How MAP saved our assets
By Rich Lindblom, Contributor
If you were in business in the late 1980s you probably remember that time as the Wild West of appliance sales. As manufacturers added more and more stores to their dealer rolls, prices and margins both shrunk … down to nothing.
I remember it like it was yesterday, which is amazing because now I can barely remember to pick up a gallon of milk while I’m at the grocery store. Back then we were lucky to make $50 gross profit on our best-selling Maytag washer, and at a selling price of $579 that meant less than 10 points of margin. Yes, you read that right. Now go grab a bottle of Tums and let that sink in before you continue reading.
Maybe it was just the Chicago market, where my brother and I ran Advanced Maytag Home Appliance, the family business, but I tend to doubt it. So if you didn’t own an appliance store back then consider yourselves lucky. With an average gross profit of somewhere between $50 and $100 on a typical sale, let’s just say times were tough.
So here we sit today with MSRP, MAP, UMRP and every other pricing acronym you can think of, and I hear dealers bemoaning the fact that they can’t advertise their appliances at the prices they want to.
Are you kidding me?
Manufacturers’ minimum advertised price (MAP) policies are the best thing that has happened to this industry since I started selling appliances in the mid-1970s. MAP pricing has raised selling prices and corresponding profit margins to levels we haven’t seen in quite a while.
I remember attending a BrandSource Convention about a dozen years ago. I heard one of the smartest people in the industry (and someone I respect the hell out of, so I won’t say his name), tell everyone in the room they will never see appliance margins above 18% again and that we needed to accept that as the new norm. Well, thank goodness he was wrong, and in my opinion it’s thanks to minimum advertised prices.
Let’s look at this from a couple of different angles:
1. If there were no such thing as MAP, the biggest retailers out there would have it within their power to put many independents out of business. Given the deep pockets of the major regionals and national big box stores, all they would have to do is advertise everything at ridiculously low prices for six to 12 months. That’s all it would take to get many of you to give up and lock your doors for good.
2. Fortunately I don’t see that ever happening. But I can describe a far more likely scenario if there were no MAP pricing: You’d see tit-for-tat price erosion on a grand scale. Store A would advertise a washer for $599. Then store B would advertise it for $579. So store A cuts its price to $549, and so on and so on. It would be a death spiral for profit margins.
Don’t think it could happen? I got news for you, that is exactly what happened in the ’80s. It seemed like every week someone was advertising a lower price on our most popular models. We had no choice but to lower our prices to keep pace with the market. Eventually it got to the point where no one was making any money!
The moral of this story is simple: Be careful what you wish for, because the grass isn’t always greener on the other side of the appliance aisle.
Rich Lindblom sold his 64-year-old family business, Advanced Maytag Home Appliance of Schaumburg, Ill., and now shares his four-plus decades of retail experience with BrandSource members as product manager for AVB’s SYNC point-of-sale system and as a columnist for YSN. You can reach Rich at firstname.lastname@example.org.