Majap Merchants Mixed On Proposed Price Tag Hikes By Manufacturers

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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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