Eventually, Everything Old Becomes New Again

Back in 1954, the giant utility companies were in the TV/appliance business. It was said that no small, independent dealer could possibly compete with them.

But secondary distributors and manufacturers, to increase their distribution, began opening new outlets, including furniture retailers, tire stores, coal and oil dealers, and servicers. They extended credit, arranged floor-plan financing, and taught under-capitalized dealers how to sell their products.

It all added up to more price competition for the utilities, which eventually decided that their overhead was too high and their gross margins were to low. So they left, but the small retailers remained. [Footnote: British Gas, in the United Kingdom, is still a major retailer of appliances.]

Then the discount department stores entered the picture with highway locations in the suburbs. Chains like Ann & Hope, Barker's, Diana, Fedco, FedMart, Grandway, Interstate, J.M.Fields, Kings, S.E. Nichols, Treasury, Two Guys, Woolco and Zayres all thrived for a time, fueled by the sales and profitability of new products like color TVs, portable radios, console stereos, hi-fi's, 8-track players, cassette recorders, calculators, microwave ovens, radar detectors, audio and video tape, video rentals, video games and personal computers.

Eventually, many of them went bust because they couldn't compete with the major department stores, which also moved to key locations in shopping malls outside of the cities. But the small retailers remained.

Then the department stores left the TV/appliance business because their high overhead and the categories' low gross margins didn't justify the floor space. But the small retailers remained.

Then the big-box “category killers” expanded with advertising, promotions and multiple store locations for high volume at any cost. They managed to drive out many of the regional specialty competitors: American Appliance, Brick Church, Campo's, Friendly Frost, Fretters, Highland, Lechmere Newmark & Lewis, Silos, Sol Polk, Fred Schmid, Trader Horn and Tops Appliance all went out of business because their high overhead didn't cover their lower markups on brown and white goods.

But the smaller TV and appliance retailers banded together to form national buying cooperatives to share best practices and better cost pricing from manufacturers.

In the Northeast for example, 450 TV/appliance competitors with five major warehouses joined forces to form the NECO Alliance. Quietly, with sufficient inventory for same- or next-day delivery but very low overhead, they have become a major force in the appliance business.

In addition, the advent of high-end appliances like front-load washers, pro-style ranges and hoods, and built-in refrigerators and under-counter wine coolers have helped increased the appliance dealers' profitability.

Today, two giants from the DIY business, Home Depot and Lowe's, with over 3,000 stores between them, are attractive opportunities for appliance manufacturers and a concern to small retailers. But one wonders how long the home improvement chains, too, will be willing to keep their high overheads and sell high-volume, low-profit appliances.

In the past, utilities and department stores said they made up for the low gross margins on white goods in other areas. But after enough losses from the category, they decided to pull the plug. Will Lowe's and Home Depot eventually follow suit?

Regardless, the question remains: Can today's independent entrepreneurs, the little guys, still compete — even with the new giants? Yes, if they keep their overhead low enough and their gross margins high enough. New products make for better profitability but only for the short term. Pay attention to the store displays, motivate the sales personnel, run the business with low overhead and the retailer wins.

Some things never change. Everything old is new again.