sophisticated in the sense that they’re going have to be approved by ISO, TS69. We’re working with the higher quality factories.
So, you clearly saw that you could fulfill a strong need in the marketplace. How did it all come together from a technical aspect?
Pagano: In coming across other business-to-business websites, we realized we really need an e-commerce model here. And, it’s a business-to-business model; but, most business-to-business websites are not that great, right? Obviously, the gold standard in any e-commerce today is Amazon.
What do we like about Amazon? We like that the fact that Amazon is easy to use. They’re reliable. You know where your stuff is. There are times that you try and go find a bargain; but, they’re not the cheapest. So, the time you go find a bargain, what happens? You’re dealing with “Where’s my package?” “What’s happening?” It’s just not a good experience.
So, we know people will try to bargain hunt at some point in time but we want to make this such a good experience that they won’t feel they need to. We have a very low transaction fee. It’s a fixed fee. You’re not marketing stuff. So, it’s a very different model.
Amazon has the whole shopping cart thing. So, we said, “Okay. Why couldn’t we, using a shopping cart motif, look at the process of import with proformas, invoices, packing, etc.? Why couldn’t we just put that in an Amazon-like format and partner with a world-class partner such as UPS Global Logistics, so you could see where your stuff is, door-to-door?
So, we said, “You know, we think that’s the approach here. Let’s make an easy to use, easy to register, easy to purchase; and, that way, you can go through and see where all the stuff is.” So, lower your cost. You don’t have to sell the farm to buy a product. Make it easier to use. Understand where it is until it gets to you up to a point where it gets to your loading dock.
From the seller’s side, there’s a lot of interest because they’re trying to reach more people than just the big six. They want to be able to reach different types of clients. They can’t afford to have marketing firms here or sales force.
This is good for them. They get more exposure and – this is the third piece – we’re helping domestic guys in the States export. There’s business in South America. There’s business in Brazil. There’s business in Europe. Many American suppliers have a very weak export department. There’s tremendous opportunity for export as our dollar weakens less than others. So, there’s a whole other side.
Zucchero: Another side that surprised us – we were talking to a lot of these warehouse distributors who have their own warehouses. I asked this question, “What are you doing with your dead product?” The answer is, “It’s dead product. It sits there. I tried to wean it off my balance sheet. It’s there.” And we said, “Well, you can come on board as a supplier for us and we’ll sell it overseas. You’ll get rid of it. UPS will pick it up and you’re done with it. You get your money.”
So, this thing has really opened up into a true marketplace. We anticipate a lot of our customers will be both buyers and sellers on our site.
Pagano: With a lot of car parts movement there’s a SKU, there’s a number, there’s a weight, there’s a measurement, there’s an interchange to OE and all built into the system. As soon as the vendor gives us that, it uploads right into the site. All of this information will show up. The image, if they have image files, will be there as well so you can actually look at the part.
Where is your e-commerce platform coming from? Is it proprietary or are you working with a vendor?
Zucchero: It’s proprietary. I have a trusted guy whom I’ve known since before I was with CARQUEST. I’ve been in IT for a long time. I had my own company and I had a partner here in the Tampa Bay area who is a leading trusted Web developer into mobile apps now.
Pagano: This is not borrowed. We own the software. We have outsourced the development. So, basically, we’ve outsourced our accounting.
Tell us how you are managing your partner relationships overseas.
Pagano: We have in-country managers in different countries that will develop the customers to come on board if they have questions about how to come on board, like a liaison. They get a little piece of our piece.
Zucchero: So, our program is really on a 9 percent flat fee. So, whether you buy a million dollars or you buy a half a million dollars or a hundred thousand…We have a flat fee. So, there’s no markup. They don’t have to worry about it being imported and marking it up; and, basically, every supplier can refuse our fee. He doesn’t have to accept it.
The buyer doesn’t have to accept the quote. So, as I tell folks, if it’s a valuable match of buyer quotes, proforma, target, at any point in time, if the ball is in your court, you can say no. We give them that power. The other thing we do. which is very different in this industry, is we show everything. We show original cost. We show the different commissions. It’s laid out. We do that to help our buyers so they pay import duty fees only on the cost of goods sold. That’s it.
Pagano: Everything is detailed and we’re simplifying the procurement process of package and import and documentation. Because, when I imported, a lot of our hassles was in the documentation. Where are the shipments? When are they coming in? We’re simplifying this whole process so that it can be done a lot easier.
Zucchero: And we’re making it less expensive for the buyer because, in a markup model, if you could even mark it up – and some people marking up
40, 50, 60 points – well that’s the cost of the product and that’s the duty you pay. Ours is you see the cost. You see the cost from the supplier and that’s the duty you pay.
Pagano: We become the importer of record. We’ve become the buyer; but, our buyer pays us before the seller ships. So, we’re like a transaction agent who actually pays the seller and then he ships; but, the buyer has paid us prior to the shipment. So, right before the shipment is ready, you have the notification. The buyer is notified, he pays; we pay the vendor, he ships.
You have a process, a vetting process, then, for these international sellers to become approved by you?
Pagano: Yes. Frank and our in-country managers are dealing with it. Right now, we’ve got one in China. We’ve got one in India. We’ll be moving to one in Germany and Africa and a couple of other providers.
And also, we will offer, if the buyer is a little skittish, for a couple of points on the order, we could actually do a pre-order and order inspection. So, we have these guys to go ahead right onto the shop floor and look at the product.
Zucchero: If it’s a factory that wants a deposit, any arrangement can be made; and, it’s very simple. It’s a very unique system. We really try to make this as simple as possible.
So, the database of information that flows is dealt with a lot of detail and respect. You have to take a fair amount of time to fill out the spreadsheet to load your product; but, once it’s in, it has very good information as any retailer would have when he’s buying a product. It’s designed for that reason.