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Many companies are suffering from the hangover of the late 90’s. They increased staff ,increased financial commitments for the long term not always living up to the conservative nature most have had.As Cohiba stated , the businesses who took pleasure in increasing prices only to never look at reductions now suffer get what they get. Is this just a blip or a full blown pattern of things to come ? Opinions everyone ? The model that worked in prior decades will not work ? Too much debt ? Companies attempting to live on the spike of the 90’s ? The questions I just asked were reminders of the latest two companies I am very aware of. Too much spending , little control and failing sales.
My comments go beyond the appliance business to our economy in general. This economic environment is generally what makes the appliance business go. Manufacturers in the appliance industry beyond the big four did not anticipate the big downturn and have suffered more than GE. Whirlpool , etc.Will they all recover in spite of the issues before us ?There seem to be some pretty scary things going on in the appliance industry. I was on Marvel’s website today and they have a $1000 rebate on the purchase of one double refrigerator drawer. How much money are they making on these things? I have seen very few $1000 rebates in my time and most of them required the purchase of 5 appliances that added up to over $10,000. This looks like a desperate attempt to generate sales. There have been quite a few reps left go on the east coast by a high end manufacturer from the west coast. Is there any serious talk of any of these stand alone premium brands throwing in the towel? I don’t wish that on anyone, but the chance of that happening makes a person afraid to walk to those brands which obviously doesn’t help them in their predicament. Meanwhile magazine’s are declaring that the recession is over. That declaration is being made with only one third of the stimulus money being spent. Why spend the last two thirds? If the recession is over let’s have the government do the responsible thing and pay down the deficit with that money. I think we all need to do the responsible thing and continue to prepare for a long, bumpy ride if we still have the means to prepare.
Steady …According to Oliver Blanchard, the Chief Economist for the IMF, "the recovery has started (for the global recession) but the crisis has left deep scars which will effect both supply and demand for years to come." And, while U.S. policies (or lack thereof) might have led the world into recession, don’t expect America to lead the world out. In other words, "it ain’t over til the fat lady sings", which in this case is probably the American consumer. People aren’t likely to rush back to "high-end" big ticket items when they (or their neighbors) are still unemployed. So look for more "desparate attempts to generate sales", while magazines are painting a rosier picture.
Some of the smaller guys below the big four are really hurting. While Marvel make some decent margins it appears that they are giving things away to cover overhead. Others will do the same since they have no other choice. Cohiba , I like you am not drinking the economic kool aid that says we are getting better. Jobs are what counts and many jobs in the US will never come back and the rest will come back at lower salaries. I do believe that these days the stock market has nothing to do with the job market in America. Some of the stock market gain is do to unlimited amounts of money given to some by the government and manufacturers outsourcing to third world countries which is helping their bottom line resulting in less jobs here.This is not our grandfather’s economy. There is no magic left here. No smaller companies who brag about leading edge technology because they too will bow to job outsourcing at some point as the resume builders look to cut costs in our industry.Consumers will not expend high dollars for high end stuff since their wages will stagnate. Therefore the viscious cycle begins.The "vicious cycle" began over a year and a half ago. We’ve probably seen the worst (bottom), but improvement – particularly in the high-end – is nowhere on the horizon. Business cycles as severe as this one tend to reward those companies who generally are successful on three fronts – recognizing immediately what is actually happening, adusting by rapidly downsizing staff, inventories, operations, and cutting costs, and adapting quickly to the new business realities. How companies manage the business cycle is the key. Companies that recognized early, moved quickly, and are already adapting have a better chance to survive/succeed than those who have been "tone deaf", in denial, and generally late to join the "reality party". I fail to see how some can fault companies for their aggressive expansions in the late 90’s and early part of this decade. The consumers were out there buying everything they could build. The choice of not growing would have been equally disastrous to their futures. If fatal mistakes have been made, they’ve more likely been made in the last couple of years – "failing to see the forest through the trees". The high-end is going to continue to suffer severely as long as unemployment keeps growing/remains high, and until housing values stabilize, new home construction recovers, and consumers who do have jobs and money see a value equation in remodeling their existing homes. The "magazines" may be right that the economy as a whole is on the road to recovery, but it is not going to be the old style "retail driven recovery" that many are hoping for. That’s not good news for the high-end companies in particular. They will be hard pressed to adjust and compensate , and many will – unfortunately – be forced into more off-shoring and other "unthinkable" alternatives just to survive. And, that’s if they’re lucky.
I hear they have a good , competitive offering. Not sure they are doing bad or any worse than others these days.Your epiphany is pretty much on the money. The cycle I believe began sometime in 2007 and hit the smaller guys first. As for growing and then retracting. The big four will always respond faster than the mid to small size(anything under $500 million). Couple of reasons. The big guys have support staff and a system in place to handle growth because of best technologies used and people on staff who deal with economic and actuarial issues. The smaller guys IF they plan properly will grow their support systems into the growth thus avoiding unplanned dips in the economy that affect them. Some did not. They decided to build an infrastructure first and have the business grow into their system. A somewhat flawed strategy. Some decided that the downturn would not affect them and made some long term strategic agreements that added debt that is difficult to get rid of. Some decided just to spend more money. My philosophy was not to grow the infrastructure ahead of the revenue stream for the reasons you accurately express. Those who can adapt to the problems they did not see will survive , others will not. I don’t think anyone is faulting anyone. These are the facts. Some of them got very arrogant and that usually is bad karma and people read that well.Some organizations thought they became bigger than the industry and are now backtracking in this new world order.Good responding message Kona.Of course, pretty much everyone, whether manufacturer, distributor or retailer is struggling today. And the pain is not going to go away anytime soon. If the high end manufacturers are struggling the most—-a very distinct likelihood—-then they certainly do have themselves to partially blame. After all, those annual (and sometimes semi-annual) 6-8% price increases have now caught up with them. Now price decreases or at a very minimum, consumer rebates, are the norm. Consumers just don’t have the ability, nor desire, to buy so many $8000 refrigerators or $10,000 ranges now as they did in the past. Nor will they in the near future. We will all have to adapt to this new world, particularly the vendors supplying the most expensive appliances. We have all become fat on selling those expensive appliances and it is now "hangover" time—-and no fun at all. I would hope that the Sub Zeros, Vikings, Thermadors, Mieles and Dacors of the world get their costs under control and figure out a way to make and market quality kitchen appliances that can be profitably sold at lower prices than we have seen in 2007 and 2008. If not, there will be fewer companies in that business.
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