Delta Drama

Last week I said that I wouldn’t be blogging today but a matter of public interest has come up, and I felt it was important to share with the community.

A little over a month ago, the Italian brand Delta announced to its European retailers that they would now be selling product at dramatically lower prices through a single retailer, who I have chosen not to name. We will just call them M. M’s prices were 30-50% lower than the prevailing street prices, and generally lower than the wholesale cost of other retailers.

This left the other retailers in a bind. They could either maintain their current prices and hope some customers would be willing to pay double or they could match M’s prices and sell their inventory at a loss. Some have chosen the first option; others have chosen the second. Many have understandably decided to clear their current inventory and drop the brand.

I’ve spoken to retailers in the US and Australia, and it seems that Delta hasn’t made the announcement globally. Which is interesting, given that it has implications for retailers around the world: the Dolcevita Oversize (perhaps Delta’s best-known product) has a US street price of $716. Buyers can now purchase it from M and have it delivered for less than half of that, just $350. There is a slight difference – M’s model features rhodium trim instead of sterling silver -- but it is hard to imagine this decision won’t affect US sales.

I spent some time this week trying to discern Delta’s motivation for this decision. The retailers who built up Delta’s business feel insulted and disrespected; it’s obvious that Delta burned many bridges with this move – which is not exactly good business practice. I have to assume that Delta would not do this unless they saw some upside but, for the life of me, I could not figure out that upside. A business can still work with few retailers, as long as the wholesale price is higher and overall revenue increases. But they have made a choice which reduces the wholesale price and the volume of products they will sell.

It made no sense to me until a correspondent suggested that they might be in financial difficulty. Everything fit together with that comment – a brand might lose money with aggressive discounting, but it quickly brings in cash. It explains the discounting, it explains the shortage of 14k nibs, and it explains why the discounted models are being produced with the cheaper rhodium trim instead of sterling silver.

It also reveals something of what is happening in HQ. There are two kinds of cashflow problems that a business can face: temporary problems, where the business is profitable overall but too many bills arrive at once. The cash reserves are strained but a temporary injection of liquidity is sufficient to get things back on track. Then there are more permanent problems, where the business is simply not profitable and has run out of cash to sustain its operations. I do not know which is true of Delta. I have reached out to them repeatedly and not received any response.

Burning bridges with the retailers who built your brand is not an optimal solution if your problems are temporary, so I can only assume that Delta’s business problems are the permanent kind. If that’s true, it may only be a matter of time before the 33-year-old business fails. This conclusion depends on those assumptions but I can’t find any other explanation for what is going on.

If it’s true, then this situation is a double-edged sword for buyers. Right now, they can get a good deal on a Delta fountain pen – possibly paying as little as half what they may have expected. That’s pretty sweet. But it does mean the business may not be around to honour the warranty. As with most Italian brands, Delta’s pens suffer from chronic quality control failures and so that low-priced Dolcevita might end up as a high-priced paperweight. My understanding is that Delta’s distributors (such as Yafa in the US) are not able to undertake most warranty work, so this affects buyers globally.

Personally, I’ve wanted a Dolcevita for a long time and have spent the last few months going back and forth on whether I wanted the medium-size or the oversize. I decided on the medium a few weeks ago, only to discover Delta’s insulting treatment of its retailers. This left me with an ethical dilemma – do I support a company that acts in this way? I decided that I could not, but even if I was comfortable with that, I would not buy a pen where I had doubts about the brand’s ability to honour the warranty. Especially a brand with chronic QC problems.

That’s my own position and I don’t want to push it onto anyone else. I do, however, feel that people should be well-informed when making purchase decisions.

While it’s too early to conduct a post-mortem, I think Delta has always struggled to find a source of competitive advantage – some unique and profitable edge over its competitors. Amongst the Italian brands, Visconti has a flair for striking designs and unusual materials, and Omas has an edge in their tasteful, classic designs and German levels of quality. Delta, on the other hand, did not experience the same strength in designs. They lucked out with the orange resin of the Dolcevita and ultimately put it into as many different products as they could, in an attempt to milk that success for all it was worth. Their limited edition pens had strong appeal to some segments of the market but the range lacked a master aesthetic – a unifying design theme that is presented in the LE ranges of brands like Montblanc and Visconti.

They also struggled to gain an advantage in any other dimension. There have been persistent concerns about QC (particularly amongst their premium and LE products), prices were high, their marketing ventures were generally unsuccessful, and the gold/steel fusion nib has been the subject of ongoing ridicule since its 2013 release.

Even if the brand manages to survive the next few months and somehow manages to rebuild relationships with retailers, they need to seriously think about competitive advantage and their strategy. Relying on dozens of different orange resin designs and a constant flow of LEs isn’t a strategy, it’s just a series of short-term fixes. There’s no point in keeping the business going without some advantage, as it means the current problems will return at some future point. If that is the case, perhaps it is better that Delta chooses to close their doors sooner rather than later.

It doesn’t bring me any particular pleasure to say that. It does mean that people will lose their jobs and that owners and lenders will lose their investments. But without a source of advantage, without some foundation to sustain the business, there isn’t much reason to try and keep it going. That said, if they can find something and build a strategy around it, I would be thrilled to see them revived and reborn. Time will tell if that happens.