Manufacturers Aren’t as Crazy as You May Think

That’s Rich By Rich Lindblom

While vendors sometimes do things that might seem crazy at first glance, it’s often a case of crazy like a fox.

What a year 2020 was for us BrandSource members. First came the COVID-19 pandemic, and that was followed close behind by massive product shortages and manufacturers raising prices on just about everything.

OK, I guess technically they didn’t actually raise prices. What they did instead (at least in the appliance industry), was to stop discounting them. But ultimately isn’t that the same thing anyways?

Their justification for raising wholesale and advertised retail prices was that if supply couldn’t keep up with the demand, then why should they promote certain products?  Because all that would do is to drive demand even higher and worsen the situation. Since that made sense on some level, we all just accepted it. 

It didn’t take very long at all (probably by April) for me to come to the realization … that prices were never going to return to where they were pre-COVID.  A lot of my dealer friends didn’t believe me, but I felt pretty strongly that I was right. 

The manufacturers had seen for themselves that if everyone raises their prices, then consumers have NO CHOICE but to buy their goods at the new higher prices. Sure, maybe they were selling fewer units. But they were making more money on every unit they sold, and in some cases it was substantially more! Financial reports starting coming out showing that while sales were down, profits were up. Go figure. 

And let’s be honest, the news wasn’t all bad for us retailers. Because we also had the opportunity to sell both higher ticket and, in many cases, higher margin merchandise as well. Higher ticket prices and higher margins equal higher profits.  And I believe many of us did in fact see increased profits, which is a welcome relief in our margin-pressured industry.

But even with these new higher prices, the shortages continued. So what did the manufacturers do? Their solution was to start cutting back on the number of SKUs that they produced so that they could concentrate on the “core models.”  And what were those core models?  In many cases, they were higher-priced SKUs of course. 

That’s when that little light bulb went off over my head again: Manufacturers are not going to bring back all of the SKUs they cut production on. Those oddball pieces that they only sell a small number of each year are simply going to disappear; they will be gone forever. 

After all, as the old saying goes, “There’s no point in letting a perfectly good crisis go to waste.” 

The way I see it (and of course I could be wrong), is that the COVID-19 pandemic has allowed manufacturers to “temporarily” raise prices and “temporarily” cut the number of SKUs they will produce, and therefore inventory levels as well. But when the pandemic is in the rearview mirror, I believe they will look at their improved bottom lines and realize that there is no reason at all to return to the old, less profitable way of doing things. 

Rather, by sticking to their new pricing and production strategies, they will be making more money on every piece, lowering their production costs on every piece, and reducing their inventory levels all at the same time!

The bright side here is that what is good for the goose can also be good for the gander. The very same things that were put in place to benefit the manufacturers can also benefit all of us retailers as well. If we sell a higher-priced product mix at a higher margin and have to stock less inventory, it’s a win for BrandSource members too. 

Based on that, I think every dealer should hope that I’m right about my predictions for the future as we head into 2021.

Rich Lindblom is a former principal of Advanced Maytag Home Appliance Center in Schaumburg, Ill. He recently retired after selling the 64-year-old family business.