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Traditional Majap Retailing Suffers Another Blow

Professional Retailing, By Jules Steinberg

Successful retailing methods today bear little resemblance to the tactics used a decade or even a few years ago. Furthermore, they probably will be unlike anything that turns a profit tomorrow. For the latest attack on tradition, and a glimpse into the future, please read on.

In what may prove to be a devastating blow to small, owner/managed dealerships, first General Electric and then Maytag have taken major steps toward retailing their appliances through expanded arrangements with The Home Depot.

Throughout the summer, the home improvement chain, with 960 retail outlets, is stocking each store with many display models of kitchen and laundry products from those lines.

In GE's case, the retailer will accept consumer orders for those items that GE will finance, deliver, install and service. In exchange for its sales and merchandising efforts, Home Depot will earn a reported commission of 20 percent of the selling price.

Although GE has for many years toyed with the idea of assisting its retailers in meeting the competition's low prices by reducing gross margins and increasing inventory turns, this is the first time this manufacturer has embarked on a retailing program of this magnitude. It is also reported that its smaller retail accounts will now be completely turned over to distributors for product and service.

All in all, it is difficult to see how independent merchants can compete with manufacturer-controlled retailing of this sort without making major changes in their marketing methods.

There can be little doubt that other manufacturers -- including Whirlpool, which last month announced an expanded relationship with Lowe's -- will follow the leads of GE and Maytag. With their large number of outlets, major retail chains are an attractive target for storing factory warehouse inventories.

The big challenge will be in how the owner/managers who first brought this industry to the attention of the public will meet this competition.

Surely, a handful will simply roll over and die. The majority, though, with more confidence in their abilities, will look for more profitable variations on their old way of doing business.

But selling appliances and/or consumer electronic products alone will not do the job. Other products, such as furniture or home security, less dominated by manufacturer dictates, can play a role in the salvation of the independent. Various services, from custom installation to extended repair service contracts, can also be employed. The biggest mistake lies in thinking that traditional retailing has a secure place in the trade.

The GE/Home Depot plan has too many positive aspects to be ignored. It combines the talents of professional retailing with well-established manufacturing practices for a fair division of the trade's profits. At the same time, it reduces the cost of distribution to the consumer by eliminating the need for stores to invest in backup inventory.

That last is another area where independents can help assure their own survival. It all boils down to choosing a wholesaler/supplier that does more than merely say it "works" with its retailer customers.

Imagine if wholesalers would adjust their inventories so they could deliver product to the dealer as the inventory is needed, or even directly to the consumer as requested by the merchant. The inventory turns of retailers would greatly increase, their capital needs would be reduced, and dealers would be better able to profitably meet price competition -- even if it comes from the manufacturer. n

Jules Steinberg, a former executive VP of NARDA, is president of Jules Steinberg & Associates, 425 Sunset Road, Winnetka, IL 60093. He can be reached at (847) 446-7312 orJSteinb611@aol.com.

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