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Majap Merchants Mixed On Proposed Price Tag Hikes By Manufacturers

NEW YORK —

Major appliance retailers had mixed
reactions to a round of planned April price hikes announced
by the industry’s largest manufacturers.

The increases, which range
from 8 percent to 10 percent
depending on SKU, are sought
by vendors including Whirlpool,
Electrolux and LG Electronics to help offset rising oil
prices and sharply higher costs for raw materials like
plastics, steel and other metals.

Higher wholesale prices will also help manufacturers
compensate for the earnings impact of steep holiday
price promotions, which Whirlpool chairman/CEO
Jeff Fettig described in a conference call as “value
destroying.”

As a result, “we’ve announced significant price increases
on most of our products and brands,” Whirlpool
North America president Marc Bitzer said on the
call, citing the “inflationary environment and the unfavorable
price mix.”

Some merchants, including hhgregg, the nation’s
fifth largest full-line majap chain, welcome the passalong
— assuming the proposed price hikes stick.

“Manufacturers are in the process of looking at what
the market can bear,” president/CEO Dennis May told
analysts this month. “Whether that pricing actually comes
to [pass] or not, and how different manufacturers from a competitive perspective play it out, remains to be seen.”

“We’ve been studying it closely, and if the manufacturers
are able to capture some of the costs of those raw material
increases and that actually sticks in the marketplace, then
that would be good for us,” May noted.

By way of example, if vendor price hikes push the retail
of an $899 side-by-side refrigerator with 30 percent gross
margins up to $999, “our gross margins, at a minimum, are
just as good at the higher ticket,” he said.

But Bill Trawick, president and executive director of the
NATM Buying Corp., which comprises such leading majap
chains as P.C. Richard & Son, BrandsMart USA, Conn’s,
ABC Warehouse, Abt Electronics and Nebraska Furniture
Mart, fears that financially strapped shoppers may balk at
the higher price tags and settle for lesser-featured models.

“How will consumers feel about a $100 increase for a
side-by-side in this environment?” he asked. “It may force
them to step down.”

What’s more, increases could disrupt the industry’s merchandising
matrix, which has established key price tiers such
as $399 for a washer and $999 for a side-by-side. “It may
change the industry mix,” Trawick noted. “A lot of [retailers]
don’t want to move off of those price points. Will they suck it
up and take the hit?”

Keith McLoughlin, president/CEO of Electrolux, believes
the impact on demand will be minimal. “It’s actually not as direct
as you might expect because they’re high-ticket durable
goods,” he said on an earnings call. “When you increase a
$500 range 10 percent, the consumer doesn’t react strongly
to $549.”

That’s especially true for replacement sales, which are
the predominant purchase drivers amid the weak housing
market. “When there’s a failure of a range or a refrigerator, people are going to replace it,” McLoughlin said.

Trawick, who hadn’t seen the official price
sheets at press time, said NATM isn’t against increases
“as long as we can collect as well. We
can’t be the loser on this if someone caves and
prices don’t hold.”

A consensus, he said, should form in 60 to 90
days after the national accounts weigh in and existing
inventory runs dry, including the considerable
white-goods stock hhgregg said it bought
last month in anticipation of possible price moves.

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